nep-ure New Economics Papers
on Urban and Real Estate Economics
Issue of 2013‒01‒19
25 papers chosen by
Steve Ross
University of Connecticut

  1. House Prices, Consumption and the Role of Non-Mortgage Debt By Katya Kartashova; Ben Tomlin
  2. The effect of local housing ordinances By Thomas J Fitzpatrick IV; Lisa A. Nelson; Francisca G-C Richter; Stephan Whitaker
  3. Minority and Immigrant Homeownership Experience: Evidence from the 2009 American Housing Survey By Mundra, Kusum
  4. Competitiveness of Port-Cities: The Case of Marseille-Fos - France By Olaf Merk; Claude Comtois
  5. The Treatment Effect of Attending a High-Quality School and the Influence of Unobservables By Ronny Freier; Johanna Storck
  6. Do Housing Prices Reflect Environmental Health Risks? Evidence from More than 1600 Toxic Plant Openings and Closings By Janet Currie; Lucas Davis; Michael Greenstone; Reed Walker
  7. Wealth Effects Revisited: 1975-2012 By Karl E. Case; John M. Quigley; Robert J. Shiller
  8. Economic well-being and distributional effects of housing-related policies in 3 European countries By Maestri, Virginia
  9. The multiregional core-periphery model: The role of the spatial topology By Barbero, Javier; Zofío, José Luis
  10. The impact of sampling variation on peer measures: a comment on a proposal to adjust estimates for measurement error By Pedro N. Silva; John Micklewright; Sylke V. Schnepf
  11. Financing Green Urban Infrastructure By Olaf Merk; Stéphane Saussier; Carine Staropoli; Enid Slack; Jay-Hyung Kim
  12. Primum vivere… Industrial Change, Job Destruction and the Geographical Distribution of Unemployment By Pastore, Francesco
  13. Matching models and housing markets: the role of the zero-profit condition By Gaetano Lisi
  14. Distance Effects, Social Class and the Decision to Participate in Higher Education in Ireland By Cullinan, John; Flannery, Darragh; Walsh, Sharon; McCoy, Selina
  15. R&D INCENTIVES: THE EFFECTIVENESS OF A PLACE-BASED POLICY By Marco Corsino; Roberto Gabriele; Anna Giunta
  16. Does local council size affect land development expenditure? Quasi-experimental evidence from Japanese municipal data By Hirota, Haruaki; Yunoue, Hideo
  17. Early, Late or Never? When Does Parental Education Impact Child Outcomes? By Dickson, Matt; Gregg, Paul; Robinson, Harriet
  18. Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real-Estate Market By Agarwal, Sumit; Ben-David, Itzhak; Yao, Vincent
  19. Local government revenue mobilisation in Anglophone Africa By Odd-Helge Fjeldstad; Kari Heggstad
  20. 베이지안 추정법을 이용한 주택선택의 다항프로빗 모형 분석 By Park, Sang Soo; Lee, Chung-Ki
  21. Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the U.S. and the Netherlands By Paul E. Carrillo; Erik Robert De Wit; William D. Larson
  22. Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program By Agarwal, Sumit; Amromin, Gene; Ben-David, Itzhak; Chomsisengphet, Souphala; Piskorski, Tomasz; Seru, Amit
  23. Consumption and Wealth in the US, the UK and the Euro Area:A Nonlinear Investigation By Fredj Jawadi; Ricardo M. Sousa
  24. Isolated Capital Cities and Misgovernance: Theory and Evidence By Campante, Filipe R.; Do, Quoc-Anh; Guimaraes, Bernardo
  25. Cyclically adjusted local government balances By Eugenia Panicara; Massimiliano Rigon; Gian Maria Tomat

  1. By: Katya Kartashova; Ben Tomlin
    Abstract: This paper examines the relationship between house prices and consumption, through the use of debt. Using unique Canadian household-level data that reports the uses of debt, we begin by looking at the relationship between house prices and debt. Using quantile regression, we find a positive and significant relationship between regional house prices and total household debt all along the conditional debt distribution. This suggests that the household-level relationship between house prices and debt goes beyond the purchase of real estate. We then find a positive relationship between house prices and non-mortgage debt (the sum of secured lines of credit, unsecured lines of credit, leases and other consumer loans, except for credit cards) for homeowners. Combining these results with the reported uses of non-mortgage debt allows us to connect house prices and nonhousing consumption - this connection is new to the literature on house prices and consumption. We conclude that the increases in house prices over the 1999-2007 period were, indeed, associated with an increase in non-mortgage debt and non-housing consumption. Our results can be thought of as the establishment of a conservative lower bound for the overall relationship between house prices and aggregate consumption.
    Keywords: Credit and credit aggregates; Domestic demand and components
    JEL: E21 D10 D14 D31
    Date: 2013
  2. By: Thomas J Fitzpatrick IV; Lisa A. Nelson; Francisca G-C Richter; Stephan Whitaker
    Abstract: The housing and economic crises have exerted a strong and lingering impact on housing markets across the nation. In this paper, we assess the degree to which local anti-blight policies have infl uenced housing market outcomes following the crises. The analysis is performed for cities in Cuyahoga County, Ohio. We measure outcomes that characterize market distress and that may be influenced by local housing ordinances including foreclosure, bulk sales, flipping, vacancy, and tax delinquency. Using matching procedures on linked data containing property, loan, and transaction characteristics, we compare outcomes across properties in regulated and unregulated municipalities. Point of sale inspections and vacancy registrations both decrease the probability that homes are flipped (resold within two years). We find that point of sale inspections are positively associated with foreclosures, property tax delinquency, and sales prices below the tax assessed value. The inspections may be revealing the need for expensive repairs in some homes, which could push borrowers underwater and into foreclosure. We find evidence that vacancy registration requirements do lower vacancy. The discussion around policies for housing market recovery, for the most part, has addressed efforts at the federal level. This analysis integrates in discussion of efforts and policies arising at the local level.
    Keywords: Land use ; Housing policy ; Housing
    Date: 2012
  3. By: Mundra, Kusum (Rutgers University)
    Abstract: Using data from the 2009 American Housing Survey and Hazard Model, this paper provides empirical evidence that the homeownership experience during the recent housing boom and housing bust was not homogenous across all groups in the U.S. The recent deterioration of underwriting practices and a boom in mortgage lending did not benefit minorities and immigrant homeownership in the U.S. Blacks experienced significantly lower increase in homeownership than the whites but highest exit from homeownership particularly if they obtained the mortgage during subprime boom period from 2004 – 2006. Hispanics, on the other hand, did not experience significant increase in homeownership and neither did they face a higher exit from homeownership compared to whites. However, Hispanic immigrants were worse off in the recent housing market than Hispanic natives. Immigrants were worse off in the recent housing market than the natives, but naturalized immigrants fared better than the non-naturalized immigrants.
    Keywords: homeownership, exit, subprime, minorities, immigrants, citizenship, hazard model
    JEL: J15 J11 R21
    Date: 2013–01
  4. By: Olaf Merk; Claude Comtois
    Abstract: This working paper offers an evaluation of the performance of the port of Marseille-Fos, an analysis of the impact of the port on its territory and an assessment of policies and governance in this field. It examines declining port performance over the last decades and identifies the principal factors that have contributed to it. The effect of the ports on economic and environmental questions is studied and quantified where possible. The value added of the port cluster of Marseille-Fos is calculated and its interlinkages with other economic sectors and other regions in France delineated. The paper outlines the impact of the ports? operations, and shows how their activities spill over into other regions than the one in which the port of Marseille-Fos is located. The major policies governing the ports are assessed, along with policies governing transport and economic development, the environment and spatial planning. These include measures instituted by the port authorities, as well as by local, regional and national governments. Governance mechanisms at these different levels are described and analysed. Based on the report?s findings, recommendations are proposed with a view to improving port performance and increasing the positive effects of the port of Marseille-Fos on its territory.
    Keywords: transportation, ports, regional development, regional growth, urban growth, inter-regional trade, input-output
    JEL: D57 L91 R11 R12 R15 R41
    Date: 2012–12–19
  5. By: Ronny Freier; Johanna Storck
    Abstract: This paper studies the effect of attending a high-quality secondary school on subsequent educational outcomes. The analysis is based on data from the German Socio-Economic Panel Study in which we observe children when they make their secondary school choice (between ages 10-12) and later when they self-report on their intentions with regard to their further educational path (between ages 16-17). To identify the treatment effect, we use a regression-control framework as well as an instrumental variable approach (based on local supply of schools). In a second step, we carefully examine the influence of unobservable characteristics, using the new technique proposed by Altonji, Elder, and Taber (2005b). Our findings suggest that unobservable characteristics are indeed crucial to the validity of the research design. While we find large positive and significant effects of attending a high-quality school, we cannot rule out that the estimates are not in fact driven by selection on unobservables.
    Keywords: secondary school choice, school quality, instrumental variable estimation, selection on unobservables
    JEL: I20 I21
    Date: 2012
  6. By: Janet Currie; Lucas Davis; Michael Greenstone; Reed Walker
    Abstract: A ubiquitous and largely unquestioned assumption in studies of housing markets is that there is perfect information about local amenities. This paper measures the housing market and health impacts of 1,600 openings and closings of industrial plants that emit toxic pollutants. We find that housing values within one mile decrease by 1.5 percent when plants open, and increase by 1.5 percent when plants close. This implies an aggregate loss in housing values per plant of about $1.5 million. While the housing value impacts are concentrated within 1/2 mile, we find statistically significant infant health impacts up to one mile away.
    JEL: D62 I18 Q51 Q53
    Date: 2013–01
  7. By: Karl E. Case; John M. Quigley; Robert J. Shiller
    Abstract: We re-examine the links between changes in housing wealth, financial wealth, and consumer spending. We extend a panel of U.S. states observed quarterly during the seventeen-year period, 1982 through 1999, to the thirty-seven year period, 1975 through 2012Q2. Using techniques reported previously, we impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating per capita consumption to per capita income and wealth. We find a statistically significant and rather large effect of housing wealth upon household consumption. This effect is consistently larger than the effect of stock market wealth upon consumption. In our earlier version of this paper we found that households increase their spending when house prices rise, but we found no significant decrease in consumption when house prices fall. The results presented here with the extended data now show that declines in house prices stimulate large and significant decreases in household spending. The elasticities implied by this work are large. An increase in real housing wealth comparable to the rise between 2001 and 2005 would, over the four years, push up household spending by a total of about 4.3%. A decrease in real housing wealth comparable to the crash which took place between 2005 and 2009 would lead to a drop of about 3.5%
    JEL: E02 G1 R31
    Date: 2013–01
  8. By: Maestri, Virginia
    Abstract: This paper evaluates the redistributive effect of a comprehensive set of housing-related policies, taking into account the housing advantage of homeowners and social tenants. We use the Euromod microsimulation model to simulate housing policies in Estonia, Italy and the United Kingdom. Disentangling the contribution to inequality and poverty of each housing-related policy, we find that the current design of property taxes is not progressive and that other housing policies have a limited impact on inequality in Estonia and on both inequality and relative poverty in Italy. In all three countries, housing-related policies favor the elderly.
    Date: 2012–12–19
  9. By: Barbero, Javier (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Zofío, José Luis (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: We use the multiregional core-periphery model of the new economic geography to analyze and compare the agglomeration and dispersion forces shaping the location of economic activity for a continuum of network topologies characterized by their degree of centrality, and comprised between two extremes represented by the homogenous (ring) and the heterogeneous (star) configurations. Resorting to graph theory, we systematically extend the analytical tools and graphical representations of the core-periphery model for alternative spatial configuration, and study the stability of the alternative equilibria in terms of the sustain and break points. We study new phenomena such as the absence of any stable distribution of economic activity for some range of transport costs, and the infeasibility of the dispersed equilibrium in the heterogeneous space, resulting in the introduction of the concept pseudo flat-earth as a long run-equilibrium corresponding to an uneven distribution of economic activity between regions.
    Keywords: New economic geography; graph theory; degree of centrality; bifurcation; equilibria and stability analysis.
    JEL: C62 C63 F12 R12
    Date: 2012–11
  10. By: Pedro N. Silva (Instituto Brasileiro de Geografia e Estatística, Rio de Janeiro); John Micklewright (Department of Quantitative Social Science, Institute of Education, University of London); Sylke V. Schnepf (Southampton Statistical Sciences Research Institute and School of Social Sciences, University of Southampton)
    Abstract: Investigation of peer effects on pupil’s achievement with survey data on samples of schools and pupils within schools may mean that only a random sample of peers is observed for each individual pupil. This generates classical measurement error on peer variables. Hence under OLS model fitting the estimated peer group effects in a regression model are biased towards zero (attenuation). A simple adjustment for this kind of measurement error was proposed by Neidell and Waldfogel (2008). We review the derivation of the simple adjustment and suggest that it is not properly justified.
    Keywords: Peer effects, measurement error, school surveys, sampling variation.
    JEL: C21 C81 I21
    Date: 2012–12–20
  11. By: Olaf Merk; Stéphane Saussier; Carine Staropoli; Enid Slack; Jay-Hyung Kim
    Abstract: This paper presents an overview of practices and challenges related to financing green sustainable cities. Cities are essential actors in stimulating green infrastructure; and urban finance is one of the promising ways in which this can be achieved. Cities are key investors in infrastructure with green potential, such as buildings, transport, water and waste. Their main revenue sources, such as property taxes, transport fees and other charges, are based on these same sectors; cities thus have great potential to ?green? their financial instruments. At the same time, increased public constraints call for a mobilisation of new sources of finance and partnerships with the private sector. This working paper analyses several of these sources: public-private partnerships, tax-increment financing, development charges, value-capture taxes, loans, bonds and carbon finance. The challenge in mobilising these instruments is to design them in a green way, while building capacity to engage in real co-operative and flexible arrangements with the private sector.
    Keywords: public private partnerships, private finance, green growth, infrastructure finance, urban infrastructure, urban development, urban finance
    Date: 2012–09–24
  12. By: Pastore, Francesco (University of Naples II)
    Abstract: This paper aims to provide a frame of mind to understand the link between structural change and regional unemployment, and, based on it, to survey the most recent literature. An overly optimistic view on the ability of the adjustment mechanism to generate convergence in local unemployment rates has long neglected the question of how regional imbalances arise in the first place. The availability of new longitudinal data sets allows us looking again at this issue with a fresh look, starting from patterns of reallocation among labour market statuses. The main conclusion of recent research is that high unemployment regions have a higher, not a lower rate of reallocation; this suggests, in turn, that they do not suffer from low job creation, but, rather, from high job destruction, and this is because of the low competitiveness of any economic activity. Our findings sound as a renowned justification of the need for demand side policy, especially aimed at increasing the life expectancy of private businesses in high unemployment regions.
    Keywords: industrial change, job destruction, labour turnover, adjustment mechanism, regional unemployment
    JEL: J6 P2 R1 R23
    Date: 2013–01
  13. By: Gaetano Lisi (Creativity and Motivations (CreaM) Economic Research Centre Department of Economics and Law. University of Cassino and Southern Lazio, Italy)
    Abstract: The recent and growing literature which has extended the use of search and matching models even to the housing market does not use the free entry or zero-profit assumption as a key condition for solving the equilibrium of the model. This is because a straightforward adaptation of the basic matching model to the housing market seems impossible. However, this paper shows that the zero-profit condition can be easily reformulated to take the distinctive features of the housing market into account. Indeed, it helps to provide a theoretical explanation for well-known empirical regularities in the housing markets.
    Date: 2013–01
  14. By: Cullinan, John; Flannery, Darragh; Walsh, Sharon; McCoy, Selina
    Abstract: While a number of international studies have attempted to assess the influence of geographic accessibility on the decision to participate in higher education, this issue has not been addressed in detail in an Irish context. The aim of this paper is to fill this gap and to present a higher education choice model that estimates the impact of travel distance on the decision of school leavers to proceed to higher education in Ireland, while also controlling for a range of individual level characteristics and school related variables. To do so we use data from the 2007 wave of the School Leavers' Survey. We find that, on average, travel distance is not an important factor in the higher education participation decision, when factors such as student ability are accounted for. However, further analysis shows that travel distance has a significantly negative impact on participation for those from lower social classes and that this impact grows stronger as distance increases. We also find that the distance effects are most pronounced for lower ability students from these social backgrounds. This has important implications for higher education policy in Ireland, especially in relation to equity of access and the design of the maintenance grant system.
    Keywords: data/education/equity/higher education/Ireland/Policy/Social class
    Date: 2012–12
  15. By: Marco Corsino; Roberto Gabriele; Anna Giunta
    Abstract: The empirical evidence concerning the impact of R&D subsidies on both sides of the innovation process (input and output) and the overall performance of the firm is mixed. Moreover, while the role of regions in implementing innovation policies has increased since the last decade, little is known on the effectiveness of regional policy. This paper analyzes the effectiveness of a local R&D policy implemented in the Italian province of Trento, during the period 2002-07. The econometric analysis is based on counterfactual models. We evaluate the achievements of the local policy maker with respect to the following objectives: (i) prompt additional investment in innovation; (ii) enhance the overall competitiveness of the business sector in the regional area. We find that R&D incentives positively affect investments in intangible assets and human capital, while they have no effect on firms’ turnover, labor productivity and profitability.
    Keywords: Regional Innovation Policy, Ex Post Evaluation, Subsidies, Research and Development, Counterfactual Models
    JEL: O25 O31 O38
    Date: 2012–11
  16. By: Hirota, Haruaki; Yunoue, Hideo
    Abstract: The purpose of this paper is to evaluate a fiscal common-pool problem in a Japanese local government. Especially, we focus on the relationship between council size and land development expenditure of local government using a dataset of 13,989 municipalities in Japan from FY2001 to FY2006. We deal with an identification of causal effects by applying regression discontinuity design’s framework to address problem of endogeneity bias. Our results show that land development expenditure of small municipalities induce the fiscal common-pool problem over public projects.
    Keywords: fiscal common-pool problem; council size; government expenditure; regression discontinuity design
    JEL: H77 H76
    Date: 2013–01
  17. By: Dickson, Matt (University of Bath); Gregg, Paul (University of Bath); Robinson, Harriet (University of Bristol)
    Abstract: We study the intergenerational effects of parents' education on their children's educational outcomes. The endogeneity of parental education is addressed by exploiting the exogenous shift in education levels induced by the 1972 Raising of the School Leaving Age (RoSLA) from age 15 to 16 in England and Wales. Using data from the Avon Longitudinal Study of Parents and Children – a rich cohort dataset of children born in the early 1990s in Avon, England – allows us to examine the timing of impacts throughout the child's life, from pre-school assessments through the school years to the final exams at the end of the compulsory schooling period. We also determine whether there are differential effects for literacy and numeracy. We find that increasing parental education has a positive causal effect on children's outcomes that is evident at age 4 and continues to be visible up to and including the high stakes exams taken at age 16. Children of parents affected by the reform gain results approximately 0.1 standard deviations higher than those whose parents were not impacted. The effect is focused on the lower educated parents where we would expect there to be more of an impact: children of these parents gaining results approximately 0.2 standard deviations higher. The effects appear to be broadly equal across numeracy and literacy test scores.
    Keywords: intergenerational mobility, schooling, child development
    JEL: I20 J62 J24
    Date: 2013–01
  18. By: Agarwal, Sumit (National University of Singapore); Ben-David, Itzhak (OH State University); Yao, Vincent (Fannie Mae)
    Abstract: Financially-constrained borrowers have the incentive to influence the appraisal process in order to increase borrowing or reduce the interest rate. The average valuation bias for residential refinance transactions is above 5%. The bias is larger for highly leveraged transactions, and for transactions mediated through a broker, especially where competition is high. Mortgages with inflated valuations default more often; however, lenders partially account for the valuation bias through pricing.
    JEL: G01 G21
    Date: 2012–12
  19. By: Odd-Helge Fjeldstad; Kari Heggstad
    Abstract: This paper examines opportunities and constraints facing local revenue mobilization in Anglophone Africa with an emphasis on urban settings. Specific revenue instruments and their effects on economic efficiency, income distribution and accountability are discussed. In particular, political and administrative constraints facing various revenue instruments and factors affecting citizens’ compliance behaviour are addressed. The analysis is exemplified by cases from across Anglophone Africa. A general conclusion emerging from the study is that local revenues mobilised in most local government authorities in Africa are necessary but not sufficient to develop and supply adequate services for the fast-growing population. On this basis areas for further research on local government revenue mobilisation in Africa are identified.
    Keywords: Local government, Decentralization, Taxes, Business licenses, User fees, Africa
    Date: 2012
  20. By: Park, Sang Soo; Lee, Chung-Ki
    Abstract: We employ a multinomial probit model to understand the housing choice of Koreans, more specifically to understand the decision factors that affect Koreans’ housing decisions. The data used are from surveys conducted in July, 2006, and we use the Gibbs sampling technique in analyzing them. Apparently the housing decision is based on three dimensions–types of housing, size of places, and home ownership. A household may make its decision by simultaneously considering these three dimensions given its income and decision factors. Therefore, it would be ideal to categorize the alternatives based on these three dimensions. Due to the limited data, we treated the home ownership decision as if it were given outside the model or, in other words, as if a household made the decision before taking the type and size into account. From the results, we can see the followings: Firstly, the estimate of the coefficient of the alternative specific variables is negative and significant in all equations. Secondly, a household which decides to purchase housing is more likely to buy AS rather than HS. This is understandable considering Koreans’ inclination toward apartments.
    Keywords: Bayesian estimation; Gibbs sampling; housing choice; multinomial probit model
    JEL: D12 C25
    Date: 2011–12
  21. By: Paul E. Carrillo (Department of Economics/Institute for International Economic Policy, George Washington University); Erik Robert De Wit (University of Amsterdam); William D. Larson (George Washington University)
    Abstract: This paper assesses the predictive power of variables that measure market tightness, such as seller's bargaining power and sale probabilities, on future home prices. Theoretical insights from a stylized search-and-matching model illustrate that such indicators can be associated with subsequent home price appreciation. The empirical analysis employs data on all residential units offered for sale through a real estate broker in the Netherlands and a large suburb in the Washington, DC area. Individual records are used to construct a quarterly home price index, an index that measures seller's bargaining power, and (quality adjusted) home sale probabilities. Using conventional time-series models we show that current sale probabilities and bargaining power can significantly reduce home price appreciation forecast errors.
    Keywords: Forecasting, Home prices, Bargaining power, Time on the market, Information asymmetries
    JEL: R30 C53
    Date: 2012–08
  22. By: Agarwal, Sumit (National University of Singapore); Amromin, Gene (Federal Reserve Bank of Chicago); Ben-David, Itzhak (OH State University); Chomsisengphet, Souphala (US Office of the Comptroller of the Currency); Piskorski, Tomasz (Columbia University); Seru, Amit (University of Chicago)
    Abstract: The main rationale for policy intervention in debt renegotiation is to enhance such activity when foreclosures are perceived to be inefficiently high. We examine the ability of the government to influence debt renegotiation by empirically evaluating the effects of the 2009 Home Affordable Modification Program that provided intermediaries (servicers) with sizeable financial incentives to renegotiate mortgages. A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an increase in the intensity of renegotiations while adversely affecting effectiveness of renegotiations performed outside the program. Renegotiations induced by the program resulted in a modest reduction in rate of foreclosures but did not alter the rate of house price decline, durable consumption, or employment in regions with higher exposure to the program. The overall impact of the program will be substantially limited since it will induce renegotiations that will reach just one-third of its targeted 3 to 4 million indebted households. This shortfall is in large part due to low renegotiation intensity of a few large servicers that responded at half the rate than others. The muted response of these servicers cannot be accounted by differences in contract, borrower, or regional characteristics of mortgages across servicers. Instead, their low renegotiation activity--which is also observed before the program--reflects servicer specific factors that appear to be related to their preexisting organizational capabilities. Our findings reveal that the ability of government to quickly induce changes in behavior of large intermediaries through financial incentives is quite limited, underscoring significant barriers to the effectiveness of such polices.
    JEL: E60 E65 G18 G21 H30
    Date: 2012–11
  23. By: Fredj Jawadi (University of Evry Val d’Essone & Amiens School of Management); Ricardo M. Sousa (Universidade do Minho - NIPE)
    Abstract: This paper assesses the importance of nonlinearity in estimating the wealth effects on consumption for the US, the UK and the Euro area. We look at the impact of both (i) aggregate wealth and (ii) disaggregate wealth, namely, by comparing financial wealth effects with housing wealth effects. We also assess the magnitude of the response of consumption using both a linear model and two nonlinear approaches (a quantile regression and a smooth transition regression). We find that the elasticity of consumption with respect to aggregate wealth is largest for the UK and housing wealth effects do not seem to be relevant in the Euro area. As for the quantile regression, it shows that the sensitivity of consumption with respect to wealth and income variation is larger when consumption growth is abnormally high, i.e. during periods of economic booms. The smooth transition regression model is able to track reasonably well the consumption patterns during periods of economic downturn, financial instability and housing market corrections. Our approaches uncover a more complex dynamics of the relationship between consumption and wealth than previous results in the literature, whilst being in accordance with the theoretical background underlying the wealth effects on consumption.
    Keywords: consumption, wealth, dynamic OLS, quantile regression, smooth transition.
    JEL: E21 E44 D12
    Date: 2012
  24. By: Campante, Filipe R. (Harvard University); Do, Quoc-Anh (Sciences Po, Paris); Guimaraes, Bernardo (Sao Paulo School of Economics)
    Abstract: Motivated by a novel stylized fact--countries with isolated capital cities display worse quality of governance--we provide a framework of endogenous institutional choice based on the idea that elites are constrained by the threat of rebellion, and that this threat is rendered less effective by distance from the seat of political power. In established democracies, the threat of insurgencies is not a binding constraint, and the model predicts no correlation between isolated capitals and misgovernance. In contrast, a correlation emerges in equilibrium in the case of autocracies. Causality runs both ways: broader power sharing (associated with better governance) means that any rents have to be shared more broadly, hence the elite has less of an incentive to protect its position by isolating the capital city; conversely, a more isolated capital city allows the elite to appropriate a larger share of output, so the costs of better governance for the elite, in terms of rents that would have to be shared, are larger. We show evidence that this pattern holds true robustly in the data. We also show that isolated capitals are associated with less power sharing, a larger income premium enjoyed by capital city inhabitants, and lower levels of military spending by ruling elites, as predicted by the theory.
    JEL: D02 D74 R12
    Date: 2012–12
  25. By: Eugenia Panicara (Banca d'Italia); Massimiliano Rigon (Banca d'Italia); Gian Maria Tomat (Banca d'Italia)
    Abstract: The paper provides an analysis of cyclically-adjusted budget balances of local governments in Italy for the period 2002-07. We find that local government balances appear to be relatively sensitive to the business cycle. In particular, a shock of 1 per cent in GDP changes their resources by approximately 0.6 billion. Within the sample period, both central and local policies concerning local government budgets had a sizeable impact on local government balances in cyclically-adjusted terms.
    Keywords: local public finance, budget sensitivity, business cycle, tax elasticity
    JEL: E32 E62 H71
    Date: 2012–12

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