nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒06‒24
thirty papers chosen by
Peren Arin
Massey University

  1. Incentives and Prosocial Behavior By BENABOU, Roland; TIROLE, Jean
  2. Europe's Demographic Deficit. By Sinn, Hans-Werner
  3. The Choice Between Income and Consumption Taxes: A Primer By Alan J. Auerbach
  4. The Equal Sacrifice Principle Revisited By Peter J. Lambert; Helen T. Naughton
  5. Bevolent Planners, Malevolent Dictators and Democratic Voters By Agell, Jonas; Persson, Mats
  6. Ricardian equivalence and the intertemporal Keynesian multiplier. By Jean-Pascal Bénassy
  7. Income Taxes and Entrepreneurial Choice: Empirical Evidence from Germany By Frank M. Fossen; Viktor Steiner
  8. Corruption and Bureaucratic Structure in a Developing Economy By John Bennett; Saul Estrin
  9. The Institutional and Political Determinants of Fiscal Adjustment By Robert Lavigne
  10. Who’s Afraid of Tax Competition? Harmless Tax Competition from the New European Member States By Amina Lahreche-Revil
  11. How to Integrate Disability Benefits into a System with Individual Accounts: The Chilean Model By Estelle James; Augusto Iglesias Palau
  12. Where are you from? Cultural Differences in Public Good Experiments. By Massimo Finocchiaro Castro
  13. An Age Perspective on Economic Well-Being and Social Protection in Nine OECD Countries By Thai-Thanh Dang; Herwig Immervoll; Daniela Mantovani; Kristian Orsini; Holly Sutherland
  14. On the Economic and Fiscal Effects of Infrastructure Investment in Brazil By Pedro Cavalcanti Gomes Ferreira; Carlos Hamilton Vasconcelos Araújo
  15. Who pays commodity taxes ? Evidence from French reforms, 1987-1999. By Clément Carbonnier
  16. Does Opportunism Pay Off? By Linda Gonçalves Veiga; Francisco José Veiga
  17. Social Security's Financial Outlook: The 2006 Update In Perspective By Alicia H. Munnell
  18. Government Outsourcing: Public Contracting with Private Monopoly By AURIOL, Emmanuelle; PICARD, Pierre
  19. Public Debt and Social Expenditure: Friends or Foes? By Eduardo A. Lora; Mauricio Olivera
  20. Early Retirement, Social Security and Well-Being in Germany By Axel Börsch-Supan; Hendrik Jürges
  21. A New National Retirement Risk Index By Alicia H. Munnell; Anthony Webb; Luke Delorme
  22. The Politics Of Parallel Pensions: Lessons From The United Kingdom For The United States By R. Kent Weaver
  23. From Inactivity to Work: The Role of Active Labour Market Policies By Stéphane Carcillo; David Grubb
  24. The income of the Swedish baby boomers By Flood, Lennart; Klevmarken, Anders; Mitrut, Andreea
  25. Poverty, Government Transfers, and the Business Cycle: Evidence for the United States By Dierk Herzer; Rainer Klump
  26. Power sector reform, private investment and regional co-operation By David Newbery;
  27. Socially Optimal Districting: An Empirical Investigation By Stephen Coate; Brian Knight
  28. Public Health Insurance and SSI Program Participation Among the Aged By Todd Elder; Elizabeth Powers
  29. Environmental Policies and Trade Liberalization: a Time Consistency Issue By CALMETTE, Marie-Françoise
  30. The State Of Private Pensions: Current 5500 Data By Marric Buessing; Mauricio Soto

  1. By: BENABOU, Roland; TIROLE, Jean
    JEL: D64 D82 H41 Z13
    Date: 2003–05
  2. By: Sinn, Hans-Werner
    Abstract: Due to exceptionally low birth rates, the dynamism of Europe will be lagging behind that of other regions of the world for the time being. The paper assembles a rich body of comparative empirical data to clarify the extent of the demographic problems for the EU countries. It advances the view that the low birth rates in part result from early government interventions in terms of socializing the fruits of human capital investment via the pay-as-you-go pension system. To mitigate the extent of socialization, it considers a policy of freezing the contribution rates within the existing pensions systems, forcing the childless to save and providing an additional tax-financed "child pension" tax to parents.
    Keywords: pension system; birth rate; human capital; demography
    JEL: H55 J1
    Date: 2005
  3. By: Alan J. Auerbach
    Abstract: It has now been nearly three decades since the publication of two important volumes that laid out many of the details of how one might implement a progressive consumption tax (Institute for Fiscal Studies, 1978; U.S. Treasury, 1977). Over the years since, many contributions have analyzed the mechanics of the different variants of consumption taxation, the potential efficiency and distributional effects of their adoption, the issues of administration and transition from the current tax system, and the problems relating to certain types of transactions. But much of what we “know” is not part of the general policy discussion and there are important issues that the literature has recognized but still not resolved. The aim of this paper is to lay out the key economic issues involved in deciding whether and how to adopt a consumption tax and to discuss what theory and evidence have told us and could tell us about these issues.
    JEL: H20
    Date: 2006–06
  4. By: Peter J. Lambert (Department of Economics, University of Oregon); Helen T. Naughton (Department of Economics, University of Oregon)
    Abstract: What does an equal sacrifice tax look like in the case of a rank-dependent social welfare function? One's tax liability evidently becomes a function of one's income and one's position in the distribution in such a case, but not much else appears to be known. (Menahem Yaari touched upon the issue in his paper "A controversial proposal concerning inequality measurement", Journal of Economic Theory 1988, but focused only on a poll tax). In this paper, we determine the properties of the equal sacrifice tax for a wide class of rank-dependent social welfare functions, and integrate the theory with that already available for the class of utilitarian social welfare functions. In an additional step, we analyze the equal sacrifice tax for a class of mixed utilitarian and rank-dependent social welfare functions, and finally we review what this synthesis has achieved.
    Keywords: equal sacrifice, income tax, equity.
    JEL: D63 H22 H23
    Date: 2006
  5. By: Agell, Jonas (Dept. of Economics, Stockholm University); Persson, Mats (Institute for International Economic Studies)
    Abstract: We study the size of government and of GDP, under autocratic and democratic rule, respectively. It turns out that first, both democratic and authoritarian rulers apply the Samuelson (1954) criterion when deciding on productive public goods. Second, the labor supply elasticity and the skewness of the ability distribution determine whether democracy or autocracy will lead to the highest output. Third, when the ability distribution is sufficiently skewed, the democratic majority will behave like a rational autocrat, who chooses the tax rate that maximizes tax revenue. Fourth, population ageing in Western societies may lead to the policy preferred by a rational autocrat.
    Keywords: Leviathan; democracy; median voter; redistribution; public goods
    JEL: D70 H20 H40
    Date: 2006–06–16
  6. By: Jean-Pascal Bénassy
    Abstract: We show that Keynesian multiplier effects can be obtained in dynamic optimizing models if one combines both price rigidities and a "non Ricardian" framework where, due for example to the birth of new agents, Ricardian equivalence does not hold.
    Date: 2006
  7. By: Frank M. Fossen (DIW Berlin); Viktor Steiner (Free University of Berlin, DIW Berlin and IZA Bonn)
    Abstract: Entrepreneurial activity is often regarded as an engine for economic growth and job creation. Through tax policy, governments possess a potential lever to influence the decisions of economic agents to start and close small businesses. In Germany, the top marginal income tax rates were reduced exclusively for entrepreneurs in 1994 and 1999/2000. These tax reforms provided two naturally defined control groups that enable us to exploit the legislation changes as "natural experiments". First, the tax rate reductions did not apply to freelance professionals (Freiberufler), and second, entrepreneurs with earnings below a certain threshold were not affected. Using data from two different sources, the SOEP and the Mikrozensus (LFS), we analyse the effect of the tax cuts on transitions into and out of selfemployment and on the rate of self-employment. We apply a "difference-in-difference-indifference" estimation technique within a discrete time hazard rate model. The results indicate that the decrease in tax rates did not have a significant effect on the self-employment decision.
    Keywords: taxation, entrepreneurship, natural experiment, difference-in-difference-indifference estimation
    JEL: H24 H25 J23
    Date: 2006–06
  8. By: John Bennett (Brunel University); Saul Estrin (London Business School and IZA Bonn)
    Abstract: We address the impact of corruption in a developing economy in the context of an empirically relevant hold-up problem - when a foreign firm sinks an investment to provide infrastructure services. We focus on the structure of the economy’s bureaucracy, which can be centralized or decentralized, and characterize the ‘corruptibility’ of bureaucrats in each case. Results are explained in terms of the non-internalization, under decentralization, of the ‘bribe externality’ and the ‘price externality.’ In welfare terms, decentralization is favoured, relatively speaking, if the tax system is less inefficient, funding is less tight, bureaucrats are less venal, or compensation for expropriation is ungenerous.
    Keywords: corruption, bureaucratic structure, developing economy
    JEL: D73 H11 H77
    Date: 2006–06
  9. By: Robert Lavigne
    Abstract: The author empirically assesses the effects of institutional and political factors on the need and willingness of governments to make large fiscal adjustments. In contrast to earlier studies, which consider the role of political economy determinants only during periods of fiscal consolidation, the author expands the field of analysis by examining periods when governments should be making fiscal efforts but fail to do so (or do not try), as well as periods when no adjustment is required. To analyze this greater range of fiscal situations, a multinomial logit framework is applied to a panel of 61 advanced and developing countries, generating a sample size significantly larger than previous work. A key finding is that the political economy factors favouring the maintenance of sensible fiscal policies are different from those that increase the probability of achieving an exceptional adjustment. For instance, the results for developing countries indicate that sound economic institutions help governments avoid dire fiscal situations; however, those countries that actually succeed in making lasting adjustments in the face of a serious need tend to have weak institutions. There is also some evidence that high levels of transfers and subsidies diminish the probability of successful adjustment in developing countries, and that legislative majorities improve the odds. In advanced countries, strong democratic institutions appear to increase the likelihood of avoiding situations of fiscal distress.
    Keywords: Fiscal policy; Econometric and statistical methods; Development economics; International topics
    JEL: E62 O17 O19
    Date: 2006
  10. By: Amina Lahreche-Revil
    Abstract: This paper investigates the tax sensitivity of foreign direct investment (FDI) in the context of EU enlargement to Eastern European countries. Using two alternative specifications of a gravity equation, it shows that the E25 is heterogeneous as far as FDI location determinants are concerned. However, the results are at odds with usual consensus:while tax differentials do impact on FDI in the EU15, they are shown to have had no impact on the new member states during the period of analysis (1990-2002). Similarly, other factors such as unit labor costs and price-competitiveness fail to explain FDI inflows to the new EU member states. Simulation exercises run on statutory taxation attend to assess empirically the impact of various tax convergence scenarios. They are shown to imply limited changes in FDI inflows, on the basis of FDI flows and tax differentials observed in 2002.
    Keywords: Tax competition; FDI; EU enlargement; Eastern Europe; transition; convergence
    JEL: F21 F36 H25 H87
    Date: 2006–06
  11. By: Estelle James (Urban Institute); Augusto Iglesias Palau (PrimAmerica)
    Abstract: Chile offers an innovative approach to disability insurance within a multi-pillar social security system. The individual’s retirement savings account is used as part of his disability insurance, but if he becomes disabled the account is topped up enough to finance a defined benefit annuity that pays 70% of the reference wage. This is accomplished primarily through the private insurance market, but with government providing regulations and back-up guarantees. The private pension funds and insurance companies that participate in the assessment process have a pecuniary interest in keeping costs low, unlike most public systems that are run by agencies without a personal incentive to contain costs. The individual accounts, used for old age retirement savings, help to finance the disability and survivors’ insurance as a joint product. This further keeps costs down and makes the system less sensitive to demographic shocks than a public pay-as-you-go system would be. However, pre-funding a defined benefit makes system costs much more sensitive to interest rate shifts. The defined benefit reduces risk to the worker but non-differentiated pricing creates cross-subsidies and, in a competitive market, incentives for creaming. Some of the cost reductions to the private insurance may imply a larger future public obligation, due to the minimum pension guarantee. This study examines the potential successes and pitfalls of this mixed public-private funded system of disability insurance and evaluates whether it provides a useful model for the US and other countries.
    Date: 2006–02
  12. By: Massimo Finocchiaro Castro (Department of Economics, Royal Holloway, University of London)
    Abstract: We study the effect of cultural differences on contributions in a public good experiment, analysing real-time interactions between Italian and British subjects in their home countries. In the first treatment, subjects play in nationally-homogeneous groups. In the second treatment, Italian and British subjects play in heterogeneous groups, knowing the nationality of the group members. In the third treatment, we control for a possible “country effect” by giving players no information on nationality. The data suggest that, in homogeneous groups, British subjects contribute significantly more to the public good; contributions are lower in heterogeneous groups; there is no country effect.
    Keywords: public goods, experiments, real time interactions, cultural differences
    JEL: C92 H41 Z13
    Date: 2006–06
  13. By: Thai-Thanh Dang; Herwig Immervoll; Daniela Mantovani; Kristian Orsini; Holly Sutherland
    Abstract: For a number of reasons, incomes vary strongly with age. The nature of this variation is of interest for a wide range of policy purposes. Since age structures differ across countries, knowledge about the incomes earned by different age groups is also necessary for understanding and interpreting international comparisons of overall inequality. This paper quantifies the economic well-being of different age groups and the extent to which they rely on incomes from public and private sources. The analysis aims at establishing how social benefits, and the taxes needed to finance them, affect income levels and income disparities across different age groups. Results are compared across nine OECD countries. Les revenus varient grandement avec l’âge pour un certain nombre de raisons. La nature de ces variations est intéressante à plus d’un égard à des fins politiques. Comme la structure des âges diffère d’un pays à l’autre, l’information relative aux revenus perçus par les différents groupes d’âge est aussi nécessaire pour comprendre et interpréter les comparaisons internationales de l’inégalité. Ce document quantifie le bien-être économique des différents groupes d’âge et montre dans quelle mesure ces derniers dépendent de revenus provenant de sources publiques et privées. L’analyse tend à établir comment les prestations sociales, ainsi que les impôts et contributions sociales devant les financer, influencent les niveaux et les disparités des revenus parmi différents groupes d’âge. Le document compare les résultats pour neuf pays de l’OCDE.
    JEL: C81 D31 H22 H55
    Date: 2006–06–09
  14. By: Pedro Cavalcanti Gomes Ferreira (EPGE/FGV); Carlos Hamilton Vasconcelos Araújo (Banco Central do Brasil)
    Date: 2006–03
  15. By: Clément Carbonnier
    Abstract: The point of this paper is to measure empirically the distribution of the commodity tax burden between consumers and producers. For that purpose, two French reforms are studied. These reforms are steep decreases of the VAT rate on housing repair services on the one hand, and on new car sales on the other hand, the last sector being far more concentrated. The consumer share of the commodity tax burden is 77% in the housing repair services market and 52% in the new car sales market. That confirms the theoretical result of the consumer share increasing with the competition level. This result may influence recommendations about differentiated commodity tax rates.
    Date: 2006
  16. By: Linda Gonçalves Veiga (Universidade do Minho - NIPE); Francisco José Veiga (Universidade do Minho - NIPE)
    Abstract: This article tests the hypothesis that the opportunistic manipulation of financial accounts by mayors increases their chances of re-election. Working with a large and detailed dataset comprising all Portuguese mainland municipalities, which covers the municipal elections that took place from 1979 to 2001, we clearly show that increases in investment expenditures and changes in the composition of spending favouring highly visible items are associated with higher vote percentages for incumbent mayors seeking re-election. Our results also indicate that the political payoff to opportunistic spending increased after democracy became well-established in the country.
    Keywords: Voting functions, opportunism, local governments, elections, Portugal.
    JEL: D72 H72
    Date: 2006
  17. By: Alicia H. Munnell (Center for Retirement Research)
    Abstract: The Social Security Trustees have just issued their 2006 Report on the financial outlook for the system. The Report uses three sets of cost assumptions — high, low, and intermediate. This brief focuses on the intermediate assumptions and puts this year's numbers in perspective
    Keywords: Social Security, financial outlook, retirement
    Date: 2006–06–12
  18. By: AURIOL, Emmanuelle; PICARD, Pierre
    JEL: L43 L51 D82 L33
    Date: 2006–01
  19. By: Eduardo A. Lora (Research Department, Inter-American Development Bank); Mauricio Olivera (George Washington University)
    Abstract: This paper assesses the effects of total public debt (external and domestic) on social expenditure worldwide and in Latin America using an unbalanced panel of around 50 countries for the period 1985-2003. The most robust and important finding is that higher debt ratios do reduce social expenditures, as popular opinion holds. This effect comes mostly from the stock of debt and not from debt service payments, indicating that debt displaces social expenditures not so much because it raises the debt burden, but because it reduces the room (or the appetite) for further indebtedness. Loans from multilateral organizations like the World Bank or the Inter-American Development Bank do not seem to ameliorate the adverse consequences of debt on social expenditures. In accordance with popular wisdom, our results indicate that defaulting on debt obligations does help to increase social expenditures. Nonetheless, Latin America is different in some respects. The adverse effects of debt and debt-interest payments are significantly stronger in the region, which makes defaults more beneficial to social expenditures. While many of these conclusions are very heterodox, their main policy implication is not; there is no better way to protect social expenditures than to avoid overindebtedness,especially in Latin America.
    Keywords: Public debt, social expenditure, Latin America, debt burden, interest payments, international financial institutions, external debt, default.
    Date: 2006–05
  20. By: Axel Börsch-Supan; Hendrik Jürges
    Abstract: Germans retire early. On the one hand, early retirement is very costly and amplifies the burden which the German public pension system has to carry due to population aging. On the other hand, however, early retirement is also seen as a much appreciated social achievement which increases the well-being especially of those workers who suffer from work-related health problems. This paper investigates the relation between early retirement and well-being using the GSOEP panel data. The general picture that emerges from our analysis is that early retirement as such seems to be related to subjective well-being, in fact more so than normal retirement. Early retirement most probably is a reaction to a health shock. Individuals are less happy in the year of early retirement than in the years before and after retirement. After retirement, individuals attain their pre-retirement satisfaction levels after a relatively short while. Hence, the early retirement effect on well-being appears to be negative and short-lived rather than positive and long. Whether this is an effect of retirement itself or a psychological adaptation to an underlying shock cannot be identified in our data and remains an open research issue waiting for a more objective measurement of health.
    Date: 2006–06
  21. By: Alicia H. Munnell (Center for Retirement Research); Anthony Webb (Center for Retirement Research); Luke Delorme (Center for Retirement Research)
    Abstract: Americans weaned on post-war affluence have come to expect an extended period of leisure at the end of their work life. And, indeed, the majority of today’s retirees are able to afford a decent retirement. However, this group is living in a “golden age” that will fade as Baby Boomers and Generation Xers reach traditional retirement ages in the coming decades. This gloomy prediction reflects the trend towards longer retirements and likely declines in retirement incomes relative to pre-retirement earnings — known as replacement rates. Because many Americans appear unaware of these disquieting trends, the Center for Retirement Research at Boston College has developed the National Retirement Risk Index. The Index measures the share of working-age households who are at risk of being unable to maintain their pre-retirement standard of living in retirement. The Index shows that, even if people retire at age 65 and households annuitize all their wealth including the receipts from reverse mortgages on their homes, 43 percent will be at risk. But the situation is not hopeless — if people choose to work longer — even just two years — and save 3 percent more, they can substantially improve the outlook for their retirement security.
    Keywords: national retirement risk index, retirement, standard of living
    Date: 2006–06–12
  22. By: R. Kent Weaver (Center for Retirement Reseach)
    Abstract: Opt-out pensions pose many difficult design and implementation issues. The U.K. experience suggests several valuable lessons for U.S. policymakers. First, complex interactions between public and opt-out pensions may create confusion among workers, leading to both discontent and demands for policy change. Second, allowing recurrent opportunities to opt into and out of individual accounts increases administrative complexity, increases choice complexity for workers, and may undermine system legitimacy—but it may also be politically unavoidable. Third, the market may not, unprompted, provide personal pension vehicles that are appropriate retirement savings vehicles for low-earners, especially those who have interrupted earnings records. Fourth, price indexation of wage histories may create pressures for ad hoc policy change. Fifth, increased reliance on means-tested pensions increases administrative complexity and creates perverse incentives for savings and for types of assets held, especially where assets as well as income-tests are involved. Sixth, an option for quasi-privatized pensions leads to pressures to treat those pensions more like fully private pensions with respect to flexibility in withdrawals, inheritability, and ability to borrow against fund balances. Seventh, annuitization costs can add significantly to pension system costs and inequality across cohorts, so the state may want to take on the role of monopoly annuity provider. Eighth, scandals and failures drive policymakers and consumer responses, so it is important to get the policy design right the first time and invest heavily in public understanding of how the reform will work. A final lesson is that scandals, policy tinkering, and uncertainty over pension policy may affect workers’ propensity to opt out of state pensions in unpredictable ways—not just driving people to exit from the state system.
    Keywords: pensions, united kingdom, united states, retirement,
    Date: 2006–06–12
  23. By: Stéphane Carcillo; David Grubb
    Abstract: Many OECD countries have in recent decades experienced periods of relatively rapid growth in nonemployment benefit expenditures and recipiency rates which have not subsequently been reversed. By contrast, in a number of OECD countries the number of unemployment benefit recipients has declined fairly sharply since the mid-1990s. Although national situations for particular benefits vary greatly, a variety of evidence suggests that there is now often substantial scope for bringing people currently in the sick and disabled, lone-parent, old-age and non-categorical social assistance groups into employment. De nombreux pays de l’OCDE ont fait l’expérience ces dernières décennies d’une hausse des prestations de non emploi, tant en termes de dépenses qu’en termes de taux de perception, sans que cette tendance ait été inversée. En comparaison, dans un certain nombre de pays, le nombre de bénéficiaires de prestations de chômage a connu une nette décrue depuis la seconde moitié des années quatre-vingt-dix. Bien que la situation pour chaque type de prestation varie fortement selon les pays, un certain nombre d’éléments suggèrent qu’il existe désormais des marges de manoeuvre pour ramener vers l’emploi des personnes qui bénéficient actuellement de prestations au titre de la maladie, du handicap, de leur statut de parents isolés, de leur âge, ainsi que les bénéficiaires de l’assistance sociale non catégorielle.
    JEL: H53 I38 J20 J68
    Date: 2006–06–15
  24. By: Flood, Lennart (Department of Economics, School of Business, Economics and Law, Göteborg University); Klevmarken, Anders (Department of Economics, Uppsala University); Mitrut, Andreea (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper study the income of Swedish households belonging to the baby boom generation, i.e those born in the 1940-50. An international comparison as well as an historical presentation of income patterns is given. However, the main purpose is to generate the future income of the baby boom generation as they get older. A major result is that the income standard of the young-old will become much higher than that of the very old. If our simulations bear the stamp of realism they suggest that we will see new and large poverty in Sweden among the very old in the future. The pension system contributes to this result. The "front loaded" design gives with its reduced wage indexation a higher income immediately after retirement but a much lower income at older age. From this perspective it is unfortunate that so much attention is given to the discussion of replacement rates. The replacement rate, although interesting in itself, completely miss the long run effect and just provides a comparison of incomes shortly after with incomes before retirement. If we instead focus on the relative income of older pensioners the results become quite different. Our results challenge the conception of a sustainable pension system. If the relative income of older pensioner’s drops and at the same time expenditures for health and care increase, one might wonder how the old in our society will make both ends meet. If pensions become too small to meet "minimum standards" the requirement of financial sustainability of the pension system results in an increasing financial burden on other parts of the general social protection system. <p>
    Keywords: Pensions; Replacement rates; Disposable income; Poverty rates
    JEL: H24 H31 H55
    Date: 2006–06–09
  25. By: Dierk Herzer (Ibero-Amerika Institut der Universität Göttingen, Johann Wolfgang Goethe-Universität, Frankfurt/M.); Rainer Klump (Johann Wolfgang Goethe-Universität Frankfurt/Main)
    Abstract: We examine the impact of government transfers and the business cycle on poverty in the United States in the context of a poverty function that includes the official poverty rate, three types of government transfers, real wages, the number of female-headed families, and a business cycle variable. Using cointegration techniques, we find ─ contrary to most previous studies ─ that government transfer programs play an important poverty-reducing role. In addition, the findings suggest that the business cycle is one of the key variables in explaining poverty in the US. Furthermore, the empirical results show that the size and composition of public transfer payments change over the business cycle. We also find poverty to have a significant effect on government transfers, the business cycle, and the structure of households.
    Date: 2006–06–08
  26. By: David Newbery;
    Abstract: Modern infrastructure, particularly electricity, is critical to economic development. South Asia, with inefficient and bankrupt state-owned vertically integrated electricity supply industries, encouraged private generation investment to address shortages selling power to largely unreformed state electricity boards, exacerbating financial distress. Reforming the SEBs is an essential first step, followed by privatisation to sustain reform. Reducing losses and increasing plant load factors yield far higher returns than generation investment, where India and Pakistan under-price and exceed predicted levels of electric intensity. Private investors will require assurances that the contracts needed for IPPs are honoured, that legal disputes are efficiently and fairly resolved, subject to fall-back international arbitration, and that their purchasers are credit-worthy. This is easier with cheap gas, which is available to Bangladesh, but scarce in India. Regional energy trade would therefore do much to improve the investment climate, and a South Asia Energy Charter could underwrite increased energy trade.
    Keywords: infrastructure, electricity, direct foreign investment, gas, privatisation, regional co-operation, South Asia
    JEL: H54 K23 L32 L94 Q48 R58
    Date: 2006–06
  27. By: Stephen Coate; Brian Knight
    Abstract: This paper provides an empirical exploration of the potential gains from socially optimal districting. As emphasized in the political science literature, districting matters because it determines the seat-vote curve, which relates the fraction of seats parties obtain to their share of the aggregate vote. Building on the theoretical work of Coate and Knight (2006), which develops and analyzes the optimal seat-vote curve, this paper develops a methodology for computing actual and optimal seat-vote curves and for measuring the potential welfare gains that would emerge from implementing optimal seat-vote curves. This method is then applied to analyze districting plans in place during the 1990s to elect U.S. State legislators. The analysis shows that the plans used by the states in our data set generate seat-vote curves that are overly responsive to changes in voters' preferences. While there is significant variation across states, the potential welfare gains from implementing optimal seat-vote curves are on average small relative to the overall surplus generated by legislatures. This appears to be because seat-vote curves are reasonably close to optimal rather than because aggregate welfare is insensitive to varying districting plans. Interestingly, implementing proportional representation would produce welfare levels quite close to those achieved by implementing optimal seat-vote curves.
    JEL: D7 H7
    Date: 2006–06
  28. By: Todd Elder (University of Illinois at Urbana-Champaign); Elizabeth Powers (University of Illinois at Urbana-Champaign)
    Abstract: Previous researchers have noted that the ‘categorical’ Medicaid eligibility accompanying the welfare programs Aid to Families with Dependent Children (AFDC) and Supplemental Security Income (SSI) often far exceeds the value of these programs’ cash benefits. It may be the case that the accompanying health insurance, not the cash benefit, is often the decisive factor in welfare participation. If so, welfare participation should decrease when cash and health insurance benefits are unbundled. We present a simple model of program participation with heterogeneous valuation of health insurance and transaction costs of participation. We evaluate the following four implications of the model: 1) SSI participation declines with the expansion of alternative routes to Medicaid (i.e., noncategorical Medicaid); 2) the availability of noncategorical Medicaid increases Medicaid participation among SSI nonparticipating eligibles; 3) the average SSI benefit collected by welfare recipients is higher when noncategorical Medicaid is available; and 4) the average SSI benefit rejected by nonparticipating SSI eligibles is higher when noncategorical Medicaid is available. Overall, the findings on the model’s testable implications are mixed. The estimates imply strikingly large effects of the presence of alternative routes to Medicaid on both SSI and Medicaid participation, but the results for the hypotheses about SSI benefit amounts are sensitive to controls for recipient characteristics.
    Date: 2006–05
  29. By: CALMETTE, Marie-Françoise
    JEL: F12 F18 H21
    Date: 2005–11
  30. By: Marric Buessing (Center for Retirement Research); Mauricio Soto (Center for Retirement Research)
    Abstract: Every year, pension plan sponsors are required to file a return with the U.S. Department of Labor. These returns, known as the Form 5500 series, contain detailed information about the plans' finances, participants, and administrators that allows government agencies to monitor compliance with the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. The comprehensive nature of the Form 5500 series makes them a primary source for examining the state of the private pension world: from participation rates to financial health to 401(k) investment in company stock to the size of employer contributions — it is all there. Unfortunately, these rich data are not available in a timely manner. The data from the "Private Pension Plan Bulletins Abstract of Form 5500 Annual Reports" — the official tabulations put out by the Department of Labor commonly used by practitioners and researchers — have a five-year lag. Sponsors have up to ten months to file the forms, and it can take up to two years to convert the raw forms, which generally are filed in paper, into a manageable and complete dataset. Then, these data must be cleaned, analyzed, and tabulated. The resulting lag meant that as of early 2006, official tabulations were available only up to 2000. This brief uses raw 5500 Form data from the Department of Labor to extend the tabulations to 2003 — the latest year in which the datasets are available. The estimations are done for the 1990-2003 period, and are presented as a data appendix to this brief. The 1990-2000 numbers match closely those from official reports; the 2001-2003 calculations bring the tabulations as up-to-date as currently possible. Using these recent data, this brief highlights trends that are impossible to observe in the current official releases: a notable increase in pension contributions for defined benefit plans; the decline and recovery of pension assets in the 2001-2003 period; the continued use of cash balance plans; and the sustained move in coverage towards defined contribution plans.
    Keywords: pension plans, retirement, Employee Retirement Income Security Act
    Date: 2006–06–12

This nep-pbe issue is ©2006 by Peren Arin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.