the determinants of housing tenure choice in ibadan nigeria this paper estimates housing tenure choice models for the ibadan housing market in nigeria the empirical analysis based on a logit regression model reveals that the key determi i nants of the probability of home ownership are income the investment motive for home ownership number of children in the house gender of the head of household stage in family life cycle length of stay in the city and access to land on the basis of ethnic qualification access to institutional sources of housing finance is selective and as such has not been effective in enhancing home ownership across the city

estimating willingness to pay for housing characteristics an application of the ellickson bid rent model abstract the purpose of this paper is to estimate willingness to pay for housing characteristics using the discrete choice bid rent framework developed by b ellickson j urban econom 9 56 79 1981 and modified by s r lerman and c r kern j urban econom 13 358 363 1983 the paper provides an initial empirical test of the lerman and kern modifications using household level data from bogota colombia the results of the model are evaluated by comparing forecasted bid rents to actual rents and forecasted dwelling occupants to actual occupants by examining the demand prices which emerge from the analysis and by comparing the results to previous housing demand research which uses a hedonic type approach to analyze identical data the findings of the study show that the bid rent model works reasonably well in its predictions and in its estimates of the demand for attributes and in some ways it may perform better than a hedonic type model in forecasting the demand for housing attributes

a bid rent analysis of housing market discrimination the elimination of racial discrimination has long been a dominant american social concern laudably economists have contributed many studies which have attempted to identify and quantify such discrimination particularly in the area of the housing market the research reported here while following in this tradition employs a new approach in attempting to discover not only the magnitude of housing price discrimination but how its burden is incident upon different types of nonwhite households a model of urban housing markets will be developed from the bid rent theory which allows one to isolate empirically the distinct contributions to interracial housing price differentials made by variations in households preferences incomes and housing packages versus those made by discriminatory actions bid rent functions will be econometrically estimated for individual household observations stratified into groups of comparable age family size education socioeconomic class and race these functions will be used to estimate what the various nonwhite strata would be willing to bid for typical white occupied units the divergencies between such bids and prices actually paid by whites will provide a measure of the existence and magnitude of discrimination confronting nonwhite groups

economics of residential crowding in developing countries residential crowding is one of the most noticeable problems of housing in developing countries crowding in these countries is characterized by two important phenomena first a room is usually shared by more than two persons second a single dwelling unit is occupied by more than one household in developed countries residential crowding was widely observed in their early industrial cities but is no longer common yet it constitutes a housing problem for their low income groups a typical policy objective addressed to residential crowding in both developed and developing countries is the provision of a single dwelling unit for every household for instance in the united kingdom the 1945 housing white paper stated that the government s first objective is to afford a this analysis is part of a study of the korean housing market sponsored by the world bank primary credit is due to gill chin lim and james follain in this paper helpful comments have been received from david bradford james trussel and bryan brown an earlier version of this paper was presented at the second conference on major international economic issues university of southern california los angeles and february 1979

taxing capital not a bad idea after all we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic uninsurable income shocks and permanent productivity difierences of households the optimal capital income tax rate is signiflcantly positive at 36 percent the optimal progressive labor income tax is roughly a at tax of 23 percent with a deduction of 7 200 relative to average household income of 42 000 the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system jel e62 h21 h24

a model of rental housing choices in the korean market the main purpose of this study is to propose and estimate a model of korean rental housing choice using hierarchical logit analysis the study focuses on the examination of how households choose their dwelling units in a complex rental housing market the decision is viewed as a partial sequence process beginning with the choice of rental housing tenure and finishing with a decision on the type of occupation to examine an additional step in the urban spatial structure hedonic price technique is incorporated into a hierarchical logit model in addition the separate effects of permanent and transitory components of measured income are examined through the instrumental variables method based on human capital theory it is shown that the proposed model provides a potentially more useful method than another model the multinomial logit in analysing the korean rental housing market

uniqueness of stationary equilibrium payoffs in the baron ferejohn model abstract we consider a multilateral sequential bargaining model in which the players may differ in their probability of being selected as the proposer and the rate at which they discount future payoffs for games in which agreement requires less than unanimous consent we characterize the set of stationary subgame perfect equilibrium payoffs with this characterization we establish the uniqueness of the equilibrium payoffs for the case where the players have the same discount factor we show that the payoff to a player is nondecreasing in his probability of being selected as the proposer for the case where the players have the same probability of being selected as the proposer we show that the payoff to a player is nondecreasing in his discount factor journal of economic literature classification numbers c72 c78 d70

capital taxation and accumulation in a life cycle growth model almost all of the serious economic work on savings decisions within the past decade has relied on some variant of the life cycle hypothesis in which savings arise out of individual choices of an optimum lifetime consumption path this paper reexamines the incidence and welfare consequences of capital income taxes within a realistic life cycle model the results suggest that the elimination of capital income taxation would have very substantial economic effects for example a complete shift to consumption taxation might raise steady state output by as much as 18 percent and consumption by 16 percent the long run welfare gain from such a shift would for plausible parameter values exceed 150 billion annually stated somewhat differently shifting to consumption taxation would raise the lifetime utility of the representative consumer by the equivalent of about six years income in the new steady state these estimates dwarf estimates of the static welfare cost of taxation and significantly exceed even extreme previous estimates of the dynamic loss this study departs from earlier analyses of the effects of taxes on capital income in several respects probably the most important difference between this treatment and most preceding ones lies in the assumptions about the interest elasticity of saving it is shown below that the common two period formulation of saving decisions yields quite misleading results a more realistic model of life cycle savings demonstrates that for a wide variety of plausible parameter values savings are very interest elastic this implies that shifting away from capital income taxation would significantly increase capital formation making possible long run increases in consumption many studies of the welfare effects of capital income taxation have ignored the general equilibrium effects of increased capital formation in an economy with life cycle savings there is no presumption that the undistorted growth path corresponds to any sort of social optimum as peter diamond has shown life cycle savings can lead to a steady state capital intensity either greater or less than the golden rule level more generally it is clear that there is no reason to believe that a life cycle economy will maximize any particular intertemporal social welfare function a fundamental tenet of welfare evaluation is that preexisting distortions must be considered in evaluating the consequences of tax changes the results presented in this paper take explicit account of the nonoptimal character of the no tax steady state this explains in large part why such a sizeable welfare effect of capital taxes is found in an economy far from the golden rule level of capital intensity there are substantial gains in steady state consumption achievable through increased capital formation section i of the paper examines the aggregate savings function in a continuous time life cycle framework the second section clarifies the differences between wage and consumption taxes an aggregate production function is added to complete the model in the third section the effects of changes in capital taxes on both steady state incidence and welfare are considered within a general equilibrium framework the final section of the paper discusses some implications of the results and suggests areas which appear to warrant further study assistant professor of economics massachusetts institute of technology and research analyst national bureau of economic research i am grateful to alan auerbach martin feldstein laurence kotlikoff to the participants in the nber workshop on business taxation and to the harvard public finance seminar for useful discussions james poterba and james buchal performed the numerical calculations

on the desirability of taxing capital income in optimal social insurance abstract this paper analyzes optimal linear taxes on labor income and savings in a two period life cycle model with ex ante identical households endogenous leisure demands in both periods and general processes of skill shocks over the life cycle we demonstrate that the atkinson stiglitz theorem breaks down under risk capital taxes are employed besides labor income taxes for two distinct reasons i capital taxes reduce labor supply distortions on second period labor supply since second period labor supply and saving are substitutes ii capital taxes insure first period income risk although this benefit is partially off set because first period labor supply and saving are complements our results imply that retirement saving should not be actuarially fair

coalition and party formation in a legislative voting game we examine a legislative voting game where decisions are being made over both ideological and distributive dimensions and legislators preferences are separable over the two dimensions in equilibrium legislators prefer to make proposals for the two dimensions together rather than offering sequential proposals on the two dimensions separately the equilibria exhibit interaction between the ideological and distributive dimensions and in any equilibrium there is a positive probability that a proposal is made and approved which excludes the median legislator as defined over the ideological dimension in contrast with a game where no distributive decision is being made moreover in any stationary equilibrium there is more than one ideological decision that has a positive probability of being proposed and approved we show that legislators can gain from forming political parties and consider examples where predictions can be made about the composition of parties we discuss the impact of political parties on the outcome

short run fiscal policy welfare redistribution and aggregate effects in the short and long run abstract this paper quantifies the effects of two short run fiscal policies a temporary tax cut and rebate transfer that are intended to stimulate economic activities a reduction in income taxation provides immediate incentives to work and save more raising aggregate output and consumption a temporary rebate is mostly saved and increases consumption marginally both policies improve the overall welfare of households and the rebate policy benefits especially low income households in the long run however the debt accumulated to finance the stimulus and a higher tax to service the debt can crowd out capital and lower output and consumption causing welfare to deteriorate

gradual tax reforms if you like it you can keep it abstract one of the key practical challenges facing by tax reforms are their short run welfare consequences in this paper i focus on a consumption based tax reform for which despite long run welfare gains it generates welfare for some groups such as retirees or the working poor falls during transition between steady states using a life cycle model with heterogeneous households i show how to devise a transition path from the current u s federal tax system to a consumption based tax system that improves the welfare of current as well as future generations in a nutshell all households alive at the time of the policy change can choose when they want to switch to the new tax system or whether they want to switch at all i find that implementing a tax reform with this feature improves the welfare of 95 of population in the short run compared to less than a quarter of population in the conventional case with no choice it takes about twenty years for half of the population to pay their taxes under the new tax code

bargaining and value we present and analyze a model of noncooperative bargaining among n participants applied to situations describable as games in coalitional form this leads to a unified solution theory for such games that has as special cases the shapley value in the transferable utility tu case the nash bargaining solution in the pure bargaining case and the recently introduced maschler owen consistent value in the general nontransferable utility ntu case moreover we show that any variation in a certain class of our bargaining procedure which generates the shapley value in the tu setup must yield the consistent value in the general ntu setup

the distribution of abilities and the progressive income tax abstract this paper develops a model of endogenous labor supply where agents are uncertain about their future wages assuming risk aversion some redistributive taxation is thus warranted it is shown that for a particular parameterization of the tax system an optimally progressive income tax exists comparative ststics analysis demonstrates how this tax system is effected by changes in the wage distribution the paper ends with a discussion of whether an optimally progressive income tax can be politically sustained it is shown that generally this is not the case in a political system with majority voting

taxation and household labor supply we evaluate reforms to the u s tax system in a life cycle setup with heterogeneous married and single households and with an operative extensive margin in labor supply we restrict our model with observations on gender and skill premia labor force participation of married females across skill groups children and the structure of marital sorting we concentrate on two revenue neutral tax reforms a proportional income tax and a reform in which married individuals flle taxes separately separate flling our flndings indicate that tax reforms are accompanied by large increases in labor supply that difier across demographic groups with the bulk of the increase coming from married females under a proportional income tax reform married females account for more than 50 of the changes in hours across steady states while under separate flling reform married females account for all the change in hours

optimal linear and two bracket income taxes with idiosyncratic earnings risk abstract this paper quantitatively characterizes optimal linear and two bracket income taxes we consider a dynamic stochastic general equilibrium model in which tax design involves redistributing income for both equity and social insurance substantive findings include i a significant fraction of agents supply zero labor or hold zero assets at the optimum ii neglecting tax distortion imposed on either of labor leisure and consumption saving decisions will lead to the prescription of tax codes that deviate substantially from the optimum and iii the optimal two bracket tax schedule will turn from regressivity to progressivity in the marginal tax rate once the volatility of idiosyncratic shocks becomes sufficiently large the last finding is consistent with the results in apps et al forthcoming and it also reconciles the contradictory results regarding the optimal two bracket tax schedule between slemrod et al 1994 and strawczynski 1998

investments in human capital wage uncertainty and public policy abstract the importance of risk characteristics of human capital for the design of tax and education policy is explored wages are uncertain and education while increasing the expected wage may increase or decrease wage variance the government has strong reasons to encourage human capital formation in the latter case partly due to the insurance effect of human capital and partly due to the way the individuals under a plausible restriction on prudence respond to changes in risk the analysis is illustrated using two models of education one where education helps the individuals make better occupational choices and a standard risk augmented becker type model

housing crowding in developing countries and willingness to pay for additional space the case of korea the very rapid rate of urban population growth in developing countries is placing great strain on their housing stock housing policies which aim at reducing or eliminating crowding are generally based on notions of needs and standards of adequacy which are more often based on arbitrarily selected criteria than on domestic economic conditions this paper attempts to evaluate the willingness to pay for additional housing space by households and the validity of target housing standards the paper uses three different estimation procedures each with its own strengths and conceptual limitations to determine whether they yield consistent estimates of household willingness to pay for space they show consistently that the willingness to pay for additional space is less than 25 percent of the value of an extra unit of space everything else being equal

bargaining one dimensional social choices we analyze bargaining over the one dimension characteristic of a public good among n impatient players when decisions require q favorable votes q 2 stationary subgame perfect equilibrium strategies are characterized for all games with deterministic protocol we provide a monotonicity condition satisfied by all single peak strictly quasi concave and concave utilities that assures uniqueness for every q whenever player s utilities are symmetric around the peak without symmetry the monotonicity condition assures uniqueness for qualified majorities q n 2 provided that agents are sufficiently patient and utilities satisfy an additional regularity condition asymptotic uniqueness is assured for qualified majorities by imposing only the monotonicity condition

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

demand for housing attributes in developing countries a study of pakistan the paper has applied a conventional framework of analysis of implicit markets to determine the characteristics of demand for housing attributes of quantity and quality in the urban areas of a larg

a hedonic index model the housing market of jos nigeria this paper demonstrates the usefulness of the hedonic index approach to the study of housing markets in developing countries the study broadens the geographical scope of the various economic studi

a bargaining model of collective choice we present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional policy space in contrast to other bargaining models the status quo is not assumed to be bad and delay may be pareto efficient we prove existence of stationary equilibria the possibility of equilibrium delay depends on four factors risk aversion of the legislators the dimensionality of the policy space the voting rule and the possibility of transfers across districts if legislators are risk averse if there is more than one policy dimension and if voting is by majority rule for example then delay will almost never occur in one dimension delay is possible if and only if the status quo lies in the core of the voting rule and then it is the only possible outcome this core selection result yields a game theoretic foundation for the well known median voter theorem our comparative statics analysis yield two noteworthy insights i if the status quo is close to the core t hen equilibrium policy outcomes will also be close to the core a moderate status quo produces moderate policy outcomes and ii if legislators are patient then equilibrium proposals will be close to the core legislative patience leads to policy moderation

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

the budgetary and welfare effects of tax deferred retirement saving accounts abstract the present paper analyzes the budgetary macroeconomic and welfare effects of tax deferred retirement saving accounts similar to u s 401 k plans in a dynamic general equilibrium overlapping generations economy with heterogeneous households because of the initial deferral of tax payments the short run budgetary cost of tax deferred accounts is significantly higher than the long run cost therefore the budget neutral introduction of tax deferred accounts would make current and near future households worse off although it would increase national wealth and total output in the long run if the government spread the short run cost to future households by increasing debt the policy change could make all age cohorts on average as well off as the economy without tax deferred accounts due to increased government debt and debt service costs however national wealth and total output would decrease in the long run thus introducing tax deferred accounts would not increase national wealth and improve social welfare at the same time this is partly because the policy change is regressive and reduces the risk sharing effect of the current income tax system

social insurance and the optimum piecewise linear income tax abstract this paper calculates optimal linear income taxes when differences in income are caused by random factors luck rather than by unobserved individual skills as assumed in the classical theory of income taxation as first shown by varian 1980 varian h r 1980 redistributive taxation as social insurance journal of public economics 14 49 68 in the former case income taxation acts as social insurance by introducing life uncertainty and precautionary behavior we find higher optimal marginal tax rates than those found by varian we also find that in the context of a piecewise two bracket linear tax schedule the second marginal tax is higher than the first a finding that contrasts with results recently obtained in the framework of classical income taxation theory which show a lower second marginal tax

the effectiveness of consumption taxes and transfers as insurance against idiosyncratic risk we quantitatively evaluate the effectiveness of a consumption tax and transfer program as insurance against idiosyncratic earnings risk our framework is a heterogeneous agent incomplete market model with idiosyncratic wage risk and indivisible labor the model is calibrated to the u s economy we find a weak insurance effect of the transfer program extending the transfer system from the current scale raises consumption uncertainty which increases aggregate savings and reduces the interest rate furthermore consumption inequality shows a small decrease

coalitional bargaining with competition to make offers abstract the paper analyzes a simple discrete time noncooperative coalitional bargaining game in which at each stage there is a contest for the right to make a proposal the pure stationary subgame perfect equilibrium payoff set is equal to the core journal of economic literature classification numbers 026

taxing capital along the transition not a bad idea after all this paper quantitatively characterizes optimal tax systems in a model of overlapping generations when transitional cohorts are explicitly taken into account we use the recent study of conesa et al 2009 as an example but extend it by transitional dynamics we furthermore develop a general and coherent way of aggregating welfare effects of different individuals and cohorts in the short and long run our welfare measure includes the case of a utilitarian social welfare function yet is not limited to this perspective we show that the optimality of a high capital income tax rate along the transition crucially depends on the assumption of a utilitarian social welfare function this objective of the policy maker comprises implicit redistributive objectives across and within cohorts based on pure economic efficiency and insurance effects however we find a zero capital income tax rate and a less progressive labor income tax schedule to be optimal such a tax system receives political support from initial cohorts a high capital income tax regime on the other hand doesn t

urban squatting and community organization in developing countries abstract it is estimated that up to 30 35 percent of the total urban population of the third world about 185 million people live in squatter settlements this paper presents from an economic perspective of tenure choice under uncertainty a unified and consistent theoretical framework of this phenomenon which has heretofore been studied mainly by other social scientists the model is able to explain why land invasions occur furthermore it provides some insights as to why the number of squatters in an urban area depends on a squatter community s ability to form coalitions to fully protect its members rights it is shown in the paper that if a community is successful in controlling its size government efforts which are meant to reduce the number of squatters may lead to the opposite results in particular the imposition of heavier fines or the increase of government expenditures on eviction activity threat campaigns eviction in other jurisdictions etc will likely lead to an increase in the optimal number of squatters unless the decline in expected utility caused by these efforts is so great that squatting no longer becomes viable at any community size

uniqueness of stationary equilibrium payoffs in coalitional bargaining we study a model of sequential bargaining in which in each period before an agreement is reached the proposer s identity is randomly determined the proposer suggests a division of a pie of size one each other agent either approves or rejects the proposal and the proposal is implemented if the set of approving agents is a winning coalition for the proposer the theory of the fixed point index is used to show that stationary equilibrium expected payoffs of this coalitional bargaining game are unique this generalizes eraslan 34 insofar as a there are no restrictions on the structure of sets of winning coalitions b different proposers may have different sets of winning coalitions c there may be a positive probability that no proposer is selected

uniqueness of stationary equilibria in bargaining one dimensional policies under super majority rules article history we consider negotiations selecting one dimensional policies individuals have instanta neous preferences represented by continuous concave and single peaked utility functions and they are impatient decisions arise from a bargaining game with random proposers and super majority approval ranging from the simple majority up to unanimity we provide sufficient conditions that guarantee the existence of a unique stationary subgame perfect equilibrium and we provide its explicit characterization the uniqueness of the equilibrium permits an analysis of the set of pareto optimal voting rules for symmetric distributions of peaks and uniform recognition probabilities unanimity is the unanimously preferred ma jority rule

on the optimal income taxation some further numerical results abstract using numerical calculations we show in the optimal income tax model that a realistic value for the elasticity of substitution between consumption and leisure 0 5 leads to conclusions different from some of those drawn by mirrlees 1971 and atkinson 1973 the marginal tax rates are not so low and the shape of the tax schedule is for a great majority of the population substantially nonlinear a new feature in our calculations is that both results come out without going to maximin as done by atkinson 1973 we study in special cases the locality of the zero limit of the marginal tax rate at the upper end of the ability distribution and we achieve a very definite conclusion this result is really very local we also present an interesting approximation result concerning the relationship between the level of the government revenue and the marginal tax rate for individuals with high ability an important methodological remark analogous to sen s critique on the ethical measures of inequality is made on the interpretation of optimal income tax calculations

interest rate management in ldc s the mckinnon argument that higher time deposit rates raise output and lower inflation in the short run and increase medium term growth by raising the savings rate are shown to depend crucially on the assumption that portfolio shifts into td s come out of an asset providing less intermediation than the banking system we show that if instead the shift is out of an asset providing more intermediation e g loans on a curbmarket raising td rates is contractionary in the short run may have negative impacts on growth and can lead to more rather than less inflation in the short run

global growth ageing and inequality across and within generations the world s leading economies both developed and developing are engaged in an ever changing economic symbiosis that is governed in large part by demographics and technological change but also by pension healthcare and other fiscal policies this interconnected economic evolution what economists call general equilibrium growth holds important implications for inequality across and within generations this paper presents such a general equilibrium model it features six goods five regions three skill groups and 91 overlapping generations each making life cycle consumption and labour supply decisions the model pays special attention to the evolution of the chinese and indian economies thanks to their rapid technological advance and vast populations these nations will play an ever more dominant role in determining the world s supplies of capital and labour particularly unskilled labour the good news for the developed world is that china and india will supply it with major amounts of capital over time thanks to their high saving rates the bad news is that these economies are also likely to bring much more unskilled relative to skilled labour into the market which will over time dramatically reduce the relative wages of unskilled workers in the us europe and japan this relative increase in the world supply of unskilled workers reflects in large part the simple fact that china and india are gradually bringing each of their skill groups up to western standards but have relatively more unskilled labour in their work forces copyright 2010 oxford university press

optimal linear income tax with random revenue abstract this paper introduces the concept of risk attitudes a government may take toward random revenue in the design of a linear income tax it shows that the familiar trade off formula between equity and efficiency can be derived either by assuming a risk neutral government attitude toward random revenue or by assuming no randomness of revenue we provide numerical analysis to demonstrate that optimum tax schedules for a non risk neutral government can significantly deviate from those for a risk neutral government

optimal annuitization with stochastic mortality and correlated medical costs the conventional wisdom since yaari 1965 is that households without a bequest motive should fully annuitize their investments numerous frictions do not break this sharp result we modify the yaari framework by allowing a household s mortality risk itself to be stochastic due to health shocks a lifetime annuity still helps to hedge longevity risk but the annuity s remaining present value is correlated with medical costs such as those for nursing home care thereby reducing annuity demand even without ad hoc liquidity constraints we find that most households should not hold a positive level of annuities and many should hold negative amounts jel d14 d82 g23 i12 j14 j26

optimal degree of progressivity under income uncertainty the insurance effect is introduced into the design of the optimal income tax policy when individual income is uncertain one of the most noteworthy aspects of this analysis is that now it is even more difficult to derive analytically useful results for income tax policy purposes than it was in earlier analyses using numerical methods it is shown that under quite reasonable assumptions regarding utility function and income distribution we obtain a progressive marginal tax rate structure which is rather similar to the structures actually observed in many countries

the demand for housing characteristics in developing countries this paper develops and estimates an econometric model of the household demand for housing characteristics the model is estimated using data from five cities and three developing countries overall the procedures employed work well in a wide variety of circumstances more specifically it is found that 1 household willingness to pay for living space increases with income but at a less than proportionate rate 2 willlingness to pay for living space declines as household size increases 3 willingness to pay for several quality measures structural quality wall roof and floor quality is quite responsive to income

labour income uncertainty taxation and public good provision this article examines optimal nonlinear income taxation commodity taxation and public good provision under income uncertainty in a moral hazard framework uniform commodity taxation and the samuelson rule for public good provision are desirable under similar conditions as in the conventional tax model deviations from these rules is warranted if one can encourage effort by subsidising certain goods and overproviding public goods we also determine a rule for the optimal marginal income tax rate and provide some numerical simulations conditions for the validity of the solution procedure used in this class of models the first order approach are also explored uncertainty is a key component of many important real world decision making processes consider for example an individual s decision to acquire specific skills through education educational investments must be made well before the resolution of uncertainty related to the returns to skill thus the tax system which affects the net returns of different skill levels has a potentially large impact on educational decisions skill attainment and productivity a progressive tax system offers insurance to workers by redistributing income from the lucky to the unlucky other forms of social insurance such as unemployment and health insurance work in a similar manner a well known problem in the design of optimal income tax under uncertainty or any insurance mechanism is asymmetric information between the government and individuals income is partly due to individual effort and partly due to luck but the planner can only observe realised income not effort the optimal redistribution scheme is a balance between providing the workers with adequate incentives to acquire skills and sufficient insurance mirrlees 1974 was the first to examine the design of optimal redistributive income tax under income uncertainty this moral hazard model later used among others by varian 1980 tuomala 1984 and low and maldoom 2004 is an alternative to the more well known adverse selection model of mirrlees 1971 where income dispersion arises from differences in innate skill levels the moral hazard model is perhaps most appealing in the tax context when effort is interpreted as an ex ante decision on educational investment alternatively one can interpret the discussion as a general analysis of social insurance 1 income tax is only one element albeit an important one in the design of optimal government redistributive policy indeed recent optimal tax literature has devoted a lot of attention to the use of other instruments such as commodity taxation minimum

a life cycle model of unemployment and disability insurance abstract a general equilibrium life cycle model is developed in which individuals choose a sequence of saving and labor supply faced with search frictions and uncertainty in longevity health status and medical expenditures unemployed individuals decide whether to apply for disability insurance di benefits if eligible we investigate the effects of cash transfer and in kind medicare component of the di system on the life cycle employment without medicare benefits di coverage could fall significantly we also study how di interacts with reforms of social security and medicare and find that di enrollment amplifies the effects of reforms

moral hazard income taxation and prospect theory the standard theory of optimal income taxation under uncertainty has been developed under the assumption that individuals maximise expected utility however prospect theory has now been established as an alternative model of individual behaviour with empirical support this paper explores the theory of optimal income taxation under uncertainty when individuals behave according to the tenets of prospect theory it is seen that many of the standard results are modified in interesting ways the first order approach for solving the optimisation prob lem is not valid over the domain of losses and the marginal tax schedule offers full insurance around the reference consumption level the implications of non welfarist objectives under income uncertainty are also examined

on the asymptotic uniqueness of bargaining equilibria abstract this note reexamines the connection between the asymmetric nash bargaining solution and the equilibria of strategic bargaining games a first example shows non convergence to the asymmetric nash bargaining solution a second example demonstrates the possibility of multiple limits

shadow prices for project evaluation under alternative macroeconomic specifications for purposes of social cost benefit analysis a project may be viewed as a disturbance to the economy displacing it from some initial equilibrium to a new one but the new configuration will depend on which particular variables adjust to restore equilibrium this paper examines the shadow prices for project evaluation under alternative assumptions about how equilibrium is restored when the government reacts by altering its foreign exchange reserves the shadow prices coincide with those advocated in the manuals on social cost benefit analysis however if the government adjusts its domestic expenditures or tariff rates the shadow prices will differ from those of the manuals except insofar as the relative shadow prices of tradeables remain their relative border prices the paper first presents the model followed by two cases in which domestic prices and wage rates do not vary because ad valorem tariffs are fixed and one case in which they are endogenous

does social security privatization produce efficiency gains while privatizing social security can improve labor supply incentives it can also reduce risk sharing we analyze a 50 privatization using an overlapping generations model where heterogeneous agents with elastic labor supply face idiosyncratic earnings shocks and longevity uncertainty when wage shocks are insurable privatization produces about 18 100 of extra resources for each future household after all transitional losses have been compensated for with lump sum taxes when wages are not insurable privatization reduces efficiency by about 2 400 per future household we check the robustness of these results to different model specifications as well as policy reforms and arrive at several surprising conclusions first privatization performs better in a closed economy where interest rates decline with capital accumulation than in an open economy second privatization also performs better when an actuarially fair private annuity market does not exist third government matching of private contributions on a progressive basis is not very effective at restoring efficiency and can actually cause harm

optimal taxation prudence and risk sharing abstract this paper analyses optimal income taxation as a trade off between the incentive effects of increased uncertainty and the welfare benefits of social insurance greater prudence increases labour supply because of precautionary incentive effects which reduce the progressivity of the optimal income tax schedule increased uncertainty increases progressivity of the income tax schedule because of a greater value of social insurance optimal tax progressivity depends on the ratio of prudence to risk aversion when this ratio is high incentive effects dominate the social insurance effect leading to declining optimal income tax rates

income risk macroeconomic and demographic change and economic inequality in japan abstract using an olg model with heterogeneous households we investigate the relationship among income risk macroeconomic and demographic changes and economic inequality between 1980 and 2000 in japan by decomposing the primary factors in earnings and consumption inequality into macroeconomic variables and the demographic variable we find that our model replicates the evolution of economic inequality in japan by performing counterfactual simulations we demonstrate that two factors changes in time varying macroeconomic factors and the unexpected decline in the total factor productivity growth rate played important roles in the increase in earnings and consumption inequality in the 1990s

labor dependent capital income taxation abstract capital taxation which is negatively correlated with labor supply is proposed this paper uses a life cycle model of heterogeneous agents that face idiosyncratic productivity shocks and shows that the tax scheme provides a strong work incentive when households possess large assets and high productivity later in the life cycle when they otherwise would work less the system also adds to the saving motive of prime age households and raises aggregate capital the increased economic activities expand the tax base and the revenue neutral reform results in a lower average tax rate the negative cross dependence generates a sizable welfare gain in the long run relative to the tax system that treats labor and capital income separately as a tax base the reform however can hurt the elderly during the transition with a high marginal tax on their capital income

optimal wage and income taxation with wage uncertainty optimal taxation in a two period model with human capital investment and second period wage uncertainty is analyzed a proportional tax on wages dominates lump sum taxation and the socially optimal level of human capital exceeds that which individuals choose a tax on interest income may raise welfare by encouraging investment in human capital the interest income tax reduces the difference between returns to physical and human capital from individuals inability to reduce human capital risk through diversification a positive interest income tax rate may therefore be optimal even with an optimal wage tax by encouraging m ore investment in human capital copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a noncooperative theory of coalitional bargaining the authors explore a sequential offers model of n person coalitional bargaining with transferable utility and with time discounting their focus is on the efficiency properties of stationary equilibria of strictly superadditive games when the discount factor delta is sufficiently large it is shown that delay and the formation of inefficient subcoalitions can occur in equilibrium the latter for some or all orders of proposer however efficient stationary equilibrium payoffs converge to a point in the core as delta approaches one strict convexity is a sufficient condition for there to exist an efficient stationary equilibrium payoff vector for sufficiently high delta

a noncooperative view of coalition formation and the core a noncooperative implementation of the core is provided for games with transferable utility the implementation obtained here is meant to reflect the standard motivation for the core as closely as possible in the model proposed time is continuous this idealized treatment of time is most amenable for capturing an essential feature of the core there is always time to reject a noncore proposal before it is consumated

one dimensional bargaining we study a model of multilateral bargaining over social outcomes represented by the points in the unit interval the acceptance or rejection of a proposal is determined by an acceptance rule represented by the collection of decisive coalitions the focus of the paper is on the asymptotic behavior of subgame perfect equilibria in stationary strategies as the players become infinitely patient we show that along any sequence of stationary subgame perfect equilibria the social acceptance set collapses to a point this point called the limit of bargaining equilibria is independent of the sequence of equilibria and is uniquely determined by the set of players the utility functions the recognition probabilities and the acceptance rule the central result of the paper is a characterization of the limit of bargaining equilibria as a unique zero of the characteristic equation

strategic voting over strategic proposals prior research on strategic voting has reached the conclusion that unanimity rule is uniquely bad it results in destruction of information and hence makes voters worse off we show that this conclusion depends critically on the assumption that the issue being voted on is exogenous that is independent of the voting rule used we depart from the existing literature by endogenizing the proposal that is put to a vote and establish that under many circumstances unanimity rule makes voters better off moreover in some cases unanimity rule also makes the proposer better off even when he has diametrically opposing preferences in this case unanimity is the pareto dominant voting rule voters prefer unanimity rule because it induces the proposing individual to make a more attractive proposal the proposing individual prefers unanimity rule because the acceptance probabilities for moderate proposals are higher we apply our results to jury trials and debt restructuring

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

risk sharing and efficiency implications of progressive pension arrangements the present paper aims to quantify the welfare effects of progressive pension arrangements in germany starting from a purely contribution related benefit system we introduce basic allowances for contributions and a flat benefit fraction since our overlapping generations model takes into account variable labor supply borrowing constraints as well as stochastic income risk we can compare the labor supply the liquidity and the insurance effects of the policy reform our simulations indicate that for a realistic parameter combination an increase in pension progressivity would yield an aggregate efficiency gain of more than 2 percent of resources however such a reform would not be implemented because it would not find political support of the currently living generations

a joint model of tenure choice and demand for housing in the city of karachi the paper estimates a joint model of tenure choice and demand for housing for the city of karachi pakistan using a two stage estimation procedure permanent income and demographic variables are included in the analysis the study uses data collected at the household level in the city in 1987 88 results show that ownership rates are high in karachi ownership is more likely with increases in permanent income age household size and residence in the unauthorised areas permanent income transitory income age and education of the head significantly affect the consumption of housing both for renter and owner households results of the analysis and the estimated income elasticities of demand are comparable and consistent with those reported for other developing countries

uniqueness of stationary equilibria in a one dimensional model of bargaining abstract we prove uniqueness of stationary equilibria in a one dimensional model of bargaining with quadratic utilities for an arbitrary common discount factor for general concave utilities we prove existence and uniqueness of a minimal stationary equilibrium and of a maximal stationary equilibrium we provide an example of multiple stationary equilibria with concave nonquadratic utilities

order independent equilibria we study a noncooperative game of coalition formation based on an underlying game in coalitional form we introduce order independent equilibria oie a strategy profile is an oie if for any specification of first movers in the sequential game it remains an equilibrium and leads to the same payoff our results are 1 payoffs in oie that use pure stationary strategies must be in the core of the underlying game in coalitional form 2 if the underlying game has the property that all its subgames have nonempty cores then for each payoff vector there exists an oie with the same payoff journal of economic literature classification numbers c70 c71 c72 c78

consumption taxes and economic efficiency with idiosyncratic wage shocks fundamental tax reform is examined in an overlapping generations model in which heterogeneous agents face idiosyncratic wage shocks and longevity uncertainty a progressive income tax is replaced with a flat consumption tax if idiosyncratic wage shocks are insurable i e no risk this reform improves interim efficiency a result consistent with the previous literature but if more realistically wage shocks are uninsurable this reform reduces efficiency even though national wealth and output increase over the entire transition path this efficiency loss in large part stems from reduced intragenerational risk sharing that was previously provided by the progressive tax system

an equilibrium analysis of fiscal policy with uncertainty and incomplete markets insurance aspects of tax policies are studied in a simple intertemporal general equilibrium model in which agents are uncertain about both the future wage rates and the rate of return on capital taxation and lump sum subsidy policies generally reduce employment output and the capital stock but nonetheless they can be structured to provide pareto improvements on the incomplete market equilibrium these policies provide insurance against individual shocks not aggregate shocks examples of welfare maximizing tax schemes are provided using a simple computable general equilibrium model copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

hedonic prices and the demand for housing attributes in a third world city the case of ibadan nigeria this paper estimates the demand functions for a set of housing attributes for the city of ibadan nigeria using rosen s two step estimation procedure the empirical results reveal that the most im

population aging health care and fiscal policy reform the challenges for japan we construct a transition analysis based on a general equilibrium life cycle model to investigate the effects of aging and we evaluate various policy alternatives designed to lessen the negative influence of aging in particular we analyze reforms of insurance benefits and tax financing tools that were recently the focus of a great amount of attention and debate in japan because of the tense financial situation there we show that although the potential reforms improve the welfare of future generations the political implementation of such reforms is difficult because of the large welfare costs for the current population our analysis suggests that a gradual reform with an intergenerational redistribution will be more politically implementable than an immediate reform

nit picking the macroeconomic effects of a negative income tax i study a revenue neutral reform of the u s income tax and welfare system that involves the adoption of a negative income tax nit the reform is undertaken in a life cycle economy with individual heterogeneity and uninsurable idiosyncratic labor risk the optimal nit consists of a 22 rate and a transfer equivalent to 11 of per capita gdp the ex ante average welfare gain is a 2 1 annual increase of individual consumption i show that a nit outperforms a flat tax reform income tax plus deduction by a considerable margin the key consequence of the reform is that high productivity agents increase their relative importance in the labor supply at the expense of low productivity agents