a model based indicator of the fiscal stance we argue that the conventional approach to assessing the fiscal stance based on econometric tests of the government present value budget constraint pvbc is of limited practical use we propose an alternative measure that focuses on short run fluctuations in the fiscal stance namely a model based indicator that compares a target level of the debt gdp ratio at a given point in the future with a forecast based on the government budget constraint gbc where the forecasts are obtained using a recursively estimated var by log linearising the gbc the index can be decomposed into the various different components of which it is comprised using data from 1970 to 2011 we conduct a detailed time series study of the fiscal stances of four countries the united states the united kingdom germany and greece and we calculate the index for 11 other eu countries for most countries the index shows that their fiscal stances vary from being too loose to too tight almost without exception the index drops sharply from 2007 showing the harmful effect on their fiscal stances of the recent recession

choice proliferation simplicity seeking and asset allocation abstract in settings such as investing for retirement or choosing a drug plan individuals typically face a large number of options in this paper we analyze how the size of the choice set influences which alternative is selected we present both laboratory experiments and field data that suggest larger choice sets induce a stronger preference for simple easy to understand options the first experiment demonstrates that in seeming violation of the weak axiom of revealed preference subjects are more likely to select a given sure bet over non degenerate gambles when choosing from a set of 11 options than when choosing from a subset of 3 the second experiment clarifies that large choice sets induce a preference for simpler rather than less risky options lastly using records of more than 500 000 employees from 638 institutions we demonstrate that the presence of more funds in an individual s 401 k plan is associated with a greater allocation to money market and bond funds at the expense of equity funds

international and sectoral variation in industrial energy prices 1995 2015 energy price rises for industry are a major political concern access to cheap energy is often considered a key factor for the competitiveness of industry to enable international comparisons and to foster further empirical research on the impacts of energy price or tax differentials on a wide range of outcomes such as international trade and investment patterns we construct sector level energy prices for 12 industrial sectors in 48 countries for the period 1995 to 2015 our prices are constructed as weighted averages of fuel specific prices by fuel consumption we provide guidelines for the use of our energy price data which is made available for download as well as a set of stylized facts on major trends and variations and illustrative applications

marginal co2 cost pass through under imperfect competition in power markets abstract in line with economic theory carbon ets determines a rise in marginal cost equal to the carbon opportunity cost regardless of whether carbon allowances are allocated free of charge or not this paper aims at evaluating to what extent firms in imperfectly competitive markets will pass through into electricity prices the increase in cost by using the load duration curve approach and the dominant firm with competitive fringe model we show that the result is ambiguous the increase in price can be either lower or higher than the marginal co2 cost depending on several structural factors the degree of market concentration the available capacity whether there is excess capacity or not the power plant mix in the market and the power demand level peak vs off peak hours the empirical analysis of the italian context an emblematic case of imperfectly competitive market which can be split into four sub markets with different structural features provides a contribution supporting the model predictions market power therefore would determine a significant deviation from the full pass through rule but we cannot know the sign of this deviation a priori i e without before taking carefully into account the structural features of the power market

heterogeneity in choice inconsistencies among the elderly evidence from prescription drug plan choice abstract this paper investigates the degree to which choice inconsistencies documented in the context of medicare part d plan choice vary across consumers and geographic regions our main finding is that there is surprisingly little variation regardless of age gender predicted drug expenditures or the predictability of drug demand consumers underweight out of pocket costs relative to premiums and fail to consider the individualized consequences of plan characteristics as a result they frequently choose plans which are dominated in the sense that an alternative plan provides better risk protection at a lower cost we find limited evidence that the sickest individuals had more difficulty with plan choice and we document that much of the variation in potential cost savings across states comes from variation in choice sets not variation in consumers ability to choose

rating the raters are reputation concerns powerful enough to discipline rating agencies abstract credit rating agencies cras are accused of bearing a strong responsibility for contributing to the subprime crisis by having been deliberately too lax in the ratings of some structured products in response to this accusation cras argue that such an attitude would be too dangerous for them since their reputation is at stake the objective of this article is to examine the validity of this argument within a formal model are reputation concerns sufficient to discipline rating agencies we show that the reputation argument only works when a sufficiency large fraction of the cra income comes from other sources than rating complex products by contrast when rating complex products becomes a major source of income for the cra we show that it is always too lax with a positive probability and inflates ratings with probability one when its reputation is good enough we provide some empirical support for this prediction by showing that ceteris paribus the proportion of subprime residential mortgage backed securities rmbs that were rated aaa by the three main cras indeed increased over the last eight years we analyze the policy implications of our findings and advocate for a new business model of cras that we call the platform pays model

border carbon adjustments addressing emissions embodied in trade approximately one fourth of global emissions are embodied in international trade and a significant portion flows from non carbon priced to carbon priced economies border carbon adjustments bcas figure prominently as instruments to address concerns arising from unilateral climate policy estimating the volume of emissions that could be potentially taxed under a bca scheme has received little attention until now this paper examines how a number of issues involved in the implementation of bcas can affect their ability to cover emissions embodied in trade and thus address carbon leakage these issues range from ensuring compliance with trade provisions and assumptions on the carbon intensity of imports to determining which countries are included and whether intermediate and final demand are considered here we show that the volume of co2 captured by a scheme that involved all annex b countries could be significantly reduced due to these issues particularly by trade provisions such as the principle of best available technology bat as a consequence the tariff burdens faced by non annex b parties could dwindle considerably these findings have important policy implications as they question the effectiveness and practicalities of bcas to reduce carbon leakage and alleviate competitiveness concerns adding further arguments against their implementation

prescription drug use under medicare part d a linear model of nonlinear budget sets abstract medicare part d enrollees face a complicated decision they dynamically choose prescription drug consumption in each period given difficult to find prices and a nonlinear budget set we use part d claims data to estimate a flexible model of consumption that accounts for nonlinear prices dynamic responses and salience we use reduced form price responses from a linear regression of consumption on coverage range prices to compare performance under several models of behavior we find small price elasticities substantial myopia and that salient characteristics impact consumption beyond their effect on prices a hyperbolic discounting model with salience fits the data best

assessing the fiscal stance in the european union and the united states 1970 2011 the huge increases in debt gdp ratios following the 2007 2009 global financial crisis which are unprecedented except in times of war has focused attention on the viability of the fiscal positions of eu countries and the us how to assess this and the likely future evolution of these positions this paper proposes an indicator of the fiscal stance which computes the fiscal adjustment required to reach a specific debt gdp targeted given the forecasts of future deficit and interest rates obtained from an unrestricted recursively estimated var model the index is easy to compute and can be decomposed to disclose the different contribution of revenue expenditure nominal yields inflation and growth to the fiscal stance for this reason it provides a transparent and detailed measure of the fiscal stance particularly suitable for multi country surveillance as a result the index improves on the tax gap indicators widely used by governments and international agencies and is far more informative than formal econometric tests of fiscal sustainability the time series of the indicator for individual eu countries and the us show that their fiscal position has fluctuated considerably over the last 40 years and has particularly deteriorated since 2007 the index predicts that the adjustment required to restore pre crisis debt gdp levels are higher for high debt countries like greece italy and portugal they become more severe the shorter is the time horizon for the adjustment as a large degree of uncertainty surrounds the assessment of the fiscal stance in the medium and long run we argue that policy makers should inform their policy based on the worst case scenario predicted by the indicator

health insurance choice and risk preferences under cumulative prospect theory an experiment we investigate how consumers choose insurance contracts when using a measure of decision quality based on individual risk preferences for this we use a laboratory experiment with a sequential design first subjects face insurance choices then we elicit risk preferences allowing for different latent decision making theories i e cumulative prospect theory and expected utility theory we find that the vast majority are cumulative prospect theory types analyzing whether subjects choose contracts consistent with their risk preferences we find that about 14 of all participants show inconsistent behavior and low decision quality yet the majority shows consistent behavior and good decision quality our results suggest that one explanation for inconsistent choices is the application of heuristics

the medium term impact of medicare part d on pharmaceutical prices medicare part d began coverage of prescription drugs in 2006 using data from the first year of the program we found that part d reduced pharmaceutical prices for medicare recipients with these effects driven by enrollees previously without drug coverage in this paper we extend our analysis through 2009 the fourth year of the program to investigate whether plans continued to extract price concessions in return for favorable formulary placement or if consumer inertia or other factors caused prices to bounce back after their initial decline we find price declines persisted through at least the third year of the program

taxing consumption to mitigate carbon leakage this is a post print version of an article published in environmental and resource economics made available in accordance with the copyright policy of the journal publisher no commercial re distribution or re use is allowed this version may contain minor differences from the journal s pdf version

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

equilibrium in a production economy with an income tax this paper develops a method to study an infinite horizon production economy distorted by a state dependent income tax this setting permits taxes to depend on the capital stock an endogenous state variable and thus captures situations where the evolution for capital and taxes is jointly determined to solve this model the consumption function is represented as a fixed point of a nonlinear monotone operator that is defined such that its nth iteration computes the consumption function n steps away from the horizon for a corresponding finite horizon economy the oparator s monotonicity is exploited in proving the existence of and constructing an equilibrium copyright 1991 by the econometric society

first evidence of asymmetric cost pass through of eu emissions allowances examining wholesale electricity prices in germany abstract we test the hypothesis that rising prices of emission allowances have a stronger impact on wholesale electricity prices than falling prices asymmetric cost pass through using an autoregressive distributed lag model we confirm this hypothesis for the german market

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

sectors under scrutiny evaluation of indicators to assess the risk of carbon leakage in the uk and germany one of the central debates surrounding the design of the european union emissions trading scheme is the approach to address carbon leakage concerns correctly identifying the economic activities exposed to the risk of carbon leakage represents the first step in mitigating the risk effectively this paper assesses the robustness of the quantitative assessment criteria used by the european commission for phase 3 for example we apply the criteria to data for uk and germany and compare the results with the commissions assessment conducted at the aggregated eu level this reveals that sectors exposure risk to carbon leakage can vary across different member states due to differences in production processes technologies and fuel mix process emissions recycling rate differences product mix differences sector classification statistical boundaries activity allocation differences and finally difference in data quality overall we find that relative carbon intensity of sectors measured as cost increase relative to gross value added provides a robust metric the analysis also highlights the importance of using high quality and disaggregated data for this assessment

sources of emission reductions market and policy stringency effects abstract international trade and economic development affect air emissions previous studies have decomposed their effects into scale composition and technique effects while the scale and composition effects occur through market responses the technique effect is a policy stringency influence through the mix of environmental policies this study analyzes whether the market or policy stringency effects are more prominent previous studies have been unable to adequately separate the market and policy stringency effects to independently measure the technique effect we use two indicators of policy stringency i e shadow prices of energy and industrial energy prices these policy stringency measures are treated as endogenous the effects on six types of air emissions are estimated utilizing a sector specific international panel dataset that includes newly industrialized and former transition economies the empirical results show that the major source of emissions reductions is the policy stringency effect through carbon related policies pollution offshoring to countries with weaker carbon related regulation has a minor role in the reduction of air emissions

robust policies to mitigate carbon leakage abstract unilateral climate policy induces carbon leakage through the relocation of emission intensive and trade exposed industries to regions without emission regulation previous studies suggest that emission pricing combined with border carbon adjustment is a second best instrument and more cost effective than output based rebating we show that the combination of output based rebating and a consumption tax for emission intensive and trade exposed goods can be equivalent with border carbon adjustment moreover it is welfare improving for a region that implements emission pricing along with output based rebating to introduce such a consumption tax the welfare gain is particularly large if output based rebating is already implemented for a sector that is not much exposed to leakage e g due to uncertainty about exposure or due to lobbying activities thus supplementing output based rebating with a consumption tax constitutes robust policies to mitigate carbon leakage

sovereign credit ratings in the european union a model based fiscal analysis abstract we present a model based measure of sovereign credit ratings derived solely from the fiscal position of a country a forecast of its future debt liabilities and its potential to use fiscal policy to repay these we use this measure to calculate credit ratings for 14 european countries over the period 1995 2012 this measure identifies a european sovereign debt crisis almost two years before the official ratings of the credit rating agencies