relative wage positions and quit behavior evidence from linked employer employee data the authors analyze the importance of relative wage positions within firms in western germany in the context of individual quit decisions as an inverse measure of job satisfaction using a linked employer employee data set liab for the years 1996 2005 whose sample consists of full time male prime age workers in western germany without college degrees they ascertain whether workers find status or signal effects stronger motivators for quit decisions they find that workers with higher relative wage positions within their firms are on average more likely to quit their jobs than those with lower relative wage positions and that workers who experience a loss in their relative wage positions are also more likely to accept a wage cut associated with their job transition overall results suggest that a signal effect is on average stronger than a status effect

debt driven growth wealth distribution and demand in oecd countries the paper investigates the effects of changes in the distribution of income and in wealth on aggregate demand and its components we extend the bhaduri and marglin 1990 model to include personal income inequality as well as asset prices and debt this allows for an evaluation of the wage or profit led nature of demand regimes of the expenditure cascade argument frank et al 2010 and several hypotheses regarding the effects of wealth and debt our estimates are based on a panel of 18 oecd countries covering the period 1980 2013 for the full panel the average demand regime is found to be wage led we fail to find effects of personal inequality but do find strong effects of debt and property prices which have been the major drivers of aggregate demand in the decade prior to the 2007 crisis

the missing dark matter in the wealth of nations and its implications for global imbalances current account statistics may not be good indicators of the evolution of a country s net foreign assets and of its external position s sustainability the value of existing assets may vary independently of current account flows so called return privileges may allow some countries to obtain abnormal returns and mismeasurement of fdi unreported trade of insurance or liquidity services and debt relief may also play a role we analyse the relevant evidence in a large set of countries and periods and examine measures of net foreign assets obtained by capitalizing the net investment income and then estimating the current account from the changes in this stock of foreign assets we call dark matter the difference between our measure of net foreign assets and that measured by official statistics we find it to be important for many countries analyse its relationship with theoretically relevant factors and note that the resulting perspective tends to make global net asset positions appear relatively stable ricardo hausmann and federico sturzenegger

do relative income and income inequality affect consumptionq evidence from the villages of rural china abstract this article examines how a household s consumption rate is affected by its relative income and income inequality within a community based on the theory of social status seeking in consumption we test hypotheses related to these factors using a unique panel data set of rural households in china observed within a few hundred villages between 2003 and 2006 we find that the household s consumption rate is negatively related to the relative income position after controlling for the absolute income and positively related to the income inequality of the village we confirm these with different measurements of relative position

behavioural development economics lessons from field labs in the developing world abstract explanations of poverty growth and development depend on the assumptions made about individual preferences and the willingness to engage in strategic behaviour economic experiments especially those conducted in the field have begun to paint a picture of economic agents in developing communities that is at variance with the traditional portrait we review this growing literature with an eye towards preference related experiments conducted in the field we also offer lessons on what development economists might learn from experiments we conclude by sharing our thoughts on how to conduct experiments in the field and then offer a few ideas for future research

trust market participation and economic outcomes evidence from rural china markets can only function properly in the presence of sufficient trust we explore the relation between trusting behavior and market integration in rural china we link the results of a trust experiment to actual behavior in the field participation in the labor market versus informally exchanging labor and find that high trust households are more likely to use formal markets we proceed by exploring the relation between labor market participation and economic outcomes finding tentative evidence of a causal relation running from market participation to higher levels of income

alfred marshall lecture social capital as good culture to explain the extremely long term persistence more than 500 years of positive historical experiences of cooperation putnam 1993 we model the intergenerational transmission of priors about the trustworthiness of others we show that this transmission tends to be biased toward excessively conservative priors as a result societies can be trapped in a low trust equilibrium in this context a temporary shock to the return to trusting can have a permanent effect on the level of trust we validate the model by testing its predictions on the world values survey data and the german socio economic panel we also present some anecdotal evidence that these priors are reflected in novels that originate in different parts of the country jel 04 016 043 p16

long run welfare under externalities in consumption leisure and production a case for happy degrowth vs unhappy growth in this paper we contribute to the debate on the relationship between growth and well being by examining an endogenous growth model where we allow for externalities in consumption leisure and production we analyze three regimes a decentralized economy where each household makes isolated choices without considering their external effects a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities and a planned economy with a fully informed planner we first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path we provide a number of findings first in a decentralized economy growth or labor or both are greater than in the regime with a fully informed planner and hence are sub optimal from a welfare standpoint second a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime third we provide a case for happy degrowth a transition to the optimal balanced growth path that is associated with downscaling of production a reduction in private consumption and an ongoing increase in leisure and well being

why don t poor countries catch up a cross national test of an institutional explanation early neoclassical analyses predicted that poor countries would grow faster than wealthy countries because of technological advances and diminishing returns to capital in the latter the reverse has occurred poor countries are falling back rather than catching up we suggest here that deficient institutions underlie this divergence employing various indicators of institutional quality including the rule of law the pervasiveness of corruption and the risk of expropriation and contract repudiation we show that the ability of poor countries to catch up is determined in large part by the institutional environment in which economic activity in these countries takes place jel o00 o10

present value tests of an intertemporal model of the current account abstract this paper first demonstrates that in a simple intertemporal open economy model the current account is equal to the expected decline of the present discounted value of net output of a country net output is defined as gross domestic product less the sum of investment plus government spending it then uses econometric methods for present value models to analyze the current account for four countries in two of these countries the model does a satisfactory job of explaining the current account

saving rates and poverty the role of conspicuous consumption and human capital poor families around the world spend a large fraction of their income consuming goods that do not appear to alleviate poverty while saving at low rates we suggest that individuals care about economic status and interpret this behaviour as conspicuous consumption intended to provide a signal about unobserved income we show that if human capital is observable and correlated with income then a signalling equilibrium in which poor individuals tend to spend a large fraction of their income on conspicuous consumption can emerge this equilibrium gives rise to an increasing marginal propensity to save that might generate a poverty trap

financial well being in an urban area an application of multiple imputation this article estimates a model of self reported financial well being fwb using primary data collected for a southwestern u s city missing data are estimated using multiple imputation model estimates show how fwb depends on home ownership the number of children health insurance age and income multiple imputation results differ somewhat from complete case results

status effects public goods provision and excess burden abstract most studies of the optimal provision of public goods or the excess burden from taxation assume that individual utility is independent of other individuals consumption this paper investigates public good provision and excess burden in a model that allows for interdependence in consumption in the form of status relative consumption effects in the presence of such effects consumption and labor taxes no longer are pure distortionary taxes but have a corrective tax element that addresses an externality from consumption as a result the marginal excess burden of consumption taxes is lower than in the absence of status effects and will be negative if the consumption tax rate is below the pigouvian rate correspondingly when consumption or labor tax rates are below the pigouvian rate the second best level of public goods provision is above the first best level contrary to findings from models without status effects for plausible functional forms and parameters relating to status effects the marginal excess burden from existing u s labor taxes is substantially lower than in most prior studies and is negative in some cases

tropic trust versus nordic trust experimental evidence from tanzania and sweden undergraduates in tanzania and sweden participated in one trust game one dictator game and answered a standard set of survey questions relating to trust in both countries we detected a strong and significant relation between dictator donations and proportions returned in trust games indicating that unconditional distribution preferences matter in trust game behaviour in sweden incentive compatible evaluations of unrevealed dictator donations significantly predicted the amount sent in trust games the predictive power of survey trust questions differed between countries a plausible relation between survey trust and trust behaviour was found in sweden but not in tanzania

relativity rank and the utility of income relative utility has become an important concept in several disjoint areas of economics i present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time utility levels correspond to the leyden individual welfare function while utility differences yield a version of the prospect theory value function thereby providing a new and shared derivation of each i offer an explanation of some long standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion

weakly relative poverty prevailing measures of relative poverty are unchanged when all incomes grow or contract by the same proportion this property stems from seemingly implausible assumptions about the disutility of relative deprivation and the cost of social inclusion the authors propose weakly relative lines that relax these assumptions on calibrating our measures to national poverty lines and survey data we find that half the population of the developing world in 2005 lived in poverty only half of whom were absolutely poor the total number of poor rose over 1981 to 2005 despite falling numbers of absolutely poor with sustained economic growth the incidence of relative poverty became less responsive to further growth the number of relatively poor rose just as the numbers of absolutely poor fell

macroeconomic implications of conspicuous consumption a sombartian dynamic model this chapter presents a dynamic general equilibrium model in which consumers have status preference i investigate the manner in which capital accumulation is impeded by conspicuous consumption a la corneo and jeanne j public econ 66 55 71 1997a following the literature social norms are given as either bandwagon type or snob type i then show that when the economy is characterized by a bandwagon type social norm capital accumulation exhibits interesting patterns those patterns include for example an oscillating convergence path the rise of the economy feeds its decay through conspicuous consumption and that decay suppresses conspicuous consumption and engenders prosperity as predicted by sombart liebe luxus und kapitalismus reprinted 1967 deutscher taschenbuch verlag munchen 1912

the foundations of trust macro and micro this comment on beugelsdijk s 2006 critique of trust and its measurement argues that it misses the mark and that there is neither a theoretical nor an empirical foundation for thinking that the macro and micro foundations of trust or its measurement are different from each other generalised trust is more than a simple illusion hiding behind institutional structures

sect subsidy and sacrifice an economist s view of ultra orthodox jews israeli ultra orthodox men study full time in yeshiva until age 40 on average why do fathers with families in poverty choose yeshiva over work draft deferments subsidize yeshiva attendance yet attendance typically continues long after exemption fertility rates are high tfr 7 6 and rising a social interaction approach explains these anomalies yeshiva attendance signals commitment to the community which provides mutual insurance to members prohibitions strengthen communities by effectively taxing real wages inducing high fertility historically the incursion of markets into traditional communities produces ultra orthodoxy subsidies induce dramatic reductions in labor supply and unparalleled increases in fertility illustrating extreme responses social groups may have to interventions

inherited trust and growth this paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation we show that inherited trust of descendants of us immigrants is sig nificantly influenced by the country of origin and the timing of arrival of their forebears we thus use the inherited trust of descendants of us immigrants as a time varying measure of inherited trust in their country of origin this strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects jel n11 n12 n31 n32 o47 z13

security design with status concerns abstract this paper provides a status based explanation for convertible securities an entrepreneur with status concerns inducing risk taking decides how to finance the firm and how to dynamically manage it solving analytically for the optimal security we find that it is substantially similar to a convertible security our model can explain why convertible securities are mainly issued by start ups and small firms as we show that their salient characteristics higher volatility and dynamic flexibility accentuate incentives to issue convertible securities we also provide analytical results relevant to quantifying how status concerns affect credit risk an established factor behind security choice

habit prisoner s dilemma and americans welfare cost of working much more than europeans europeans work much less than americans some studies claim this is due to high taxes in europe which would benefit by adopting us tax rates and work time others find that taxes have little or no impact on work time i examine the hypothesis that americans would benefit by reducing work time to europe s level empirical and experimental studies show utility falls as other people s income rises due to its historical experience europe is able to internalize this and other negative externalities by restricting work time through minimum vacation time and maximum weekly work hours while the us is not resulting in a prisoner s dilemma overworking trap equilibrium a simple model and work time data are used to derive the us welfare gain from reducing work time to europe s level findings are i parameter values are consistent with experimental results on the relative impact of own and other people s income ii the welfare gain s present value is about 120 percent of annual welfare and iii even if europe s policy reduces work time excessively it does remain beneficial as long as the reduction is less than twice the optimal one

wealth warmth and well being whether happiness is relative or absolute depends on whether it is about money acquisition or consumption abstract a central question in consumer and happiness research is whether happiness depends on absolute or relative levels of wealth and consumption to address this question the authors evaluate a finer level than overall happiness and distinguish three specific types of happiness with money with the acquisition of an item and with the consumption of an item they find that happiness with money and with acquisition is relative and that happiness with consumption can be either absolute or relative depending on whether the consumption is inherently evaluable or not including both lab and field data this research yields implications for how to increase consumer happiness from one generation to the next

trust across borders we make the case for fresh approaches to examine the role of trust in international collaborations based on the idea that not only do the levels of trust differ across international borders but also both the nature of trust and the institutional and cultural support for trust can vary across different national contexts collaboration partners from different countries are therefore likely to bring either symmetric or asymmetric conceptions of trust to the business relationship we develop a model and propositions linking symmetry and asymmetry in the institutional and cultural support for trust in international collaborations with the degree of partner interdependence and identify implications for governance and trust building investments we conclude with some suggestions for research that incorporates trust asymmetries between partners

who trusts others community and individual determinants of social capital in a low income country this study presents new evidence on individual and community specific determinants of social trust using data from 96 villages in bangladesh we find perceived institutional trust to be positively correlated with stated inter personal trust at the same time there is significant social distance among various faith groups in our data both hindus and muslims trust their coreligionists more than they trust those from other religions moreover hindus trust christians buddhists and ngo workers more than muslims and are not distrustful of the wider society trust towards non muslims is negatively correlated with islamic school attendance among muslim respondents while religiosity tends not to play any role compared to religion the effects of institutional trust and local economic development are modest these findings are robust to control for a range of individual and community level correlates and enumerator fixed effects

people s opium religion and economic attitudes since max weber there has been an active debate on the impact of religion on people s economic attitudes much of the existing evidence however is based on cross country studies in which this impact is confounded by differences in other institutional factors we use the worldvalues surveys to id entify the relationship between intensity of religious beliefs and economic attitudes controlling for country fixed effects we study several economic attitudes towardcooperation the government working women legal rules thriftiness andthe market economy we also distinguish across religious denominations differentiating on whether a religion is dominant in a country we find that on average religious beliefs are associated with good economic attitudes where good is defined as conducive to higher per capita income andgrowth yet religious people tendto be more racist andless favorable with respect to working women these effects differ across religious denominations overall we find that christian religions are more positively associatedwith attitudes conducive to economic growth r 2003 elsevier science b v all rights reserved jel classification a1 e0 n4 z1

relative status and satisfaction abstract this paper studies the effect of income rank on satisfaction we hypothesize that a person s satisfaction depends on a comparison of own rank and rank of one s parents estimates using data from the german socio economic panel support the relative rank hypothesis

paths to development is there a bangladesh surprise using aggregate indices of education health demographic and gender equality outcomes we empirically investigate the hypothesis that bangladesh achieved a higher level of social development compared with countries of similar level of per capita income stylized facts and cross country regression results support this hypothesis for a broad range of dimensions further tests show that such achievements do not simply reflect income mediated channels and social expenditure programs we conclude by speculating on the role of bangladesh s development to sustain the process of growth and on the role of governance and institutional quality for the nexus between growth and development

relative pay and its effects on firm efficiency in a transitional economy abstract in this study we examine the impact of relative pay manager pay divided by average worker pay on a firm s productivity using data from a major transitional economy china we find that relative pay is negatively associated with high productivity our results provide support for the view that workers are alienated when their incomes are far lower than that of top management and this leads to lower productivity this effect is most pronounced in labor intensive firms

benchmarks for net international investment positions abstract applied analysis aimed at assessing which value of the niip is appropriate for a given country is relatively scarce and the few existing papers on the topic estimate one size fits all niip benchmarks e g catao and milesi ferretti 2014 this paper estimates country specific niip benchmarks on a sample of 65 advanced and emerging economies according to two different criteria consistency with economic fundamentals niip norms obtained as cumulated current account norms and prudence against the risk of external crises niip prudential thresholds obtained as the threshold of the niip variable interacted with relative income per capita that maximises signal power in predicting external crises the median for the country specific niip norms is around 17 of gdp while the median for prudential threshold is about 44 the two benchmarks are negatively correlated across countries highlighting a tension between factors underpinning the scope for external borrowing and debt tolerance gaps between actual and niip benchmarks are highly persistent but help predicting subsequent medium term niip changes better than the niip level thus confirming the usefulness of country specific reference values the adjustment of the niip in response to niip gaps is asymmetric with a significant adjustment limited to negative gaps with the exception of countries with a positive net position in foreign currency

will there be a dollar crisis almost everyone believes that the us current account deficit must eventually end and that this end will involve dollar depreciation however many believe that this depreciation will take place gradually this paper shows that any process of gradual dollar decline fast enough to prevent the accumulation of implausible levels of us external debt would impose capital losses on investors much larger than they currently expect as a result there will at some point have to be a wile e coyote moment a point at which expectations are revised and the dollar drops sharply it is much less clear however whether this crisis will produce macroeconomic problems paul krugman

conspicuous consumption and race using nationally representative data on consumption we show that blacks and hispanics devote larger shares of their expenditure bundles to visible goods clothing jewelry and cars than do comparable whites these differences exist among virtually all subpopulations are relatively constant over time and are economically large although racial differences in utility preference parameters might account for a portion of these consumption differences we emphasize instead a model of status seeking in which conspicuous consumption is used as a costly indicator of a household s economic position using merged data on race and state level income we demonstrate that a key prediction of the status signaling model that visible consumption should be declining in reference group income is strongly borne out in the data for each racial group moreover we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

the persistence of subjective poverty in urban ethiopia using panel data spanning 15 years this paper investigates the persistence and correlates of subjective and consumption poverty in urban ethiopia despite the decline in consumption poverty in recent years which has been linked to rapid economic growth subjective poverty has remained largely unchanged dynamic probit regression results show that households with a history of past poverty continue to perceive themselves as poor even if their material consumption improves our results also suggest that the relative economic position of households is a strong determinant of subjective poverty and having at least some type of employment reduces the likelihood that households will perceive themselves as poor even if they remain in objective poverty receiving remittances from abroad on the other hand does not reduce perceived poverty even if it raises material consumption we argue that any analysis to measure the impact of growth on welfare should encompass subjective measures as well

relative income effects on subjective well being in the cross section abstract recent work suggests that a person s subjective well being swb depends to a large degree on relative income focusing on the underlying identification this paper makes four contributions to this literature it describes the aggregation problem with past studies implements an estimation strategy to overcome this problem finds micro level evidence in support of the hypothesis that relative income does matter in individual assessments of swb and uses cross section estimates to replicate the aggregate time series the evidence further indicates that relative income effects may be smaller at low income levels the results are obtained from ordered probit techniques and the general social survey gss

the value of commuting time in an empirical on the job search model an application based on moments from two samples this article estimates the value of commuting time voct among swedish males in an empirical on the job search model it uses a large sample of employee establishment linked data obtained from administrative registers the sample lacks information on mode choice for the journey to work we therefore estimate a mode choice model on another sample and use this model to link the administrative data to the relevant set of travel times costs and distances the voct is found to be 1 8 times the net hourly wage rate in the sample the relatively high estimate results from a high voct among cohabiting men

asymmetric and non atmospheric consumption externalities and efficient consumption taxation abstract we analyze the effects of a generalized class of negative consumption externalities asymmetric and non atmospheric on the structure of efficient commodity tax programs households are not only concerned about consumption reference levels that is they gain utility from keeping up with the joneses but they also exhibit altruism two sets of efficient tax regimes are compared based on a welfarist and a non welfarist optimality criterion respectively altruism turns out not to be at odds with the consumption externalities rather altruism implicates a bound on efficient utility allocations a non welfarist government tolerates less inequality than a welfarist one in the welfarist non welfarist case first best personalized commodity tax rates respond highly sensitively barely to whether or not a consumption externality is asymmetric or non atmospheric if personalized commodity tax rates are not available second best case the tax rate on a non positional good is typically different from zero for corrective reasons for plausible functional forms and parameter values numerical simulations suggest that second best tax rates are rather insensitive with respect to both the optimality criterion and the nature of the consumption externality

when information dominates comparison abstract we propose a micro econometric evaluation of the relation between life satisfaction and income distribution using a balanced panel survey of the russian population russian longitudinal monitoring survey rlms running from 1994 to 2000 covering 4685 individuals we show that in the context of the very volatile russian environment hirschman s q j econ 87 1973 544 tunnel effect conjecture seems to be confirmed variables reflecting income distribution do not influence satisfaction through social comparisons individuals rather seem to use their informational content in order to form their expectations the reference group s income thereby exerts a positive influence on individual satisfaction which contrasts with other studies on the subject inequality indices do not affect individual welfare

regulation and distrust in a cross section of countries government regulation is strongly negatively correlated with social capital we document this correlation and present a model explaining it in the model distrust creates public demand for regulation while regulation in turn discourages social capital accumulation leading to multiple equilibria a key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt we test this and other implications of the model using country and individual level data on social capital and beliefs about government s role as well as on changes in beliefs and in trust during the transition from socialism

increasing income inequality external habits and self reported happiness a large literature has documented an increase in income equality in the united states over the past several decades see for example david h autor lawrence f katz and melissa s kearney 2006 at the same time real aggregate income has risen markedly and most socioeconomic groups have experienced at least some rise in real purchasing power standard models of consumption which typically assume that an individual s utility is based only on her own consumption would predict that these gains have led to higher levels of happiness for all groups albeit with greater increases for some more than others economists have long recognized however that an individual s utility may depend not only on the level of her own consumption but also on how that level compares with the consumption of others if preferences are characterized by such external habits then the observed widening of the income distribution may have implications for the happiness of different groups that go beyond those associated with the changes in their respective incomes this study combines data from two sources to document the evolution of reported levels of happiness for different socioeconomic groups over the past 25 years and to explore whether those levels have been affected by the changing relative position of these groups within the habit persistence and the macroeconomy

how well can the new open economy macroeconomics explain the exchange rate and current account abstract this paper advances the new open economy macroeconomic literature in an empirical direction estimating and testing a two country model fit to u s and g7 data the model performs moderately well for the exchange rate and current account results offer guidance for future theoretical work parameter estimates lend support to the assumption of local currency pricing estimates are found for key parameters commonly calibrated in the theoretical literature such as the elasticity of substitution between home and foreign composite goods and the response of a country s risk premium to the net foreign asset position results also indicate that deviations from interest rate parity are not closely related to monetary policy shocks as recently hypothesized but that these deviations are strongly related to shifts in the current account

the relevance of relative distribution favoritism information and vote choice in africa relative distribution whether one is favored or disfavored by government seems to matter to voters in many african countries but why i demonstrate theoretically that voters who do not have inform

strategic interactions of fiscal policies in europe a global var perspective abstract the paper analyses the strategic interactions of fiscal policies in the european union context by modelling the interdependencies arising between public and private sectors saving investment balances in a global vector autoregressive framework we use two empirical specifications to reflect some important differences in the sequencing of the policy decision making process in this setting we draw policy implications with respect to fiscal policy coordination and fiscal policy discretion we highlight the importance of several factors such as global capital flows uncertainty with respect to policy actions and nature of the shocks as key elements defining the dimension of the prevailing policy tradeoffs

adaptation anticipation and social interaction in happiness an integrated error correction approach abstract adaptation anticipation and social reference effects on happiness are strongly interrelated phenomena however in the existing empirical literature these phenomena are mainly studied in isolation from each other therefore using soep panel data for the years 1984 2007 this study offers an integrated investigation of the implications of these three phenomena for the dynamics of individual life satisfaction i focus on the short and long run effects of income and social reference income but i control for similar dynamics with respect to a large set of control variables gmm estimates for instrumented income variables in an error correction model indicate an insignificant future income effect a significant and positive current income effect and an insignificant long run income effect on life satisfaction with significant hedonic adaptation social reference income has a significant negative and strong impact in the long run but not in the short run consequently increasing own income and reference income by the same percentage tends to have an insignificant effect in the long term but a significant and positive effect in the short term adaptation to an income shock and reinforcement of a reference income shock take place for more than 90 within three years on the basis of these results a more comprehensive explanation of the easterlin paradox than those given in the literature is presented

thousands of models one story current account imbalances in the global economy the global financial crisis has led to a revival of the empirical literature on current account imbalances this paper contributes to that literature by investigating the importance of evaluating model and parameter uncertainty prior to reaching any firm conclusion we explore three alternative econometric strategies examining all models selecting a few and combining them all out of thousands or indeed millions of models a story emerges the chance that current accounts were aligned with fundamentals prior to the financial crisis appears to be minimal

social network structure and status competition in status competition studies the utility of heterogeneous individuals typically depends on an economy wide average indicator of status in our model emulative and jealous agents are embedded in an exogenous network where agent specific reference group is determined by the direct link emanating from the agent similarly to ghiglino and goyal 2010 but in a somewhat different framework we show that individual consumption is proportional to the agent s outbound katz bonacich network centrality measure and equilibrium is generally inefficient more important the negative externality associated with each agent depends on her inbound centrality measure the conspicuousness index a tax based on this index combined with a uniform lump sum transfer attains efficiency

do businessmen make good governors this paper evaluates the economic performance of u s state governors with a business background chief executive officer ceo governors applying a matching method i find first that businesspeople tend to take office in times of economic and fiscal strain second the tenures of ceo governors are associated with a 0 5 percentage points pp higher annual income growth rate a 0 4 pp higher growth rate of the private capital stock and a 0 6 pp lower unemployment rate than are the tenures of non ceo governors state level income inequality is not affected by ceo governors holding office indicating that low income households benefit from the economic upswing

home ownership as a social norm and positional good subjective wellbeing evidence from panel data much attention has been devoted to examining the absolute benefits of home ownership e g security and autonomy this paper by contrast is concerned with conceptualising and testing the relative benefits of home ownership those benefits that depend on an individual s status in society home ownership has previously been analysed as a social norm implying that the relative benefits costs associated with being an owner renter are positively related to relevant others home ownership values the theoretical contribution of this paper is to additionally conceptualise home ownership as a positional good implying that the status of both home owners and renters is negatively related to relevant others home ownership consumption the empirical contribution of this paper is to quantitatively test for these relative benefits in terms of subjective wellbeing we run fixed effects regressions on three waves of the british household panel study we find that 1 a strengthening of relevant others home ownership values is associated with increases decreases in the subjective wellbeing of home owners renters and 2 an increase in relevant others home ownership consumption decreases the life satisfaction of owners but has no effect for renters overall our findings suggest that 1 the relative benefits of home ownership are both statistically significant and of a meaningful magnitude and 2 home ownership is likely to be both a social norm and a positional good without explicitly recognising these relative benefits policymakers risk overestimating the contribution of home ownership to societal wellbeing

the relative income hypothesis a comparison of methods studies of the relative income hypothesis find positive and negative effects of relative income to facilitate comparisons we use a large household panel and highlight the sensitivity of the relative income effect to the definition of the reference group and to the estimation strategy employed

a note on the theory and measurement of trust in explaining differences in economic growth this paper takes issue with the trend to attribute differences in economic growth rates to differences in interpersonal trust i discuss the world values survey wvs measure that is used to operationalise trust at the macro level i hypothesise that there is a mismatch between the theoretical argument and the empirical operationalisation of trust instead of measuring trust the wvs measure may instead proxy the well functioning of institutions i provide circumstantial evidence for this thesis by a principal components analysis of trust and institutions and a robustness test of zak and knack s 2001 trust and growth economic journal vol 111 295 321 seminal study on trust and economic growth

interest rates exchange rates and present value models of the current account this paper develops a testable intertemporal model of the current account that allows for variable interest rates and exchange rates these additional variables are channels through which external shocks may influence the domestic current account the restrictions from the theoretical model are subjected to present value tests using quarterly data from three small open economies the paper finds that including the interest rate and exchange rate improves the fit of the intertemporal model over what was found in previous studies the model predictions better replicate the volatility of current account data and better explain historical episodes of current account imbalance

cross racial envy and underinvestment in south african partnerships trust games are employed to investigate the effect of heterogeneity in income and 5 race on cooperation in south africa the amount of socio economic information available to the subjects about their counterparts is varied no significant behavioural differences are observed when no such information is provided however when the information is available it significantly affects individual trust behaviour the low income subjects from both racial groups invest significantly less 10 in partnerships with the high income subjects of the other racial group than in any other partnership we attribute this behaviour to cross racial envy which on aggregate may lead to substantial efficiency losses

implications of an economic theory of conflict hindu muslim violence in india we model intergroup conflict driven by economic changes within groups we show that if group incomes are low increasing group incomes raises violence against that group and lowers violence generated by it we then apply the model to data on hindu muslim violence in india our main result is that an increase in per capita muslim expenditures generates a large and significant increase in future religious conflict an increase in hindu expenditures has a negative or no effect these findings speak to the origins of hindu muslim violence in post independence india

people do not adapt new analyses of the dynamic effects of own and reference income on life satisfaction abstract do people adapt to changes in income in contradiction to much of the previous literature i find no evidence of adaptation to income in gsoep 1984 2015 and ukhls 1996 2017 data furthermore i find that people also do not adapt to changes in reference income instead reference income effects may be subject to reinforcement over time following the empirical approach of vendrik 2013 i obtain these findings by estimating life satisfaction equations in which contemporaneous and lagged terms for a respondent s own household income and their estimated reference income are simultaneously entered additionally i instrument for own income and include lags of a large set of controls what was found to be adaptation to raw household income in previous studies turns out to have been driven by reinforcement of an initially small negative effect of household size that grows large over time implications of this result for the estimation of equivalence scales with subjective data are discussed

the not so dark side of trust does trust increase the size of the shadow economy this paper reports a negative relationship between the size of the shadow economy and generalized trust in a sample of countries both developed and developing that relationship is robust to controlling for a large set of economic policy and institutional variables to changing the estimate of the shadow economy and the estimation period and to controlling for endogeneity it is independent from trust in institutions and from income inequality and is mainly present in the sample of developing countries those findings suggest that the tax compliance effect of trust dominates its role as a substitute for the formal legal system

who compares to whom the anatomy of income comparisons in europe this article provides unprecedented direct evidence from large scale survey data on both the intensity how much and direction to whom of income comparisons income comparisons are considered to be at least somewhat important by three quarters of europeans they are associated with both lower levels of subjective well being and a greater demand for income redistribution the rich compare less and are happier than average when they do which latter is consistent with relative income theory with respect to the direction of comparisons colleagues are the most frequently cited reference group those who compare to colleagues are happier than those who compare to other benchmarks

is trust the missing root of institutions education and development we report evidence that trust is the missing root relating education institutions and economic development we observe that more trust both increases education and improves legal and bureaucratic institutions which in turn spurs economic development we substantiate this intuition with a series of regressions that provide evidence that trust determines both education and the quality of institutions and that education and institutions in turn affect gdp per capita

trust membership in groups and household welfare evidence from kwazulu natal south africa unfortunately these two literatures have remained largely unconnected the group and network literature concludes that participation has important economic benefits even when the stated function of the group is noneconomic in most cases however the mechanisms by which groups and networks achieve this are unclear the determinants of trust and participation in groups literature highlights the importance of income and social homogeneity what remains less understood is whether and how trust can be generated for example via participation in groups this article links the empirical literatures referenced above by exploring the relationship between membership in groups and trust specifically using longitudinal data from kwazulu natal province south africa we examine 1 the importance of trust in the decision to join groups 2 the subsequent ability of groups to generate trust and 3 the effect of group membership and trust on a measure of well being per capita household income in addition we disaggregate groups into financial and nonfinancial and we categorize trust in people by agent or actor therefore we can explore whether trust in different kinds of actors is important for participation in different kinds of groups and whether participation in different kinds of groups is important for generating trust in different kinds of actors excerpt

euro area current account imbalances a tale of two financial liberalizations abstract this paper explores the extent to financial liberalization in the euro area had a differential impact on members current account positions theoretically it builds on an inter temporal consumption model augmented with household heterogeneity low middle income groups are impatient and constrained whilst high income groups are patient and under no constraint increased access to international credit in previously financially repressed countries implies a relaxation of collateral constraints specifically for the low skilled low middle income group who differently from high income agents borrows to finance current consumption it follows that financial liberalization is associated with deteriorating external positions there where initial levels of financial openness are lowest and the share of the low skilled low middle income group with potentially binding collateral constraints largest the same approach is useful to understand asymmetric current account reversals which relates to suddenly biting collateral constraints in indebted peripheral countries where the great recession hit disproportionally the low skilled

cultivating trust norms institutions and the implications of scale we study the co evolution of honesty norms and institutions new trading opportunities require institutional changes to be realised since the initial vulnerability of institutions to opportunistic behaviour leads to the deterioration of norms we show how an escape from opportunism requires that institutional improvements outpace norm deterioration a key prediction emerges larger economies are more likely to evolve to steady states with strong honesty norms but need not have better institutions this prediction is tested using a cross section of countries population has a significant positive relationship with trust even when controlling for standard trust determinants and institutional quality

adaptation towards reference values a non linear perspective using large scale panel data we examine the dynamics of adjustment towards reference points for key workplace attributes we discover that an exponential smooth transition autoregressive estar model is superior to a linear model in characterizing such a process the speed of adjustment increases non linearly with the distance from reference points and adjustment is faster for job satisfaction shocks compared to shocks in earnings or work hours our findings lend further credence to the relative utility hypothesis and highlight the inherently non linear nature of the dynamic path of adjustment towards reference points a previously neglected issue in the adaptation literature

testing a present value model of the current account evidence from us and canadian time series abstract this paper presents a simple model of current account determination based upon the permanent income hypothesis of private consumption behavior under rational expectations the model employs a representative national agent who is forward looking and can borrow and lend at a constant world interest rate a present value relationship for the current account is derived and its implications are tested on post war data for the united states and canada testing is done using the framework developed by campbell and shiller 1987 which allows the forcing variables in the model to be difference rather than trend stationary our empirical results indicate the most stringent restrictions of the present value model are strongly rejected by the us and canadian data however less formal procedures suggest the consumption smoothing model has some ability to track the dynamic behavior of the us current account jel f32

diversification and its discontents idiosyncratic and entrepreneurial risk in the quest for social status social status concerns influence investors decisions by driving a wedge in attitudes toward aggregate and idiosyncratic risks i model such concerns by emphasizing the desire to get ahead of the joneses which implies that aversion to idiosyncratic risk is lower than aversion to aggregate risk the model predicts that investors hold concentrated portfolios in equilibrium which helps rationalize the small premium for undiversified entrepreneurial risk in the model status concerns are more important for wealthier households consequently these households own a disproportionate share of risky assets particularly private equity and experience greater volatility of consumption consistent with empirical evidence diversification and risk sharing are fundamental principles of modern finance and macroeconomics however empirical evidence suggests that household portfolios are poorly diversified with many people reporting substantial holdings of a single stock for the wealthiest households large shares in closely held businesses constitute a particularly important source of risk e g heaton and lucas 2000a it is not surprising that entrepreneurs bear substantial undiversified risk since it is important for mitigating moral hazard and or adverse selection problems yet from a standpoint of portfolio theory entrepreneurship does not appear to be well compensated implying that many investors are willing to take poorly rewarded risks despite the availability of superior investment opportunities such as public equity that earns a large risk premium e g moskowitz and vissing j0rgensen 2002 hall and woodward 2007

individual s religiosity enhances trust latin american evidence for the puzzle this paper explores the effect of religious observance and affiliation to the dominant religion catholicism on trust in institutions towards others and market attitudes the analysis is performed using a latin american database of twenty thousand respondents from 2004 by means of ordered probit models the most interesting results are i trust toward others is positively correlated with religious observance and with catholic affiliation ii there is a positive correlation between

trust and development in this paper we examine linkages between social trust and economic development using for the first time a panel of data we confirm earlier cross sectional studies finding that trust is a significant factor in development and also show for the first time that trust significantly interacts with both investment in physical and human capital we provide a robustness analysis of our results via a set of jackknife experiments on our main equations and the trust coefficients and interactions are very tightly distributed indicating that the results are not highly sample dependent we also consider whether trust directly influences investment and find that in a panel framework it does not unless we allow for a trust education interaction in the investment equation

domestic tourism demand of urban and rural residents in china does relative income matter abstract the aim of this research is to investigate the domestic tourism demand of urban and rural residents in china based on the data from the national household tourism survey we specify chinese domestic tourism demand as a function of absolute income relative income domestic tourism price and substitute price as a major contribution of this study relative income is measured using the distance between individual income and average income over a city province based on the estimation results from multilevel models this paper highlights the effect of relative income on domestic tourism demand in some sub regions of china furthermore regional differences between residents in different sub regions and different patterns of determinants between urban and rural residents are identified and discussed