what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

the political economy of corporate control and labor rents in a democracy a political majority can influence both the corporate governance structure and the return to human and financial capital we argue that when financial wealth is sufficiently concentrated there is political support for high labor rents and a strong governance role for banks or large investors the model is consistent with the great reversal phenomenon in the first half of the twentieth century we offer evidence that in several financially developed countries a financially weakened middle class became concerned about labor income risk associated with free markets and supported a more corporatist financial system

the politics of financial development evidence from trade liberalization incumbents in various industries have different incentives to promote or oppose financial development changes in the relative strength of promoter and opponent industries thus result in changes in the political equilibrium level of financial development we conduct an event study using a sample of 41 countries that liberalized trade during 1970 to 2000 and show that the strengthening of promoter relative to opponent industries resulting from liberalization is a good predictor of subsequent financial development the benefits of developing the financial system are insufficient for financial development and rents in particular hands appear to be necessary to achieve it copyright c 2008 by the american finance association

the political economy of financial regulation evidence from u s state usury laws in the 19th century financial regulation was as hotly debated a political issue in the 19th century as it is today we study the political economy of state usury laws in 19th century america exploiting the wide variation in regulation enforcement and economic conditions across states and time we find that usury laws when binding reduce credit and economic activity especially for smaller firms we examine the motives of regulation and find that usury laws coincide with other economic and political policies favoring wealthy political incumbents particularly when they have more voting power the evidence suggests financial regulation is driven by private interests capturing rents from others rather than public interests protecting the underserved we examine the motives and consequences of financial regulation to better understand the implications of regulation for financial development and economic growth while the current global financial crisis has reinvigorated the debate on financial regulation s effects and motives there is a long history of financial regulation and development we can examine to shed light on these issues specifically we study the political economy of financial regulation and its consequences through the lens of usury laws in 19th century america usury laws are arguably the oldest form of financial regulation mentioned in both the bible and the koran and dating back to ancient rome having long been

an assessment of the current structure of food demand in urban china we evaluate the current structure of food demand in urban china by using household expenditure survey data from five provinces two complementary analyses are undertaken first an aggregate analysis based on a fractional logit model is used to examine how households allocate food expenditures across the food at home fah and food away from home fafh categories this is followed by a disaggregated analysis of how households allocated their fah expenditures across 12 commodity categories a quadratic almost ideal demand system quaids is used we find evidence of significant food purchase substitution and complementarity

intergenerational mobility under private vs public education intergenerational earnings mobility is analyzed in a model where human capital is produced using schooling and parental time in steady states more mobile societies have less inequality but in the short run higher mobility may result from an increase in inequality starting from the same inequality mobility is higher under public than under private education a rise in income shocks for example due to increased returns to ability or a switch from public to private schooling both increase inequality however increased shocks raise mobility in the short run and do not affect it in the long run whereas an increased role for private schooling reduces mobility in both the short and long run that these differences may help to identify the source of changes in inequality and other real world implications are illustrated in a brief discussion of time trends and cross country differences

zero expenditures and the estimation of engel curves over the brief interview periods typical of budget surveys such as the u k family expenditure survey households recorded expenditures are liable to be misleading indicators of their underlying consumption most starkly a household may not be observed to purchase commodities that it nevertheless consumes this paper considers the implications of such measurement errors for the estimation of demand systems and derives a consistent estimator for the special case of linear engel curves

the finance growth nexus evidence from bank branch deregulation this paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the united states we find that the rates of real per capita growth in income and output increase significantly following intrastate branch reform we also argue that the observed changes in growth are the result of changes in the banking system improvements in the quality of bank lending not increased volume of bank lending appear to be responsible for faster growth

semiparametric estimation and consumer demand this paper considers the implementation of semiparametric methods in the empirical analysis of consumer demand the application is to the estimation of the engel curve relationship and uses the british family expenditure survey household composition is modelled using an extended partially linear framework this is shown to provide a useful method for pooling non parametric engel curves across households of different demographic composition c 1998 john wiley sons ltd

rational addiction and the effect of price on consumption legalization of such substances as marijuana heroin and cocaine surely will reduce the prices of these harmful addictive drugs by the law of the downward sloping demand function their consumption will rise but by how much according to conventional wisdom the consumption of these illegal addictive substances is not responsive to price however conventional wisdom is contradicted by becker and murphy s 1988 theoretical model of rational addiction the becker murphy b m analysis implies that addictive substances are likely to be quite responsive to price in this paper we summarize b m s model of rational addiction and the empirical evidence in support of it we use the theory and evidence to draw highly tentative inferences concerning the effects of legalization of currently banned substances on consumption in the aggregate and for selected groups in the population addictive behavior is usually assumed to involve both reinforcement and tolerance reinforcement means that greater past consumption of addictive goods such as drugs or cigarettes increases the desire for present consumption but tolerance cautions that the utility from a given amount of consumption is lower when past consumption is greater these aspects of addictive behavior imply

fiscal policy composition of intergenerational transfers and income distribution abstract in this paper we characterize the relationship between the initial distribution of human capital and physical inheritances among individuals and the long run distribution of these two variables in a model with indivisible investment in education we analyze how the initial distribution of income determines the posterior intergenerational mobility in human capital and the evolution of intragenerational income inequality this analysis enables us in turn to characterize the effects of fiscal policy on future income distribution and mobility when the composition of intergenerational transfers is endogenous to this end we consider the following government interventions a pay as you go social security system a tax on inheritance a tax on capital income a tax on labor income and a subsidy on education investment

educational inequality and intergenerational mobility in latin america a new database abstract the causes and consequences of the intergenerational persistence of inequality are a topic of great interest among various fields in economics however until now issues of data availability have restricted a broader and cross national perspective on the topic based on rich sets of harmonized household survey data we contribute to filling this gap by computing time series for several indexes of relative and absolute intergenerational education mobility for 18 latin american countries over 50 years and making them publicly available we find that intergenerational mobility is on average rising in latin america this pattern seems to be driven by the high upward mobility of children from low educated families at the same time there is substantial immobility at the top of the distribution significant cross country differences are observed and are associated with income inequality poverty economic growth public educational expenditures and assortative mating

a microeconometric model analysis of us consumer demand for alcoholic beverages this paper discusses the specification and estimation of a two stage budgeting consumer demand for alcoholic beverages using 1987 88 usda individual and household food consumption survey data the upper level first stage budgeting decision is modelled via a gamma tobit model the lower level second stage budgeting allocates alcohol expenditure via a synthetic demand system for beer spirits and wine the synthetic system is constructed via a normalized linear combination of the level rotterdam cbs and an aids equivalent model data on individual three day alcohol consumption from the individual food intake survey are used for analysis while price and household characteristics information are obtained from the house hold food intake survey the results show that some individual and household characteristic variables as well as economic variables have significant impacts on consumer demand for alcoholic beverages

finance firm size and growth the authors examine whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth they define an industry s technological firm size as the firm size implied by industrial specific production technologies including capital intensities and scale economies using cross industry cross country data the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms this suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications

persistent inequality an explanation based on limited parental altruism abstract this paper proposes an alternative theory for the observed persistence in income inequality across households a theory based on limited parental altruism we argue that the degree of parental altruism is limited by the economic status of the parent a poor parent not only has less ability but also has less willingness to invest in children s human capital formation this generates a non linearity in such investment expenditures as a result initial income differences may perpetuate over time even with convex technology and convex preferences in this context we also compare the efficacy of the public vis a vis the private education system from the perspective of long run growth

privatization in eastern europe irreversibility and critical mass effects abstract this paper proposes a model to shed light on two important policy features of privatization in central and eastern europe the idea of a necessary critical mass of privatization on one hand and the great difficulties encountered in the actual privatization process on the other the model incorporates a positive externality related to the size of the private sector multiple equilibria may arise for political and economic reasons policies of free distribution are analysed with the model they may eliminate the danger of policy reversals due to excess unemployment but may at the same time increase the relative cost of restructuring leading in some cases to pareto inferior outcomes

an empirical analysis of alcohol addiction results from the monitoring the future panels in a panel of young adults we find that alcohol consumption is addictive in the sense that increases in past or future consumption cause current consumption to rise the positive and significant future consumption effect is consistent with the hypothesis of rational addiction the long run price elasticity is approximately 60 larger than the short run price elasticity and twice as large as the elasticity that ignores addiction thus a tax hike policy to curtail consumption or abuse may not have a favorable cost benefit ratio unless it is based on the long run price elasticity jel 110

political repression and child labour theory and empirical evidence most normative studies on child labour arrive at the conclusion that child labour is detrimental to social welfare child labour is however still prevalent in many developing countries even though in many of these countries it is forbidden by law in this paper we develop a political economic model that explains lenient enforcement of existing child labour legislation the most important implication of our model is that in countries with repressive political regimes enforcement is more lenient and child labour thus more prevalent than in countries enjoying political freedom we test this implication and find that it is confirmed by the data

cross section estimation of us demand for alcoholic beverage a flexible limited dependent variable model is used to examine us demand for alcoholic beverage parameterization and distributional assumptions of the double hurdle model cragg 1971 and tobit model tobin 1958 are rejected findings suggest that price income household composition and other characteristics have significant effects on alcohol consumption income and own price elasticities are significant but relatively small

income distribution and macroeconomics this paper analyzes the role of wealth distribution in macroeconomics through investment in human capital it is shown that in the presence of credit markets imperfections and indivisibilities in investment in human capital the initial distribution of wealth affects aggregate output and investment both in the short and in the long run as there are multiple steady states this paper therefore provides an additional explanation for the persistent differences in per capita output across countries furthermore the paper shows that cross country differences in macroeconomic adjustment to aggregate shocks can be attributed among other factors to differences in wealth and income distribution across countries

financial markets the pattern of industrial specialization and comparative advantage evidence from oecd countries due to underlying technological and organizational differences industries differ in their need for external finance since services provided by the financial sector are largely immobile across countries the pattern of industrial specialization should be influenced by the level of financial development among oecd countries we find a strong causal effect of the financial sector on industrial specialization further the financial sector is a source of comparative advantage in a way consistent with the hecksher ohlin vanek model results are also presented on which aspects of financial systems are important for specialization and comparative advantage

should higher education subsidies depend on parental income textabstractin many countries student grants tuition fees and subsidized loans depend on parental income this paper examines the efficiency and distributional effects of such conditioning and assesses whether it is optimal practice when the government wants to reduce after tax income inequality in the most efficient manner increasing the mean level of education among the work force compresses wage differentials by level of education and thereby the pre tax income distribution hence subsidizing education may be part of an optimal redistribution policy however education subsidies mainly benefit high ability students limiting their redistributive virtues conditioning education subsidies on parental income may enable the government to reduce inframarginal subsidies mainly benefiting high ability students while preserving the marginal subsidy and thus the favourable effect on the mean education level which leads to wage compression

the effects of the gender of children on expenditure patterns in rural china a semiparametric analysis we analyse expenditure patterns for rural china focusing on differences between families with boys and girls the sample includes more than 5000 nuclear families from 19 chinese provinces following the existing literature we estimate engel curves for food and for alcohol a typical adult good we use a flexible partially linear specification and allow for endogeneity of total expenditures the results are similar to those of other studies not providing much evidence of gender differentials we then focus on the decision to send a child to school and on the budget share spent on educational goods using both parametric and semiparametric estimates we find evidence that boys are more often sent to school and that expenditures on a boy that goes to school are larger than for a school going girl of the same age copyright 2005 john wiley sons ltd

the engel curve for alcohol and the rank of demand systems this paper shows that the quadratic shape of the engel curve for alcohol is induced by preference heterogeneity between drinkers and abstainers in a japanese data set with controlling the heterogeneity it is shown that the engel curve for alcohol slopes monotonically downwards for drinkers and that the probability of being a drinker is an increasing function of total expenditure these two relationships generate a quadratic shape for the engel curve for alcohol other goods in this data set appear to have nearly linear engel curves so if the alcohol engel curve for drinkers is also linear then after controlling for this preference heterogeneity the rank of this demand system would be two copyright 2006 john wiley sons ltd

sample selectivity models for away from home expenditures on wine and beer the impact of household characteristics on away from home wine and beer weekly expenditures in the usa is examined results imply that higher income households without children and headed by an older white and higher educated individual spend more on wine away from home than do others on the other hand smaller midwestern and western households without children and headed by a younger and white individual spend more on beer away from home than do others

returns to education a further international update and implications this paper updates evidence on the returns to investment in education by adding estimates for new countries and refining existing estimates to bring the total number of country cases to over 60 the new cross country evidence confirms and reinforces earlier patterns namely that returns are highest for primary education the general curricula the education of women and countries with the lowest per capita income the findings have important implications for directing future investment in education which for efficiency and equity purposes should concentrate on these priority areas

the profitability concentration relation market power or efficiency industrial economists have been studying the relationship between profitability and concentration using cross industry samples for many years now however as sometimes happens once it appeared that some consensus had been achieved with few exceptions market concentration and industry profitability are positively correlated peltzman i977 p 229 people began to question the interpretation of those results in particular demsetz e g i973 i974 and others suggested that rather than concentration market power leading to higher prices and profits the causal direction in fact ran from greater efficiency to both higher profits and incidentally to higher concentration our purpose here is to subject these conflicting hypotheses to cross industry empirical test using u k data in order to do this we first develop a model which is sufficiently general to allow for both alternative explanations of a positive concentration profitability correlation in the light of this model we then examine the implications for the within industry relation between market share and firm level profitability more specifically we explore demsetz s claim that the empirical form of this relationship should signal which of the alternative hypotheses is consistent with the between industry profitability concentration correlation our model suggests that in certain special circumstances this claim is partly justified in that it should be possible to assess the relative strengths of the market power and efficiency effects from the within industry relation more generally however factors such as product differentiation and scale economies may seriously impair the information content of the relation with at least a strong suspicion that the estimates will tend to exaggerate the evidence in favour of the efficiency hypothesis in the event our results tend to confirm that for most industries the within industry data offer little conclusive support for either hypothesis but for a not insignificant minority of industries the evidence suggests some support for the view that both efficiency and market power are at work simultaneously our model is detailed in section ii and estimated on u k data in section iii after which we offer a few comments in section iv first however we drovide a backcloth to the later analysis

are economic rents good for development evidence from the manufacturing sector abstract are rents or excess profits good for development rents could induce firms to lobby or bribe governments to preserve the status quo on the other hand rents may promote growth by giving firms the needed funds to make investments in fixed capital or research and development to test this question empirically we use a panel of manufacturing data at the industry country year level and measure rents by the mark up ratio we find that the relationship between rents and growth is strongly negative with the results being primarily driven by the poorer countries or those with worse institutions in the sample this result holds when we instrument for mark up using the average mark up in other industries in the country even in industries with high external financing needs and countries with less developed financial sectors precisely the places where excess profits could be used to drive growth we find that rents are especially harmful consistent with the rent seeking mechanism we highlight we find that high rents are associated with a slower reduction in tariffs we also test for the most likely alternative mechanism that higher rents cause slower growth through the channel of allowing managerial slack we find that controlling for management has little impact on our estimate of the impact of mark up on productivity growth

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

modelling milk purchasing behaviour with a panel data double hurdle model in this study the double hurdle model typically used in cross sectional data is extended to panel data structures the new double hurdle model can account not only for the censored nature of commodity purchases but also for the dynamics of the purchase process in this model a flexible error structure is assumed to account for state dependence and household specific heterogeneity in the empirical application for milk purchases it is found that generic advertising increases the probability of market participation as well as the purchase quantity and incidence temporal dependence is also found in both purchase and participation equations

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

social mobility what is it and why does it matter the definition of social mobility is a matter of debate in the following discussion conceptual issues in the literature on mobility are commented this paper defines social mobility as a situation in which the relative economic status of an agent is not dependent on starting conditions such as parental income or family background analyzing the determinants of mobility involves exploring the channels through which offspring s income is correlated to its parents such as inherited bequest education skills among many others this survey explores in an analytical framework the relation between social mobility and inequality among other important dimensions of income distribution that are jointly determined the focus is on the relevance of social mobility as it affects variables determining welfare and economic efficiency and therefore on policies to promote it

intergenerational earnings mobility inequality and growth abstract we examine a model in which per capita income inequality intergenerational mobility and returns to education are all determined endogenously individuals earn wages depending on their ability which is a random variable they purchase an education with transfers received from their parents and are subject to liquidity constraints in the model multiple steady state equilibria are possible countries with identical tastes and technologies can reach differing rates of mobility inequality and per capita income equilibria with higher levels of output also have lower inequality higher mobility and more efficient distribution of education

endogenous capital market imperfections human capital and intergenerational mobility in this paper capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers we develop a growth model with linear olg wealth dynamics where agents are heterogeneous in terms of observable wealth and ability which is private information we show that banks react to this informational asymmetry by granting higher loans to talented borrowers this in turn helps poor and talented agents to become educated and catch up with the rich agents furthermore the credit market friction leads to greater human capital accumulation

semiparametric quantile engel curves and expenditure elasticities a penalized quantile regression spline approach this article estimates nonparametric engel curves and expenditure elasticities by quantile for an exhaustive set of household expenditure categories using a novel estimation approach engel curves and expenditure elasticities are vital inputs to evaluating the effects of public policies this article examines whether engel curves and expenditure elasticities evaluated for an average individual are importantly different from the engel curves and expenditure elasticities at the upper and lower quantiles

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

spillovers stratification and inequality this paper surveys some recent work which seeks to model persistent income inequality and explain such phenomena as ghetto formation and poverty traps the paper illustrates how a number of these models possess a common structure in which local spillover effects interact with income based stratification of neighborhoods to transmit parental economic status from generation to generation as such these models represent an extension of the macroeconomic literature on spillovers and coordination failures to economic environments which endogenize the interaction environments of individual agents the theoretical and empirical justifications of these spillover and stratification effects are discussed finally some empirical implications of these models are analyzed

spending on alcohol evidence from the family expenditure survey 1970 1983 this paper reports on the investigation of a model of the determination of the share of household expenditure on alcohol using fes data for the united kingdom 1970 83 i e a time series of cross sections the authors pay special attention to the occurrence of zero expenditure variations in characteristics across the population and the modeling and interpretation of the stochastic term this term is modeled using the gamma distribution replacing the normal in tobit estimated parameters indicate strong positive skewness interactions between household characteristics and expenditure propensities are important copyright 1990 by royal economic society

urban development excessive entry of firms and wage inequality in developing countries this paper examines the short and long term effects of urbanisation via favourable urban development policies on income distribution and social welfare for a developing country in which the urban manufacturing sector is characterised by imperfect competition and free entry urbanisation shifts rural workers to the highly productive urban sector while causing production in urban firms to expand because of scale economies however urbanisation may worsen wage inequality between skilled and unskilled labour in the short term in the long term urbanisation can attract new firms to the urban sector and favourable urban development policies may result in excessive entry of firms which can amplify wage inequality in the economy this entry amplifying effect is confirmed empirically especially for low and lower middle income countries if the entry effect is not considered the impact of urbanisation on wage inequality could be understated by 13 for low and lower middle income countries

education technologies wages and technological progress abstract we analyze the worker s incentives to acquire skills under technological progress when the costs of education are endogenous and depend on the wage distribution we show that the agent s intergenerational elasticity of substitution plays then a relevant role in determining how incentives and the long run wage distribution react to technological progress moreover whenever poverty traps of unskilled workers exist higher rates of technological progress can even decrease the incentives of low skill workers to acquire skills we also analyze the effects of educational subsidies in contrast with previous analytical findings we obtain that subsidies always decrease the long run skill premium finally we study the efficiency of the resulting competitive equilibria

intergenerational persistence of earnings the role of early and college education recent empirical evidence from the united states indicates a high degree of persistence in earnings across generations designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings we provide a quantitative model of intergenerational human capital transmission that focuses on three sources innate ability early education and college education we find that approximately one half of the intergenerational correlation in earnings is accounted for by parental investment in education in particular early education we show that these results have important implications for education policy

are frequency and intensity of participation decision bearing aspects of consumption an analysis of drinking behaviour analysing quantity consumed per period implies a restriction on decisions about how frequently and intensely to consume this quantity hypothesis is rejected based on estimated equations for the frequency and intensity of spirit consumption consequently a simultaneous equation system for frequency and intensity is estimated as they enter the budget constraint as a multiplicative term income and education levels are found to be negatively related to intensity but not frequency this may reflect differences in the shadow prices of frequency and intensity for different socioeconomic groups or heterogeneous preferences for intoxication and health distinguishing between these aspects of drinking patterns is important for the evaluation of the price responsiveness of harmful drinking restrictions on availability and the causes of inequalities in health

capital market imperfections and countercyclical markups theory and evidence during recessions output prices seem to rise relative to wages and raw material prices one explanation is that imperfectly competitive firms compete less aggressively during recessions that is markups of price over marginal cost are countercyclical the authors present a model of countercyclical markups based on capital market imperfections during recessions liquidity constrained firms boost short run profits by raising prices to cut their investments in market share the authors provide evidence from the supermarket industry in support of this theory during regional and macroeconomic recessions more financially constrained supermarket chains raise their prices relative to less financially constrained chains copyright 1996 by american economic association

eating the rich vs feeding the poor borrowing constraints and the reluctance to redistribute this paper offers an explanation why most democracies arecharacterized by moderate taxation of wealth although thewealth distribution is persistently skewed to the right wemodel an economy in which agents have to acquire highereducation to qualify for skilled work and in which capitalmarket imperfections prevent poor individuals from making sucha profitable human capital investment if these borrowingconstraints do not bind for members of the middle class theymay rationally reject redistribution although both the currentand the future median of the wealth distribution are below themean

international trade and the accumulation of human capital changes in the terms of trade affect both the incentives and the ability of individuals to purchase education in a credit constrained economy a model is developed that shows how individual decision making is affected in a small economy when it opens up to trade empirical results indicate that credit constraints are an important factor influencing school enrollment rates particularly in low income countries as a result countries with low human capital stocks tend to increase their accumulation of human capital with increased trade the response in high income countries is more muted

oil curse economic growth and trade openness an important economic paradox in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita this paradox known as the resource curse is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity using panel data for 95 countries this study revisits the resource curse paradox in terms of oil resources abundance for the period 1980 2017 in addition the study examines the role of trade openness in influencing the relationship between oil abundance and economic growth the study finds trade openness is a possible avenue to reduce the resource curse in our sample trade openness reduces oil curse by around 25 trade openness allows countries to obtain competitive prices for their resources in the international market and access advanced technologies to extract resources more efficiently therefore natural resource rich economies can reduce the resource curse by increasing exposure to international trade

inequality and growth uncovering the main conclusions from the empirics abstractthis paper is a critical survey of the empirical literature on the effects of inequality on economic growth we conclude that it is most likely that the disparities found in the results are due to differences in the type of countries and time periods included in the samples the variable used to measure inequality the structure of the data and the estimation techniques these findings suggest that the mechanisms that link inequality to growth are likely to operate differently in different circumstances an element that may offer important guidelines for both policy makers and researchers

economic development as self discovery in the presence of uncertainty about what a country can be good at producing there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated we develop a general equilibrium framework for a small open economy to clarify the analytical and normative issues we highlight two failures of the laissez faire outcome there is too little investment and entrepreneurship ex ante and too much production diversification ex post optimal policy consists of counteracting these distortions to encourage investments in the modern sector ex ante but to rationalize production ex post we provide some informal evidence on the building blocks of our model

ethnic capital and intergenerational mobility this paper analyzes the extent to which ethnic skill differentials are transmitted across generations i assume that ethnicity acts as an externality in the human capital accumulation process the skills of the next generation depend on parental inputs and on the quality of the ethnic environment in which parents make their investments or ethnic capital the empirical evidence reveals that the skills of today s generation depend not only on the skills of their parents but also on the average skills of the ethnic group in the parent s generation

banking on politics when former high ranking politicians become bank directors new data are presented for a large number of countries on how frequently former high ranking politicians become bank directors politician banker connections at this level are relatively rare but their frequency is robustly correlated with many important characteristics of banks and institutions at the micro level banks that are politically connected are larger and more profitable than other banks despite being less leveraged and having less risk at the country level this connectedness is strongly negatively related to economic development controlling for this the analysis finds that the phenomenon is more prevalent where institutions are weaker and governments more powerful but less accountable bank regulation tends to be more pro banker and the banking system less developed where connectedness is higher a benign public interest view is hard to reconcile with these patterns banking sector development institutions political economy

public education and intergenerational economic mobility this paper examines the role of public education in determining intergenerational economic mobility it considers a model in which education is free and admission to schools is competitive the results indicate that for mobility to increase during the process of development the share of resources devoted to public education needs to be large enough to offset the relative advantage of having educated parents in academic attainment

statistical models for zero expenditures in household budgets household budget surveys are an important source of data on consumer s expenditure not just for individual consumers but also for estimating national aggregates however it is a widespread finding that for certain commodities most notably tobacco and alcohol the estimate from the household survey falls short of the known consumption total calculated with some confidence from data on production imports exports and excise duties for example in the british family expenditure survey with which we shall largely be concerned total tobacco expenditure was underestimated in 1976 by 21 percent see kemsley redpath and holmes 1980 p 51 much of this understatement together with that on alcohol is thought to occur because of the design of the survey which excludes many persons amongst whom consumption of such items is thought to be atypically high e g prisoners hoteliers and their residents merchant seamen even so the possibility remains that some of the understatement is due to various types of misreporting by households included in the survey in this paper we consider a model in which the standard tobit specification tobin 1958 is supplemented by the operation of a simple binary censor the tobit model is essentially a linear regression model in which non positive observations of the dependent variable are replaced by zero we take this specification as our starting point but add a second censoring process that randomly replaces a fraction of the observations generated by the tobit model bv zeroes the combined model can serve as a representation of several types of

consumption taxes in a life cycle framework are sin taxes regressive we construct measures of tax incidence over the life cycle and compare these measures to traditional measures based on annual data annual measures of the incidence of taxes on consumption goods may differ from life cycle measures for three reasons first annual measures of income reflect transitory components which should have smaller effects on consumption than permanent changes in income second income measured in a single period differs from lifetime income due to age related differences in earnings third consumption of certain items follows life cycle patterns independent of changes in income surprisingly we find that these effects cause little change in the assessment of the incidence of taxes on cigarettes for alcohol we find that a tax on its consumption is slightly less regressive when measured with respect to lifetime income than when measured with respect to annual income copyright 1995 by mit press

the demand for alcoholic beverages in spain the objective of this study is to analyze the main determinants of alcoholic beverages consumption at home data comes from the latest spanish household national survey which provides information on expenditure and quantities of different food products by household because households are interviewed only 1 week a large number of zeros have been recorded among the existing censured demand models the double hurdle dh model the purchase infrequency model and the tobit purchase infrequency model among others and after carrying out model selection tests the dh model has been finally estimated all expenditure elasticities are positive corresponding the highest value to spirits own price elasticities are negative and also in this case the spirits exhibit the highest value socio economic variables also play an important role in explaining consumer purchase and consumption decisions

measuring the substitution bias in japan the demand system approach and a superlative index this study estimates the demand system using japanese micro data and calculates the cost of living index coli to assess the substitution bias in the consumer price index the estimated bias during the sample period of 1982 2000 is about 0 06 percentage points which is larger than the estimates calculated from a superlative index the difference between the coli and a superlative index can be explained with the upward movements of the average utility level in japan since the cost of living for the rich has grown more rapidly than that for the poor

the real effects of government owned banks evidence from an emerging market using plant level data for brazilian manufacturing firms this paper provides evidence that government control over banks leads to significant political influence over the real decisions of firms i find that firms eligible for government bank lending expand employment in politically attractive regions near elections these expansions are associated with additional favorable borrowing from government banks further these persistent expansions take place just before competitive elections and are associated with lower future employment growth by firms in other regions the analysis suggests that politicians in brazil use bank lending to shift employment towards politically attractive regions and away from unattractive regions

a rational rank four demand system past parametric tests of demand system rank employed polynomial engel curve systems however by gorman s 1981 theorem the maximum possible rank of a utility derived polynomial demand system is three the present paper proposes a class of demand systems that are utility derived are close to polynomial and have rank four these systems nest rational polynomial demands and so can be used to test ranks up to four these systems are suitable for applications where high rank is likely such as demand systems involving a large number of goods a test of rank using this new class of systems is applied to uk consumer demand data

a double hurdle model of cigarette consumption this paper shows the importance of the double hurdle approach for modelling individuals cigarette consumption using data from the uk general household survey and argues that participation and consumption should be treated as separate individual choices the likelihood function for the full double hurdle is derived and it is shown how restrictions on the stochastic specification of the model and auxillary information which identifies ex smokers allow it to be decomposed the empirical results highlight the value of the sample separation information and the need to model starting and quitting as separate decisions

the welfare effects of alcohol taxation abstract this paper analyzes the question of how to appropriately tax alcoholic beverages at a disaggregated level using the theory of tax reform the social cost of raising revenue from different alcoholic beverages is calculated the externality associated with alcohol consumption is explicitly modeled the problem is approached by building a multistage budgeting model of expenditure which is necessitated by the lack of elasticity information at the required level of disaggregation the model is applied to a 1989 data set for ontario canada evidence for the existence of welfare improving tax changes is found

stratification and growth in agent based matching markets abstract this paper examines the dynamic impact of matching on economic mobility and growth to account for complex interactions over time experimental economies of heterogeneous agents are simulated with the match process acting as a fitness selection mechanism even with perfect information and substantial variety in both offspring and entrants two sided matching inevitably causes the population to evolve into stratified groups corrective measures are possible to improve mobility but by altering the path of market evolution a policy may have unintended impacts on growth and inequality

inequality mobility and redistributive politics abstract this paper develops a model where income inequality and intergenerational mobility are jointly determined via redistributive politics the model includes two key factors accessibility of tertiary education for poor born agents and multiple self fulfilling expectations of agents given these factors the model provides predictions of cross country differences in inequality and mobility consistent with empirical observations

the interest group theory of financial development evidence from regulation abstract we use a new dataset of de jure measures of trade capital account product market and domestic financial regulation for 91 countries from 1973 to 2005 to test rajan and zingales s 2003 interest group theory of financial development in line with the theory we find strong evidence that trade liberalization is a leading indicator of domestic financial liberalization this result is robust to the use of different data frequencies annual 5 year intervals estimation methods ols 2sls system gmm and a check for non linear effects however in contrast to the theory we do not find consistent evidence of an effect of capital account liberalization

creditor rights and the corporate bond market this study examines whether investor protection affects capital markets specifically the development of corporate bond markets versus equity markets using a dataset of 42 countries we show that countries with strong creditor rights have more developed corporate bond markets than equity markets however we find only weak evidence that countries with stronger shareholder protection have more developed equity markets than corporate bond markets additionally we find that the effect of financial reforms on capital markets is strongly dependent on the strength of investor protection and on the associated information disclosure in a given country

education cost intergenerational mobility and income inequality abstract using a modified version of the maoz and moav maoz y d and moav o 1999 intergenerational mobility and the process of development economic journal 109 458 677 697 model we show that the dynamics of income inequality and intergenerational mobility and the effects of technological changes on inequality depend crucially on the share of education cost in income

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

intergenerational mobility and the process of development this paper offers an explanation for some evidence that intergenerational earnings mobility is higher in more developed economies and that mobility is positively correlated with wage equality in the model mobility promotes economic growth via its effect on the accumulation and allocation of human capital growth influences mobility via its effect on incentives to acquire education and its effect on liquidity constraints upon such acquisition in the process of development mobility increases and the distribution of education becomes better correlated with ability redistributive policy has a negative effect on growth in developed economies and a positive effect in developing economies

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

quadratic engel curves and consumer demand this paper presents a model of consumer demand that is consistent with the observed expenditure patterns of individual consumers in a long time series of expenditure surveys and is also able to provide a detailed welfare analysis of shifts in relative prices a nonparametric analysis of consumer expenditure patterns suggests that engel curves require quadratic terms in the logarithm of expenditure while popular models of demand such as the translog or the almost ideal demand systems do allow flexible price responses within a theoretically coherent structure they have expenditure share engel curves that are linear in the logarithm of total expenditure we derive the complete class of integrable quadratic logarithmic expenditure share systems a specification from this class is estimated on a large pooled data set of u k households models that fail to account for engel curvature are found ro generate important distortions in the patterns of welfare losses associated with a tax increase

the demand for alcohol the differential response to price although several studies indicate that drinking is responsive to price little work has focused on whether prices have a differential effect on light moderate or heavy drinking this study examines the price responsiveness of the demand for alcohol whether heavy drinkers are less sensitive to price than light or moderate drinkers the study uses data on alcohol consumption on the 1983 national health interview survey the results indicate that both light and heavy drinkers are much less price elastic than moderate drinkers further we cannot reject the hypothesis that the very heaviest drinkers have perfectly price inelastic demands