securitization of taxes implicit in payg pensions to preserve solvency a pay as you go payg pension system needs to adjust contribution rates and pension promises over time currently it is not possible to hedge in the financial market against politically determined uncertainty as regards these parameters i consider a policy reform whereby property rights are established on the implicit lifetime tax levied by payg finance and are assigned to the pension institution these property rights are well defined if the reform also features rule based allocation of aggregate risk in the form of defined contribution or defined benefit schemes i show that a payg pension system may indeed be instantly restructured so as to minimize political risk and allow financial market diversification of risk a side benefit is securitization of human capital flows which are not traded in existing financial markets the new securities if traded in appropriately competitive financial markets are complementary to the notional account reforms of the 1990s however fiscal instability can increase if securitization is implemented in the absence of initial solvency and credible adoption of rule based methods to allocate aggregate risk salvador valdes prieto

public pension reform in europe policies prospects and evaluation this paper describes the demographic and economic factors underlying the reform of public pension programmes in europe it examines the policy response both at the europe wide level and within individual european countries several programme reform strategies that have been implemented are evaluated these strategies are the greater pre funding of public pensions and expanded second tier private pension components parametric reforms to existing programmes and the development of formula driven actuarially fair public programmes efforts to provide greater incentives for individuals to postpone retirement are also discussed

introduction to the special issue on the world food crisis this issue of agricultural economics contains articles on the causes and effects of rising food prices all papers were subject to full double blind peer review on an accelerated basis in an effort to publish the best new research as quickly as possible we received more than 60 submissions referees were given three weeks to respond and authors of candidate papers had an additional week to revise their work before final acceptance articles published use descriptive econometric and simulation methods for both global overviews and case studies

a positive theory of social security based on reputation we construct a general equilibrium model in which a pay as you go social security system can be adopted and sustained as a political and economic equilibrium we alalyze the welfare implictions of this system and compare general equilibrium welfare measure to the commonly used notion of actuarial fairness

economic growth in a cross section of cities abstract we examine the relationship between urban characteristics in 1960 and urban growth between 1960 and 1990 income and population growth move together and both types of growth are 1 positively related to initial schooling 2 negatively related to initial unemployment and 3 negatively related to the initial share of employment in manufacturing racial composition and segregation are uncorrelated with urban growth across all cities but in cities with large nonwhite communities segregation is positively correlated with population growth government expenditures except for sanitation are uncorrelated with growth government debt is positively correlated with later growth

migration and child development during the food price crisis in el salvador abstract migration is often used as parts of both ex post and ex ante strategies to mitigate risks to household incomes there is little empirical evidence however of the way that migration actually helps households in times of shocks in this paper i describe how the peak of the worldwide food price crisis affected anthropometric statistics among young children in el salvador and how households with access to international migrants were not affected as negatively as households without such access in 2008 el salvador experienced food price inflation of 15 and the evaluation of red solidaria el salvador s conditional cash transfer program shows that height for age haz z scores among children under 3 years old declined by 0 2 standard deviations on average in this paper i use the red solidaria evaluation data to assess whether children in households with access to remittances or international migrants were better off than households without access to migration income using both repeated cross sectional data and individual panel data i find that as theory would expect children in households with access to international migrants have much lower declines in their haz scores

increasing longevity and social security reforms a legislative procedure approach abstract increasing longevity causes an upward trend in the dependency ratio in many countries this raises concerns about the financial sustainability of social security schemes and reform proposals and initiatives abound it is shown that a fundamental policy choice inevitably arises since a given social security system cannot be maintained by simply indexing pension ages to longevity the political reform process is analysed using the so called legislative procedure when longevity increases the retirement age is raised more than proportionally to the increase in longevity but the young also make larger transfers to the old

a theory of urban growth in an economy experiencing endogenous economic growth and exogenous population growth we explore two main themes how urbanization affects efficiency of the growth process and how growth affects patterns of urbanization localized information spillovers promote agglomeration and human capital accumulation fosters endogenous growth individual city sizes grow with local human capital accumulation and knowledge spillovers and city numbers generally increase which we demonstrate is consistent with empirical evidence we analyze whether local governments can successfully internalize local dynamic externalities in addition we explore how growth involves real income differences across city types and how urbanization can foster income inequality most nonagricultural production in developed countries occurs in metropolitan areas the underlying reasons why economic activity agglomerates into cities localized information and knowledge spillover also make cities the engines of economic growth in an we gratefully acknowledge support of the national science foundation grants sbr 9422440 and sbr9730142 for this research the work has benefited from conversations with harl ryder on the dynamics of the model and from comments by gilles duranton and participants in seminars at brown colorado and texas austin and a presentation at an isit seminar sponsored by the centre for economic policy research and the national bureau of economic research

taxation pension and saving in a small open economy an overlapping generations model of a small open economy is used to explore several policy options aimed at reducing the burden of income taxes and pay as you go payg contributions on labor income so as to improve the incentives to supply labor including the return of funded collective fc pension plans in the tax base turns out to be counterproductive cutting payg benefits in contrast succeeds in improving efficiency in general and labor market incentives in particular under specific variants of the fc plan reducing payg benefits even proves to be pareto welfare improving

putting the 2007 2008 global food crisis in longer term perspective trends in staple food affordability in urban zambia and kenya abstract staple food prices in cities in eastern and southern africa rose sharply between late 2007 and early 2009 leading to estimates of massive increases in food insecurity and hunger however in assessing the impacts of soaring food prices on urban consumers access to food it is important to consider food price changes relative to changes in per capita incomes in this study we use the case studies of zambia and kenya where data are available on food prices wage rates incomes and other indicators of urban purchasing power to answer two main questions i how did staple food purchasing power at the height of the food price crisis compare to levels over the last 15 years and ii did the food price crisis exacerbate an already declining trend in staple food purchasing power or did it reverse a trend of stable or improving staple food affordability results indicate that staple food purchasing power in urban zambia and kenya improved markedly in the 10 12 years prior to the food price crisis most measures of bread and maize meal affordability at the start of the crisis in 2007 were at levels 1 0 4 3 times higher than in the mid 1990s these gains for urban consumers were slashed but not completely reversed during the food crisis between 2007 and 2009 maize meal and bread were still more affordable in urban zambia than all periods between 1994 and 2003 in urban kenya staple food purchasing power as of 2008 2009 was comparable to levels in 2000 2001 2004 2005 according to some indicators while other measures suggest that the food price crisis reduced staple food purchasing power to levels lower than any other year in the period 1994 1995 2007 2008

on the contribution of economics to the evaluation and formation of social insurance policy if one had to choose a single policy that best characterizes the postwar behavior of governments it might well be their expansion of social insurance today s citizen of a typical developed country is insured through government programs against unemployment disability medical expenses impoverishment in youth and middle age through welfare systems impoverishment in old age through old age pensions loss of spousal support due to divorce through social security dependent benefits fluctuating earnings through progressive tax systems early death of a spouse via survivor s insurance and late death via annuity insurance the remarkable growth of social insurance has occurred against a backdrop of increased geographic mobility dramatic changes in demographics and at least in the united states a dissolution of the family the extent to which social insurance has been the cause of family decline and demographic change or its result is one of many complex questions that economics or any other social science is unlikely to ever fully answer economic analysis while not being able to discover the precise recipe leading to our social insurance institutions has at least been able to taste many of the key ingredients economics has and can provide real insight into a the need for social insurance programs b the appropriate size of such programs and c how social insurance programs affect the economy this paper seeks to illustrate each of these three kinds of economic contributions to the evaluation and formation of social insurance policy section i drawing on my 1987 article presents an efficiency argument for compulsory saving through a progressive social security system section ii drawing on my paper with avia spivak and laurence summers 1982 and on alan auerbach s and my 1987b paper illustrates an analysis of the appropriate size of social insurance programs examining in turn the questions of whether households save enough and buy enough life insurance or whether more government intervention in these matters is appropriate section iii drawing on my 1989 book illustrates how social insurance programs can affect the economy by discussing potential savings effects of health insurance particularly an asset tested medicaid scheme section iv concludes the paper with suggestions for future research and policy options as indicated the paper draws on my own and coauthored research and it provides only limited references for no better reason than easing my task and saving space in so doing i do not pretend to suggest that this is more than a very small subset of a huge volume of research sparked in the 1970s in large part by martin feldstein

on the distributional aspects of urban growth abstract although many theories of urban growth have broad implications regarding the dynamics of wage inequality little empirical work has explored the issue this paper studies the relationship between the growth of three measures of economic activity population employment and per capita income and a variety of wage dispersion measures across a sample of us metropolitan areas between 1970 and 1990 overall the results indicate a negative association between the two cities experiencing more rapid growth also tend to witness smaller increases or larger decreases in their inequality such findings offer some support to theories stressing growth mechanisms which equalize productivity across workers

from traditional db to notional dc systems the pension reform process in sweden italy and germany this paper provides a critical review of the pension reform strategy that turns defined benefits db public pay as you go systems into notional defined contribution ndc systems we show that properly designed ndc public pension systems contain powerful economic and political mechanisms that may facilitate pension reform but that the distinction between public ndc and db systems is more ambiguous than usually claimed jel h55 j14 j26

do inter city differences in intra city wage differentials have any interesting implications abstract recent research has related characteristics of cities to differences in the distribution of wages across workers with different skill levels we demonstrate that these differences in wage differentials arise naturally as a compensating variation in rosen s theoretical model of inter city wages for example if the income elasticity of demand for housing services is less than unity cities with higher house prices will have smaller money wage differentials between low and high skill workers this result has no implications for differences in either absolute or relative real productivity or welfare of unskilled workers similarly changes in the amenity of an urban area may result in changes in relative wages of skilled and unskilled workers with no implications for real productivity or welfare differentials empirical tests in which housing cost differentials are added as a determinant of inter city differences in an intra urban wage differential model provide empirical confirmation of the theoretical expectations it appears that intra urban money wage differentials differences in the quality of life and variation in the cost of living in each city are jointly determined variables just as rosen s model of inter city wage differentials predicts

institutional and individual investors saving for old age this paper brings together the academic literature on individual and institutional investors in order to understand the nature of difficulties faced by them and set the background for the special issue this introductory article and the papers in the special issue contribute to the debate on how to support individuals in their savings commitments and investment decision making and whether and how institutional investors have fulfilled their role in supporting the development of the funded pension industry there are three main conclusions i individual investors are not ready for the role that has been assigned to them in the pension industry ii institutional investors are a long way short of establishing healthy relational contracts and trustworthy relationships with their clients and iii more effective regulation may be needed

the financial stability of notional account pensions a number of european countries are reforming their pension benefit formulas by adopting notional accounts these accounts are used to determine individual benefits but pay as you go financing is retained this paper addresses the belief that by choosing adjustment rules cleverly notional accounts can provide automatic financial equilibrium in the short run if this were true it would be a valuable advantage in terms of insulating the government budget from demographic pressures while insulating the pension budget from fiscal pressures it is shown that notional account benefit formulas cannot provide automatic financial equilibrium in the short run the paper also suggests that if indexing rules are chosen in a particular way and shocks revert rapidly to a mean the pension institution may achieve financial stability in the long run however long run stability is unlikely to be valuable because political interference occurs in the short run

does the ndc scheme mimic the french point system after the implementation of the notional defined contribution ndc pension scheme in italy and sweden in the 90s some authors argued that its design merely replicates the functioning of the poin

comment on s valdes prieto the financial stability of notional account pensions in an important contribution to this journal valdes prieto 2000 has shown that the recently popular concept of notional accounts cannot guarantee short run financial stability of pay as you go financed public pension schemes in the sense of automatic budget equality for any given time path of the contribution rate in result 2 p 406 he states that notional accounts do not provide automatic financial balance in the short run when the credited notional interest rate is the growth rate of contribution revenue except for the steady state growth case in the proof he uses a table p 408 table 1 in which the maximum value of the ratio of expenditures to revenues of the pension plan is calculated for the case of a rising growth rate of contribution revenue this maximum ratio is always above 1 the author explains his finding as follows when the growth rate of contribution revenue is used as the notional interest rate which is credited to the stock of notional capital of those members reaching age 65 the rise in expenditure is greater than the rise in revenue generating a deficit ibid the following simple example confirms result 2 but shows that the ratio of expenditures to revenues behaves in the opposite way to that asserted by valdes prieto a rise in the growth rate of revenues leads to a temporary surplus of the plan whereas a fall in the growth rate implies a temporary deficit the example is based on a discrete time 3 olg model in which individuals work the first two periods of their three period life earning 1 dollar each and the contribution rate 0 is fixed at 20 percent contributions are credited to the notional account in the period in which they are paid and earn an interest equal to the growth rate of contribution revenue which is credited to the account at the beginning of the next period at the beginning of the third period the account balance is paid out as a one shot retirement benefit in panel a of table 1 it is assumed that there are 100 workers in each of the cohorts entering the labor market in period t 2 and that this number

the gains from pension reform we classify social security pension systems in three dimensions actuarial versus non actuarial funded versus unfunded and defined benefit versus defined contribution systems recent pension reforms are discussed in terms of these dimensions shifting to a more actuarial system reduces labor market distortions although limiting the scope for redistribution shifting to a funded system may increase saving redistribute income to future generations and distort contermporary labor supply a partial shift to a funded system helps individuals diversify their pension assets a shift from a defined benefit to a defined contribution system means that income risk will be shifted from workers to pensioners

factor proportions and relative wages the supply side determinants of wage inequality supply side factors may contribute to rising wage inequality first certain changes in the supply of skills allegedly exacerbate wage inequality women s increased labor force participation and increased immigration are the leading candidates both allegedly reduce the wages of less skilled men however immigration s impact on wage inequality has been minor and the effects of women s participation is inconclusive second in evaluating the likelihood that human capital investment will mitigate future inequality evidence suggests that rising returns to education have increased the proportion of young people attending college limiting the growth of inequality among high wage workers