overconfidence and asymmetric information the case of insurance this paper contributes to the recent behavioral economics literature by showing that whether or not overconfidence changes qualitative predictions in asymmetric information markets may depend on the market structure itself we first show that overconfidence may overturn fundamental relations between observable variables in perfect competition asymmetric information insurance markets in monopolistic insurance markets in constrast we find that overconfidence may be observationally equivalent to variations in the risk composition of the economy our analysis provides a number of novel testable implications on i price heterogeneity within and across risk classes ii the relationship between ex post risk and insurance coverage iii the fact that a significant fraction of agents chooses to be uninsured and iv the relationship between underinsurance and age

does asymmetric information matter in the early insurance market evidence from the auto insurance market in the late 1960s the performance of automobile insurance declined dramatically in japan in spite of rapid growth in the diffusion rate and the premiums were sharply raised several times in order to improve the situation this observation indicates the possible presence of adverse selection death spiral and provides an ideal situation for assessing informational asymmetry using bodily injury liability bil insurance data from 46 japanese prefectures over the period 1966 to 1975 this article tests two hypotheses of adverse selection i high risk drivers were more likely to join the bil insurance market and ii sharp premium increases drove low risk policyholders away various empirical analyses show that there is little evidence for either type of adverse selection we also test whether a risk misperception hypothesis can explain our results and find some evidence that the population density have a significantly positive impact on the demand for bil insurance an earlier version of this artic

is unemployment lower if unions bargain over employment would there be more employment if unions bargained over employment and not only over wages most economists seem to answer yes 1

rates of time preference and consumer valuations of automobile safety and fuel efficiency this article estimates hedonic price models for automobiles using a data set on almost 3 000 households from the u s department of energy residential transportation energy consumption survey the standard hedonic models are generalized to recognize the role of discounting of fuel efficiency and safety yielding an estimated rate of time preference ranging from 11 to 17 percent this range includes the prevailing rate of interest for car loans in 1988 and is consequently consistent with market rates purchasers exhibit an implicit value of life ranging from 2 6 to 3 7 million which is within the range found in the labor market as well as other market contexts the model also estimates a significant price effect for auto injury risks and fuel efficiency

the effects of firm specific taxes and government mandates with an application to the u s unemployment insurance program abstract we examine the common but unexamined case of a tax or government mandate whose cost differs across firms within the same labor market our theoretical model shows that this variation can lead to employment reallocation across firms and dead weight losses even if there is no aggregate employment effect using firm level unemployment insurance tax data we find that while the market level tax is mostly born by the worker individual firms can only pass on a small share of the within market differences thus in some cases differences in taxes across firms can lead to large dead weight losses

the taxation of diesel cars in belgium revisited this paper compares the current taxation of diesel and gasoline cars in belgium with the guidelines for optimal taxation we find that diesel cars are still taxed much less than gasoline cars resulting in a dominant market share for diesel cars in the car stock if the fuel tax is the main instrument to control for externalities and generate revenues the diesel excise should be much higher than the excise on gasoline for two reasons diesel is more polluting than gasoline and more importantly through the better fuel efficiency diesel cars contribute less fiscal revenues per mile

wage bargaining and the phillips curve the identification and specification of aggregate wage equations most economists believe that wage setting is very important for understanding macroeconomic behavior but the form of wage equations commonly estimated suffer from problems of identification the aim of this paper is to consider whether these problems are inevitable and if they are not to suggest ways in whi ch one can estimate structural models of wage setting it is argued that if one confines attention to models of wage bargaining t hat are commonly used identification of the parameters of wage setting should not be a problem and that the most appropriate form of an aggregate wage equation should be a phillips curve copyright 1993 by royal economic society

marginal tax reform externalities and income distribution the paper examines welfare improving and revenue neutral directions marginal policy reforms for an economy with nonidentical individuals and an externality that has a feedback effect on the consumption of taxed goods it considers three types of policy instruments the indirect taxes the uniform poll transfer and public abatement this extends the framework set up by ahmad and stern 1984 bovenberg and de mooij 1994 and schob 1996 the theoretical model is illustrated for a specific externality namely congestion caused by peak car transport

tax push inflation in a unionized labour market in this paper the effect of changes in the average rate and in the progressivity of direct taxes on a the level of wages and b the extent to which cost of living increases are transmitted to wages are considered for a unionized labour market these effects are derived theoretically for different union objectives and the models applied to data for italian industry in a form which allows discrimination between these different objectives the empirical estimates for the preferred model are then used to determine the effects of the postulated tax changes

taxation and the structure of labor markets the case of corporatism we propose an explanation for the wide variation in rates of taxation across developed economies based on differences in labor market institutions in corporatist economies which feature centralized labor markets taxes on labor input will be less distortionary than when labor supply is determined individually since the level of labor supply is set by a small group of decision makers these individuals will recognize the linkage between the taxes that workers pay and the benefits that they receive labor tax burdens are indeed higher in more corporatist nations while nonlabor taxes are actually lower there is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies

macroeconomic performance and collective bargaining an international perspective this paper critically reviews the research on how collective bargaining systems influence macroeconomic performance in industrialized countries the review considers effects of bargaining level coordination and corporatist institutional arrangements key empirical results turn out to be quite fragile and much of the paper explores issues of measurement and specification that account for the fragility the paper concludes that complementarities between key institutions and between institutions and the economic environment may be more important for macroeconomic performance than the effects of individual institutions and it suggests research strategies

what has been learned about labor supply in the past twenty years the main advance in the study of labor supply in the past 20 years has come in recognizing and interpreting the variety of different labor supply functions that coexist in the empirical literature a crucial theoretical distinction with important empirical payoff is that between labor supply choices at the extensive margin i e labor force participation and employment choices and choices at the intensive margin i e choices about hours of work or weeks of work for workers another important distinction is the one between a descriptive labor supply function and a structural supply function that can be the basis for out of sample policy investigations concerning responses to tax and welfare programs and evaluations of welfare losses a full understanding of the participation hours dichotomy leads to an appreciation of the importance of the problem of selection bias what is the wage to impute to a nonworking person these distinctions are a legacy of the research conducted on labor supply over the past 20 years many important empirical questions have been addressed i how strong are the effects of taxes welfare and transfer programs on labor supply ii how important is intertemporal substitution can life cycle labor supply models explain business cycle labor supply behavior iii has the consensus view of the 1960 s of high labor supply elasticities for married women and low labor supply elasticities for married men held up all of the empirical evidence assembled on labor supply must be called into question in the light of important research on the basic quality of the data conducted by analysts at the university of michigan i discuss this evidence in a concluding section except for my discussion of measurement issues i focus only on the major discoveries about which a general consensus has emerged

estimating labour supply responses using tax reforms the 1980 s tax reforms and the changing dispersion of wages offer one of the best opportunities yet to estimate labor supply effects nevertheless changing sample composition aggregate shocks the changing composition of the tax paying population and discontinuities in the tax system create serious identification and estimation problems we develop grouping estimators that address these issues our results reveal positive and moderately sized wage elasticities we also find negative income effects for women with children

will a radical transport pricing reform jeopardize the ambitious eu climate change objectives abstract this paper examines the effects of replacing current fuel taxes by a system of taxes that account better for all the different external costs of the different transport modes one of the important implications of this reform is that current fuel taxes are decreased to a level of 80 euro ton of co 2 but that the mileage related taxes on car and truck use increase using the tremove model for the transport sector of 31 european countries one finds that the volume of transport will decrease because current taxes on transport are too low compared to overall external costs overall co 2 emissions will decrease slightly using the markal times model for the belgian energy sector putting all sectors and technologies on equal footing shows that a fuel tax reform makes that it is not cost efficient to require large co 2 emission reductions in the transport sector and that traditional car technologies will continue to dominate the car market in 2020 2030

matching with interviews abstract this paper explores how interviews affect the matching process when worker productivity is private information wages are determined by a single round of strategic bargaining after the worker is interviewed the implications of this hiring process for the efficiency of matching and the incidence and severity of statistical discrimination are considered the better are firms at identifying productive workers the worse the average quality of the unemployment pool so interviewing tends to slow down matching for every one multiple pareto rankable equilibria are possible such that any social group in a bad equilibrium faces stricter hiring standards longer spells of unemployment and lower welfare

the incidence of income tax on wages and labour supply in the simple framework of a static model for equilibrium wages and labour supplies we show that the incidence of income tax on equilibrium wages can be measured independently from the individual

why is automobile insurance in philadelphia so damn expensive the authors document and attempt to explain the observation that automobile insurance premiums vary dramatically across cities the authors argue that high premiums can be attributed at least in part to large numbers of uninsured motorists in some markets while uninsured motorists can be attributed to high premiums the authors construct a simple noncooperative equilibrium model that can generate inefficient equilibria with uninsured drivers and high yet actuarially fair premiums for certain parameterizations an efficient full insurance equilibrium and inefficient high price equilibria with uninsured drivers exist simultaneously helping to explain price variability across otherwise similar cities policy implications are discussed

the real effects of tax based incomes policies 1990 in most countries the citizens desire lower unemployment they also understand that this raises a problem of inflation and are consequently sympathetic to incomes policy however most actual incomes policies have collapsed often after a period of success

climate policies for road transport revisited ii closing the policy gap with cap and trade current policies in the road transport sector fail to deliver consistent and efficient incentives for greenhouse gas abatement see companion article by creutzig et al in press market based instruments such as cap and trade systems close this policy gap and complement traditional policies that are required where specific market failures arise even in presence of strong existing non market policies cap and trade delivers additional abatement and efficiency by incentivizing demand side abatement options this paper analyzes generic design options and economic impacts of including the european road transport sector into the eu ets suitable points of regulation are up and midstream in the fuel chain to ensure effectiveness cover all emissions and avoid double counting efficiency incentivize all abatement options and low transaction costs based on year 2020 marginal abatement cost curves from different models and current eu climate policy objectives we show that in contrast to conventional wisdom road transport inclusion would not change the eu ets allowance price hence industrial carbon leakage induced by adding road transport to the eu ets may be less important than previously estimated

are people inequality averse or just risk averse individuals preferences for risk and inequality are measured through choices between imagined societies and lotteries the median relative risk aversion which is often seen to reflect social inequality aversion is between 2 and 3 most people are also found to be individually inequality averse reflecting a willingness to pay for living in a more equal society left wing voters and women are both more risk and inequality averse than others the model allows for non monotonic swfs implying that welfare may decrease with an individual s income at high income levels which is illustrated in simulations based on the empirical results

the impact of employment tax cuts on unemployment and wages the role of unemployment benefits and tax structure abstract i model and simulate the effects of employment tax cuts on unemployment and wages in four equilibrium models competitive union bargaining search and efficiency wages i find that if the ratio of unemployment compensation to wages is fixed the effect of the tax cut is mainly on wages but if income out of work is fixed in real terms there are substantial employment effects when wages are determined by bargaining revenueneutral reforms that make the tax more progressive also reduce unemployment thus policy towards unemployment compensation and tax structure are key influences on the effect of taxes on unemployment

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

quantifying the premium externality of the uninsured in some insurance markets the uninsured can generate a negative externality on the insured leading insurance companies to pass on costs as higher premia using a novel panel data set and a staggered policy change that exogenously varied the rate of uninsured drivers at the county level in california we quantitatively investigate the effect of uninsured motorists on automobile insurance premia consistent with predictions of theory we find uninsured drivers lead to higher insurance premia specifically a 1 percentage point increase in the rate of uninsured drivers raises insurance premia by between 1 2 we also discuss corrective pigouvian taxes

payroll taxes and wage inflation the swedish experiences payroll taxes levied on employers have become an increasingly important part of the swedish tax system these taxes including various collective fees agreed on in central wage negotiations amounted to about 6 of the wage bill of private business in 1950 but had reached 40 in the late 1970s payroll tax increases have been quite dramatic during the last decade with tax rates climbing from 14 to 40 attempts to estimate the extent to which payroll tax increases have been directly shifted back onto labor as lower wages are reported in this paper the basic message of the empirical analysis is that payroll tax increases have produced some backward shifting on wages although the shifting appears to be far from complete a onepercent statutory wage cost increase is associated with an actual wage cost increase of about one half of a percent

the incidence of payroll taxation evidence from chile i provide new evidence on the incidence of payroll taxation by examining the experience of chile before and after the privatization of its social security system this policy change led to a sharp exogenous reduction in the payroll tax burden on chilean firms on average payroll tax rates fell by 25 over 6 years using data from a census of manufacturing firms i estimate that the incidence of payroll taxation is fully on wages with no effect on employment this finding is robust to a variety of empirical approaches to the problem of measurement error in firm level measures of taxes worker

earnings determination and taxes evidence from a cohort based payroll tax reform in greece author s saez emmanuel matsaganis manos tsakloglou panos abstract this paper analyzes the response of earnings to payroll tax rates using a cohort based reform in greece all individuals who started working on or after 1993 face permanently a much higher earnings cap for payroll taxes creating a large and permanent discontinuity in marginal payroll tax rates by date of entry in the labor force for upper earnings workers using full population administrative social security data and a regression discontinuity design we estimate the long term incidence and effects of marginal payroll tax rates on earnings standard theory predicts that in the long run new regime workers should bear the entire burden of the payroll tax increase relative to old regime workers in contrast we find that employers compensate new regime workers for the extra employer payroll taxes but not for the extra employee payroll taxes we do not find any evidence of labor supply responses around the discontinuity suggesting low efficiency costs of payroll taxes the non standard incidence results are the same across firms of different sizes tax incidence however is standard for older workers in the new regime as they bear both the employee and employer tax those results combined with a direct small survey of employers can be explained by social norms regarding seniority based pay which create a growing wedge between pay and productivity as workers age

the simple economics of motor vehicle pollution a case for fuel tax the volume of pollution produced by an automobile is determined by driver s behavior along three margins i vehicle selection ii kilometers driven and iii on road fuel economy the first two margins have been studied extensively however the third has received scant attention how significant is this intensive margin what would be the optimal policies when it is taken into account the paper develops and analyzes a simple model of the technical and behavioral mechanisms that determine the volume emissions produced by a car the results show that an optimal fuel tax would provide drivers with appropriate incentives along all three margins and that only public information is needed for a fuel tax to be set optimally in contrast an optimal distance tax would require private information lastly relative to the optimal fuel tax a simple uniform fuel tax is shown to be progressive thus being already deployed worldwide a uniform fuel tax is an attractive second best policy these findings should be accounted for when designing new mechanisms to alleviate motor vehicle pollution

35 years of reforms a panel analysis of the incidence of and employee and employer responses to social security contributions in the uk we exploit variation in national insurance contributions nics the uk s system of social security contributions and a large panel dataset to examine the effects of 35 years of employee and employer nics reforms on labour cost gross earnings plus employer nics hours of work and labour cost per hour both immediately 0 6 months after reforms are implemented and in the slightly longer term 12 18 months we consider assumptions under which the estimated coefficients on net of marginal and net of average tax rates in a panel regression can be interpreted as behavioural elasticities or as reflecting incidence we find a compensated elasticity of taxable earnings with respect to the marginal rate of employee nics of about 0 2 0 3 operating largely through hours of work while that with respect to the marginal rate of employer nics is not statistically significantly different from zero we also find that labour cost falls by a much larger amount when the average rate of employer nics is reduced than when the average rate of employee nics is reduced which is consistent with the economic incidence of nics being strongly affected by its formal legal incidence estimates from the hours and hourly labour cost regressions provide further support to this interpretation of the findings and also suggest the presence of substantial income effects though also after 1999 a puzzling effect of average employer nics rates on hours of work each of these results remains true after 12 18 months if anything coefficients on lagged changes in nics rates strengthen these findings implying that any shifting of employer nics changes to the individual employees concerned and vice versa for employee nics does not begin over this time horizon these results are similar to those found by lehmann et al 2013 for france but represent an extension of that work by considering hours as well as labour cost responses and second year as well as immediate effects

progressive taxation and wage setting some evidence for denmark the proposition that a progressive tax system contributes to wage moderation is studied using danish earnings data disaggregated by occupation gender and earnings level our main conclusions are that income tax progression affects wage setting but whether it moderates or exaggerates wage pressure is income dependent an increase in progressivity reduces the pre tax earnings of middle income workers manual male workers and moderate income earners among both male and female non manual workers the reverse is found for high income earners non manual male workers in that an increase in progressivity tends to raise pre tax earnings finally there is no significant effect of tax progressivity on the wages of low income earners jel classification h3 j3 j5 j6

wage setting and the tax system theory and evidence for the united kingdom abstract this paper analyses the effects of a non linear tax system on wage bargaining the main conclusions are an increase in the marginal income or payroll tax rate reduces the pre tax wage in the isoelastic case an increase in the average tax rate increases the pre tax wage by more than the tax increase and a measure of the progressivity of the tax system residual income progression is a sufficient measure of the effect of the tax system on wage pressure empirical evidence is presented to support these propositions and the predictions of the model regarding the effect of recent changes to the u k tax system on the distribution of earnings discussed

quality based price discrimination and tax incidence the market for gasoline and diesel cars in europe the existing tax policies toward gasoline and diesel cars in european countries provide a unique opportunity to analyze quality based price discrimination and the implied tax incidence in my econometric framework consumers choose the type of engine based on their annual mileage prices are set by the manufacturers the relative pricing of gasoline and diesel cars appears to be consistent with monopolistic price discrimination effectively segmenting low mileage from high mileage consumers on average about 75 to 90 of the price differentials between gasoline and diesel cars can be explained by markup differences i draw implications for the effectiveness and the revenue effects of tax policy

immigration and welfare magnets this article investigates if the location choices made by immigrants when they arrive in the united states are influenced by the interstate dispersion in welfare benefits income maximizing behavior implies that foreign born welfare recipients unlike their native born counterparts may be clustered in the states that offer the highest benefits the empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high benefit states than the immigrants who do not receive welfare or than natives as a result the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives