nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2007‒12‒01
fourteen papers chosen by
Steve Ross
University of Connecticut

  1. Determinants of Mortgage indebtedness in Canada. By Mario Fortin; Andre Leclerc
  2. Teacher Credentials and Student Achievement in High School: A Cross-Subject Analysis with Student Fixed Effects By Charles T. Clotfelter; Helen F. Ladd; Jacob L. Vigdor
  3. Property Tax in Urban China By Dan Li; Shunfeng Song
  4. Tenancy Default, Excess Demand and the Rental Market By Katherine Cuff and Nicolas Marceau
  5. Are Teacher Absences Worth Worrying About in the U.S.? By Charles T. Clotfelter; Helen F. Ladd; Jacob L. Vigdor
  6. Wealth portfolio of Hungarian households – Urban legends and facts By Gábor Vadas
  7. The statistical properties of the Mutual Information index of multigroup segregation By Ricardo Mora; Javier Ruiz-Castillo
  9. Fiscal Decentralization, Chinese Style: Good for Health Outcomes? By Uchimura, Hiroko; Jütting, Johannes P.
  10. Further Analysis of the Zipf's Law: Does the Rank-Size Rule Really Exist? By Fungisai Nota; Shunfeng Song
  11. The Boom-Bust Cycle in Japanese Asset Prices By Alpanda, Sami
  12. Regional Dispersion of Economic Activities And Models of Capitalism in Europe By Francesca Gambarotto; Stefano Solari
  13. When is Seller Price Setting with Linear Fees Optimal for Intermediaries? By Simon Loertscher; Andras Niedermayer
  14. Payday holiday: how households fare after payday credit bans By Donald P. Morgan; Michael R. Strain

  1. By: Mario Fortin (GREDI, Département d'économique, Université de Sherbrooke); Andre Leclerc (Secteur sciences humaines, Université de Moncton, campus d’Edmundston)
    Abstract: Mortgage indebtedness has risen considerably in Canada in recent years, pushing households’ debt-to-income ratio to an all time high. In order to identify what variables explains these changes in the stock of debt, we analyze the inflow and outflow of mortgage financing. We show that the number of new mortgage loans is mostly influenced by nominal interest rates while their average value reacts only to housing price. As to the outflow of debt repayment it is sensitive to more variables. Since housing price is also strongly influenced by nominal interest rate, we show that the main driving force towards higher Canadian households’ mortgage debt is the reduction in nominal interest rate.
    Keywords: mortgage demand, indebtedness, housing
    JEL: G21 R21
    Date: 2007
  2. By: Charles T. Clotfelter; Helen F. Ladd; Jacob L. Vigdor
    Abstract: We use data on statewide end-of-course tests in North Carolina to examine the relationship between teacher credentials and student achievement at the high school level. The availability of test scores in multiple subjects for each student permits us to estimate a model with student fixed effects, which helps minimize any bias associated with the non-random distribution of teachers and students among classrooms within schools. We find compelling evidence that teacher credentials affect student achievement in systematic ways and that the magnitudes are large enough to be policy relevant. As a result, the uneven distribution of teacher credentials by race and socio-economic status of high school students -- a pattern we also document -- contributes to achievement gaps in high school.
    JEL: I21 J45
    Date: 2007–11
  3. By: Dan Li (First Independent Bank of Nevada, Reno, NV); Shunfeng Song (Department of Economics, University of Nevada, Reno)
    Abstract: This paper examines the urban housing sector of China and proposes a property tax reform. Over the past decade, housing price in urban China has been increasing dramatically because of strong demand for self-use, investment and speculation. The booming housing market, however, has brought several challenges for further development, such as housing affordability, inequality, and possible housing bubble. One strategy is to reform the current property tax system. Specifically, this paper proposes that China significantly reduces taxes in circulation but levies property tax during possession. Doing so will increase housing affordability because of lower transaction costs, reduce speculation because of higher cost of holding, stabilize fiscal system because of more sustainable tax revenues, and improve the efficiency and fairness of the property tax system because of the implementation of “ability-to-pay” and “who use who pay” principles.
    Keywords: Property tax; China
    JEL: R23 R21 H20
    Date: 2007–11
  4. By: Katherine Cuff and Nicolas Marceau
    Abstract: We develop a model of a competitive rental housing market with an endogenous rate of tenancy default arising from income uncertainty. Potential tenants must choose to engage in a costly search for rental housing, and must commit to a rental agreement before the uncertainty is resolved. We show that there are two possible equilibria in this market: a market-clearing equilibrium and an equilibrium with excess demand. Therefore, individuals might not have access to rental housing because they are unable to afford to look for housing, they are unable to pay their rent, or with excess demand in the market they are simply unable to find a rental unit. We show that government regulations affecting the cost of default to the housing suppliers and the quality of rental units can have different effects on the equilibrium variables of interest — rental rate, quantity demanded and supplied, and access to rental housing — depending on the type of equilibria in the market. A numerical example illustrates these results.
    Keywords: Tenancy Default, Excess Demand, Rental Housing Policies
    JEL: R21 R31 R38 D41
    Date: 2007–11
  5. By: Charles T. Clotfelter; Helen F. Ladd; Jacob L. Vigdor
    Abstract: Using detailed data from North Carolina, we examine the frequency, incidence, and consequences of teacher absences in public schools, as well as the impact of an absence disincentive policy. The incidence of teacher absences is regressive: schools in the poorest quartile averaged almost one extra sick day per teacher than schools in the highest income quartile, and schools with persistently high rates of teacher absence were much more likely to serve low-income than high-income students. In regression models incorporating teacher fixed effects, absences are associated with lower student achievement in elementary grades. Finally, we present evidence that the demand for discretionary absences is price-elastic. Our estimates suggest that a policy intervention that simultaneously raised teacher base salaries and broadened financial penalties for absences could both raise teachers' expected income and lower districts' expected costs.
    JEL: I21
    Date: 2007–11
  6. By: Gábor Vadas (Magyar Nemzeti Bank)
    Abstract: As significant part of national wealth, households’ wealth is the central issue in both policy debate and academic literature. Nevertheless, in Hungary little effort has been made so far to conduct thorough evaluation of households’ wealth for the last decade. Under the auspices of ‘the plural of anecdote is not evidence’ axiom, this study provides a formal evaluation of Hungarian wealth and connects the development of wealth elements to economic events. Doing so, as a by-product, we also display the estimated wealth levels of households. Based on international comparison and econometric techniques, it is confirmed that the recent financial wealth level of Hungarian households is still relatively low, meanwhile the current housing wealth is not evidently below the equilibrium level. These results provide an explanation why governmental housing subsidy scheme has its major effect on house prices rather than housing stock. Besides, the soaring house prices, via housing loans, vanished financial savings. The ‘saving disaster’, i.e. small or in some periods even negative saving rates, experienced in early 2000’s, to a certain extent, is the other side of the ‘saving miracle’ of early and mid 90’s when households rearranged their wealth portfolio from real assets to financial assets implying decreasing house prices and high saving rate.
    Keywords: household wealth, housing subsidy scheme, house price.
    JEL: E00 E21 E31 H31
    Date: 2007
  7. By: Ricardo Mora; Javier Ruiz-Castillo
    Abstract: This paper explores the statistical properties of an index of multigroup segregation based on the entropy concept, the Mutual Information (M ) index. In the context of school segregation by ethnic group, the paper establishes that (i) the M index is a monotonic transformation of the likelihood-ratio test for the independence of school and ethnic status, while (ii) the within-group term of the M index for any partition of the set of schools (or ethnic groups) is a monotonic transformation of the likelihood-ratio test for the independence of schools and ethnic groups within the partition in question. This last result is applied to study whether the level of segregation differs significantly within any number of cities, countries or time periods. It is also shown how statistical tests for pair wise comparisons of segregation levels between schools, school districts, ethnic groups, supergroups, cities, countries or time periods can be performed.
    Date: 2007–11
  8. By: Roberto Martínez-Espiñeira (St. Francis Xavier University); Maria A. García-Valiñas (University of Oviedo); Francisco González-Gómez (University of Granada)
    Abstract: In this paper we try to explain differences in the average price of domestic water supply services in Spain, paying special attention to the effects of privatisation of the service on price levels. We base our empirical analysis on the application of a `treatment effects' model on a sample of 53 major urban municipalities. This model accounts for the fact that municipalities do not randomly assign themselves between a group using strictly public ownership and management and a group where all or part of the service has been delegated to a private firm. We find that, once this endogeneity is taken into account, there seems to be a positive and significant effect of privatisation on water price levels.
    Keywords: Urban water services, privatization, water prices
    JEL: C21 L33 L95
    Date: 2007–11–22
  9. By: Uchimura, Hiroko; Jütting, Johannes P.
    Abstract: This study analyzes the effect of fiscal decentralization on health outcomes in China using a panel data set with nationwide county-level data. We find that counties in more fiscal decentralized provinces have lower infant mortality rates compared with those counties in which the provincial government retains the main spending authority, if certain conditions are met. Spending responsibilities at the local level need to be matched with county government’s own fiscal capacity. For those local governments that have only limited revenues, their ability to spend on local public goods such as health care depends crucially upon intergovernmental transfers. The findings of this study thereby support the common assertion that fiscal decentralization can indeed lead to more efficient production of local public goods, but also highlights the necessary conditions to make this happen.
    Date: 2007
  10. By: Fungisai Nota (Department of Resource Economics, University of Nevada, Reno); Shunfeng Song (Department of Economics, University of Nevada, Reno)
    Abstract: The widely-used Zipf’s law has two striking regularities. One is its excellent fit; the other is its close-to-one exponent. When the exponent equals to one, the Zipf’s law collapses into the rank-size rule. This paper further analyzes the Zipf exponent. By changing the sample size, the truncation point, and the mix of cities in the sample, we found that the exponent is close to one only for some selected sub-samples. Small samples of large cities alone provide higher value of the exponent whereas small cities introduce high variance and lower the value of the exponent. Using the values of estimated exponent from the rolling sample method, we obtained an elasticity of the exponent with respect to sample size. We concluded that the rank-size rule is not an economic regularity but a statistical phenomenon.
    Keywords: Zipf's law; Rank-size rule; Rolling sample method
    JEL: C1 R11 R12
    Date: 2007–11
  11. By: Alpanda, Sami
    Abstract: The Japanese economy experienced a substantial increase and a subsequent crash in land and stock prices in the 1980s and 90s. I use a neoclassical growth model to determine how much of these asset price movements can be accounted for by the observed changes in fundamentals of the Japanese economy; in particular changes in productivity growth and government policy regarding land taxation. In the model, corporations issue land-collateralized debt to reduce their tax liabilities and the government follows a land-taxation policy that is countercyclical to land prices. These features substantially magnify the effect of small shocks by reducing the required return on land. With the model calibrated to Japanese data, I find that the observed changes in fundamentals cannot simultaneously account for the movements in asset prices and macroeconomic variables. In particular, with persistent changes in fundamentals, the observed asset prices can be justified, but at the cost of counter-predicting macroeconomic variables.
    Keywords: Japan; land prices; asset pricing; land taxation; general equilibrium.
    JEL: E62 G12 C68 O40
    Date: 2007–11
  12. By: Francesca Gambarotto (University of Padua); Stefano Solari
    Abstract: This study hypothesises that the EU15 contains at least four models of capitalism which rely on some different institutional arrangements. Our aim is to show that some relationship exists between the different institutional settings and the different geographical patterns of development at regional level. After testing the statistical relevance of our territorial areas, we have calculated several concentration and dispersion indexes to the available regional economic data. We conclude that in Europe different institutional macro-configurations do display dissimilar growth models based on rather diverse core-periphery models.
    Keywords: models of capitalism, dispersion of economic activity, core-periphery
    JEL: O11 P25 R12 R58
    Date: 2007
  13. By: Simon Loertscher; Andras Niedermayer
    Abstract: Mechanisms where sellers set the price and are charged a linear commission fee are widely used by real world intermediaries, e.g. by real estate brokers. Empiri- cally these commission fees exhibit very little variance, both across heterogeneous regional markets and over time. So far, there is no theoretical explanation why such seller price setting mechanisms are used and why the linear fees vary so little. In this paper, we first show that in a Bayesian setup seller price setting with linear fees is revenue equivalent to the intermediary optimal direct mechanism derived by Myerson and Satterthwaite (1983) if and only if the seller’s cost is drawn from a generalized power distribution. Whenever such a mechanism is optimal, the fee structure is independent of the distribution from which the buyer’s valuation is drawn. Second, we derive the intermediary optimal direct mechanism when there are many buyers and possibly many sellers and we show that with one seller any standard auction with linear fees and reserve price setting by the seller (which are used e.g. by eBay) implements this mechanism if the seller’s cost is drawn from a power distribution and if buyers’ valuations are identically distributed. Third, we show that when the number of buyers approaches infinity while there is still one seller, seller price setting and price setting by the intermediary are equivalent, intermediary optimal mechanisms.
    Keywords: Brokers; linear commission fees; optimal indirect mechanisms
    JEL: C72 C78 L13
    Date: 2007
  14. By: Donald P. Morgan; Michael R. Strain
    Abstract: Payday loans are widely condemned as a “predatory debt trap.” We test that claim by researching how households in Georgia and North Carolina have fared since those states banned payday loans in May 2004 and December 2005. Compared with households in all other states, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate. North Carolina households have fared about the same. This negative correlation—reduced payday credit supply, increased credit problems—contradicts the debt trap critique of payday lending, but is consistent with the hypothesis that payday credit is preferable to substitutes such as the bounced-check “protection” sold by credit unions and banks or loans from pawnshops.>
    Keywords: Loans, Personal ; Debt ; Finance, Personal ; Households - Economic aspects ; Banking law ; Public welfare
    Date: 2007

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