cost benefit assessment of energy efficiency investments accounting for future resources savings and risks in the australian residential sector this article focuses on the impact of the discount rate on cost benefit assessment of investment options for residential building efficiency an integrated thermal modeling life cycle costing approach is applied to an extensive sample of dominant house designs for australian conditions the relative significance of predicted thermal performance and the applied discount rate on the present value of energy savings from alternative investment scenarios is investigated costs and benefits are also evaluated at the economy wide scale including carbon pricing considerations and for a test case household faced with alternative investment options at the point of construction the influence of the applied discount rate on produced cost benefit calculations is investigated as is the interaction between critical cost benefit input parameters findings support that the discounting framework is the primary driver of difference in estimates about costs and benefits of higher standards of efficiency in the residential sector results demonstrate that agreement on a low discount rate based on sustainability principals would prioritise those projects with significant environmental benefits

leviathans federal transfers and the cartelization hypothesis federal fiscal arrangements are argued to give rise to tacit collusion among competing leviathans brennan and buchanan the power to tax cup 1980 though frequently encountered in academic and policy discussions the cartelization hypothesis has rarely been scrutinized formally this paper explores the effect of federal equalizing transfers on leviathans engaged in tax competition contrary to the hypothesis equalization is found to potentially complement tax competition in taming the leviathan by implicitly taxing tax revenues extracted by the leviathan thus transfers might be an appropriate constitutional provision against fiscal expropriation

common agency and coordination general theory and application to government policy making we develop a model of common agency with complete information and general preferences with nontransferable utility and we prove that the principals nash equilibrium in truthful strategies implements an efficient action we apply this theory to the construction of a positive model of public finance where organized special interests can lobby the government for consumer and producer taxes or subsidies and targeted lump sum taxes or transfers the lobbies use only the nondistorting transfers in their noncooperative equilibrium but their intergroup competition for transfers turns into a prisoners dilemma in which the government captures all the gain that is potentially available to the parties

reassessment of the tiebout model abstract the tiebout model has been the reference point for the classical approach to fiscal federalism its emphasis on mobility benefit taxation and the advantages of fiscal competition have informed fiscal federalism since the seminal contributions of musgrave and oates this paper reviews the influence that the tiebout model has had on fiscal federalism and argues that while its insights remain relevant for local government it is far from compelling as a positive description of or a normative prescription for fiscal federalism at the state level some aspects of alternative approaches are presented which lead to different perspectives than tiebout inspired ones

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

real time density forecasts from bayesian vector autoregressions with stochastic volatility central banks and other forecasters are increasingly interested in various aspects of density forecasts however recent sharp changes in macroeconomic volatility including the great moderation and the more recent sharp rise in volatility associated with increased variation in energy prices and the deep global recession pose significant challenges to density forecasting accordingly this paper examines with real time data density forecasts of u s gdp growth unemployment inflation and the federal funds rate from bayesian vector autoregression bvar models with stochastic volatility the results indicate that adding stochastic volatility to bvars materially improves the real time accuracy of density forecasts this article has supplementary material online

market barriers to energy efficiency abstract discussions of energy policy in an environmentally constrained world often focus on the use of tax instruments to internalize the external effects of energy utilization or achieve specified reductions in energy use in the most cost effective manner a substantial literature suggests however that significant opportunities exist to reduce energy utilization by implementing technologies that are cost effective under prevailing economic conditions but that are not fully implemented by existing market institutions this paper examines the theory of the market for energy using equipment showing that problems of imperfect information and transaction costs may bias rational consumers to purchase devices that use more energy than those that would be selected by a well informed social planner guided by the criterion of economic efficiency consumers must base their purchase decisions on observed prices and expectations of post purchase equipment performance if it is difficult or costly for individuals to form accurate and precise expectations the level of energy efficiency achieved by competitive markets will vary from the socially efficient outcome such market barriers suggest a role for regulatory intervention to improve market performance at prevailing energy prices

to harmonize or to compete that s not the question abstract neoclassical public economists stress economic distortions induced by differential taxation and therefore favour harmonization political economists focus on political distortions and therefore reject harmonization however policy choices on the possibility frontier between economic and political distortions tend to be biased economic advisers politicians and interest groups typically favour harmonization harmonization is moreover undermined by incentives to re establish tax differences both activities prevent the possibility frontier from being simply a menu of choice popular referenda and functional overlapping competing jurisdictions focjs are institutions able to reduce political distortions and to shift the possibility frontier

modelling inflation volatility this paper discusses estimation of us inflation volatility using time varying parameter models in particular whether it should be modelled as a stationary or random walk stochastic process specifying inflation volatility as an unbounded process as implied by the random walk conflicts with priors beliefs yet a stationary process cannot capture the low frequency behaviour commonly observed in estimates of volatility we therefore propose an alternative model with a change point process in the volatility that allows for switches between stationary models to capture changes in the level and dynamics over the past 40 years to accommodate the stationarity restriction we develop a new representation that is equivalent to our model but is computationally more efficient all models produce effectively identical estimates of volatility but the change point model provides more information on the level and persistence of volatility and the probabilities of changes for example we find a few well defined switches in the volatility process and interestingly these switches line up well with economic slowdowns or changes of the federal reserve chair moreover a decomposition of inflation shocks into permanent and transitory components shows that a spike in volatility in the late 2000s was entirely on the transitory side and characterized by a rise above its long run mean level during a period of higher persistence

normal markets market imperfections and energy efficiency abstract the conventional distinction between economic and engineering approaches to energy analysis obscures key methodological issues concerning the measurement of the costs and benefits of policies to promote the adoption of energy efficient technologies the engineering approach is in fact based upon firm economic foundations the principle of lifecycle cost minimization that arises directly from the theory of rational investment thus evidence that so called market barriers impede the adoption of cost effective energy efficient technologies implies the existence of market failures as defined in the context of microeconomic theory problems of imperfect information and bounded rationality on the part of consumers for example may lead real world outcomes to deviate from the dictates of efficient resource allocation a widely held contrary view that the engineering view lacks economic justification is based on the fallacy that markets are normally efficient

the implications of competition among jurisdictions does tiebout need politics the paper investigates whether compensation among local jurisdiction is by itself sufficient to ensure efficient provision of local public goods jurisdictions have fixed boundaries and each has an entrenched government with the power to tax and supply the public good residents can move costlessly among jurisdictions it is shown that competition among numerous jurisdictions is not sificient to guarantee public sector efficiency though residents can vote with their feet land is immobile hence governments can unsurp some land rents for their own ends increasing the number of jurisdictions limits but cannot completely eliminate the ability to exercise discretionary governmental power

are professional macroeconomic forecasters able to do better than forecasting trends this paper investigates whether survey forecasters are able to make more accurate forecasts than simply supposing that the future values of the variable will move monotonically to the long run expectation we consider the forecasts individually and the consensus forecasts consensus survey forecasts are able to do so to varying degrees depending on the variable but this ability is largely limited to forecasts of the current quarter

market influence on the low carbon energy refurbishment of existing multi residential buildings abstract this paper explores the relationship between the energy market the political and regulatory context and energy design decisions for existing multi residential buildings to determine what form the energy market landscape would take if tailored to encourage low carbon solutions the links between market dynamics government strategies and building designs are mapped to understand the steps that achieve carbon reduction from building operation this is achieved using a model that takes financial and energy components with market and design variables to provide net present cost and annual carbon outputs the financial component applies discounted cash flow analysis over the building lifespan with discount rates reflecting contractual characteristics the carbon component uses standard assessment procedure sap 2005 a scenario approach is adopted to test alternative strategies selected to encourage low carbon solutions in two residential and two office designs the results show that the forward assumption of energy price escalation is the most influential factor on energy investment together with the expected differentiation between the escalation of gas and electricity prices using this and other influencing factors the research reveals trends and strategies that will achieve mainstream application of energy efficiency and microgeneration technologies and reduce carbon emissions in the existing multi residential sector

energy conservation investment do consumers discount the future correctly we argue that the apparently high discount rates attributed to investors making energy conservation investments are not irrational or the result of some market failure rather they may result from an investor recognizing that many conservation investments entail substantial sunk costs in the presence of these costs and uncertainty over future conservation savings consumers should use a higher hurdle rate for investment than if there were no uncertainty simulations suggest that the hurdle rate should be about four times greater than the standard rate an implication of our model is that tax subsidies for the purchase of conservation capital are likely to be ineffective we discuss alternative policy approaches which are more likely to increase energy efficient investment namely mandatory efficiency standards and energy taxes

modeling energy technology choices which investment analysis tools are appropriate abstract a variety of tools from modern investment theory appear to hold promise for unraveling observed energy technology investment behavior that often appears anomalous when analyzed using traditional investment analysis methods this paper reviews the assumptions and important insights of the investment theories most commonly suggested as candidates for explaining the apparent energy technology investment paradox the applicability of each theory is considered in the light of important aspects of energy technology investment problems such as sunk costs uncertainty and imperfect information the theories addressed include the capital asset pricing model the arbitrage pricing theory and the theory of irreversible investment enhanced net present value methods are also considered the relevance of the capital asset pricing model and the arbitrage pricing theory given the special characteristics of energy technology investment decisions appears limited to the value of the theories conceptual insights in contrast the theory of irreversible investment and enhanced net present value are found to provide more useful modeling and analysis methods each capable of providing important insights into the energy technology investment paradox

fiscal decentralization and government size numerous studies have attempted to model the possible factors contributing to universal growth in public sectors this paper analyzes one device that appears capable of controlling some of that growth fiscal decentralization the results reported here also support the use of monopoly government assumptions in models of public policy

promoting clean energy investment an empirical analysis of property assessed clean energy abstract from 2008 to 2010 a handful of property assessed clean energy pace programs offered property secured loans to homeowners for residential clean energy investments this analysis uses difference in differences models and synthetic counterfactual models to estimate the effect of three california pace programs on residential photovoltaic installations while pace programs do not offer superior terms to other solar financing options we find that pace financing increases solar installations by approximately 3 8 watts per owner occupied household per quarter a 108 increase over the mean watts per owner occupied household

evaluating real time var forecasts with an informative democratic prior this paper proposes bayesian forecasting in a vector autoregression using a democratic prior this prior is chosen to match the predictions of survey respondents in particular the unconditional mean for each series in the vector autoregression is centered around long horizon survey forecasts heavy shrinkage toward the democratic prior is found to give good real time predictions of a range of macroeconomic variables as these survey projections are good at quickly capturing endpoint shifts

demand side management overcoming market barriers or obscuring real costs abstract this paper compares two approaches to estimating the net benefits of a demand side management program that subsidizes the purchase of efficient equipment the total resource cost trc test suggests net benefits of us 6 9 million estimates based on consumer s surplus yield an estimated net loss of us 6 3 million this gap is due to differences in estimates of participants net benefits market failures do not appear to be significant and thus cannot explain much of the gap the more plausible explanation is that the trc uses a lower discount rate than participants use for themselves and it omits some costs

interjurisdictional capital mobility fiscal externality and a corrective subsidy abstract recent studies emphasize that local property taxation may result in inefficiently small amounts of local public spending this paper shows that the inefficiency can be traced to a fiscal externality when one jurisdiction increases its taxes it causes a flow of capital to other jurisdictions that increases their tax revenues the inefficiency can be corrected with a subsidy that internalizes the externality key empirical parameters determining the magnitude of the externality are identified illustrative calculations indicate that subsidy rates on the order of 40 might be required to achieve efficiency

the impressive contribution of canadian economists to fiscal federalism theory and policy the study of fiscal federalism has been central to the research of canadian economists since the rowell sirois report to mark the 50th anniversary of the founding of the canadian economics association it is fitting to take stock of their contributions we focus on the period since 1982 and emphasize the main scholarly publications of an inclusive array of canadian economists and economists in canadian universities our attention is devoted to applications in the context of federal and provincial governments setting aside related issues in municipal government finance we briefly discuss instances where the fiscal federalism literature has informed policy debates including through policy research institutes government commissions and international organizations la contribution impressionnante des economistes canadiens a la theorie et a la politique du federalisme fiscal l etude du federalisme fiscal a ete un element central de la recherche des economistes canadiens depuis la commission rowell sirois au moment de celebrer le 50eme anniversaire de la fondation de l association canadienne d economique le moment est approprie pour prendre la mesure de leurs contributions on se concentre sur la periode apres 1982 et on souligne les principales publications savantes d un ensemble inclusif d economistes canadiens et d economistes dans les universites canadiennes une attention particuliere est portee aux applications dans le contexte federal et provincial mettant de cote les enjeux relies a la finance municipale on discute brievement des instances ou la litterature sur le federalisme fiscal a eclaire les debats de politiques publiques y compris a travers les instituts de recherche sur les politiques publiques les commissions gouvernementales et les organisations internationales

measuring inflation expectations uncertainty using high frequency data inflation expectations play a key role in determining future economic outcomes the associated uncertainty provides a direct gauge of how well anchored the inflation expectations are we construct a model based measure of inflation expectations uncertainty by augmenting a standard unobserved components model of inflation with information from noisy and possibly biased measures of inflation expectations obtained from financial markets this new model based measure of inflation expectations uncertainty is more accurately estimated and can provide valuable information for policymakers using u s data we find significant changes in inflation expectations uncertainty during the great recession

factors influencing willingness to pay for the energy star label abstract in the united states nearly 17 of greenhouse gas emissions come from residential energy use increases in energy efficiency for the residential sector can generate significant energy savings and emissions reductions consumer labels such as the us environmental protection agency s energy star promote conservation by providing consumers with information on energy usage for household appliances this study examines how the energy star label affects consumer preferences for refrigerators the results of an online survey of a national sample of adults suggest that consumers are on average willing to pay an extra 249 82 349 30 for a refrigerator that has been awarded the energy star label furthermore the results provide evidence that respondent willingness to pay was motivated by both private energy cost savings and public environmental benefits

seeking rents by setting rents the political economy of rent seeking in recent years there has been a large number of papers on the subject of rent seeking most such works on rent seeking have taken the rent as exogenously determined by regulators regulators howeve r may also be expected and indeed have been shown to be rent seeke rs and hence the determination of the rent itself should be endogeniz ed to reflect the fact that the rent setters are themselves rent se ekers in this paper the authors do this by presenting an analysis o f the interaction of regulators firms and consumers within a rent s eeking framework where all three groups are assumed to be self motiva ted the analysis is carried out under alternative assumptions regard ing the nature of the market and the reaction functions of the partic ipants policy implications are drawn where appropriate copyright 1987 by royal economic society

why do forecasters disagree lessons from the term structure of cross sectional dispersion abstract key sources of disagreement among economic forecasters are identified by using data on cross sectional dispersion in forecasters long and short run predictions of macroeconomic variables dispersion among forecasters is highest at long horizons where private information is of limited value and lower at short forecast horizons moreover differences in views persist through time such differences in opinion cannot be explained by differences in information sets our results indicate they stem from heterogeneity in priors or models differences in opinion move countercyclically with heterogeneity being strongest during recessions where forecasters appear to place greater weight on their prior beliefs

supplanting the minnesota prior forecasting macroeconomic time series using real business cycle model priors abstract although general equilibrium models are in wide use in the theoretical macroeconomic literature their empirical relevance is uncertain we develop procedures for using dynamic general equilibrium models to aid in analyzing the observed time series relationships among macroeconomic variables our strategy is based on that developed by doan litterman and sims 1984 who constructed a procedure for improving time series forecasts by shrinking vector autoregression coefficient estimates toward a prior view that vector time series are well described as collections of independent random walks in our case the prior is derived from a fully specified general equilibrium model we demonstrate that like the atheoretical random walk priors real business cycle model priors can aid in forecasting

federalism as a commitment to reserving market incentives the authors advance a new perspective in the study of federalism their approach views federalism as a governance solution of the state to credibly preserving market incentives market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures the salient features of federalism decentralization of information and authority and interjurisdictional competition help provide credible commitment or these purposes in addition the authors suggest that some federalism are self sustaining

tax competition and leviathan abstract attitudes towards downward pressure on tax rates from international tax competition depend on attitudes towards government this paper synthesises the two extremes which as in other areas of public finance have dominated the debate typically being presented as stark alternatives the view of government as a leviathan from which tax competition emerges as a useful constraint on policy makers and the view of government as a benevolent maximiser of their citizens welfare from which it emerges as a source of inefficiency conditions are derived under which when policy makers are neither entirely benevolent nor wholly self serving tax coordination benefits the representative citizen

actuarial pricing of energy efficiency projects lessons foul and fair recent market convulsions in the energy industry have generated a plethora of post mortem analyses on a wide range of issues including accounting rules corporate governance commodity markets and energy policy while most of these analyses have focused on business practices related to wholesale energy trading there has been limited analysis of retail energy services particularly energy efficiency projects we suggest that there were several business concepts and strategies in the energy efficiency arena whose inherent value may have been masked by the larger failure of companies such as enron in this paper we describe one such concept namely actuarial pricing of energy efficiency projects which leverages a portfolio based approach to risk management first we discuss the business drivers contrasting this approach with conventional industry practice we then describe the implementation of this approach including an actuarial database pricing curves and a pricing process compatible with commodity pricing we conclude with a discussion of the prospects and barriers for the further development of transparent and quantifiable risk management products for energy efficiency a prerequisite for developing energy efficiency as a tradeable commodity we address these issues from an experiential standpoint drawing mostly on our experience in developing and implementing such strategies at enron

cold houses in warm climates and vice versa a paradox of rational heating houses in cold climates are kept warmer in winter than those in warm climates des pite the greater cost of heating in colder climates it is shown that this is not only consistent with but also implied by rationality the contrary intuition is based on a confusion between average and ma rginal cost the same analysis implies that it is rational to keep th e thermostat setting constant throughout the heating season rather th an changing it with changes in external temperature copyright 1987 by university of chicago press

vertical versus horizontal tax externalities an empirical test abstract we study taxation externalities in federations of benevolent governments where different hierarchical government levels tax the same base one can observe two types of externalities a horizontal externality working among governments of the same level and leading to tax rates that are too low compared to the social optimum and a vertical externality working between different levels of government and leading to suboptimally high tax rates building on the model of keen and kotsogiannis keen michael j kotsogiannis christos 2002 does federalism lead to excessively high taxes american economic review 92 1 363 370 we derive a discriminating hypothesis to distinguish vertical and horizontal tax externalities based on measurable variables this test is applied to a panel data set on local taxes in a sample of swiss municipalities that feature direct democratic fiscal decision making so as to maximize the correspondence with the benevolent governments of the theory we find that vertical externalities dominate they are thus an observed empirical phenomenon as well as a notable extension to the theory of tax competition

an empirical analysis of state and local tax structure in the context of the leviathan model of government this paper has investigated the ability of an extreme and relatively simple model of political behavior to explain the level of revenues generated by state and local governments in general the behavior of these governments appears to be at least consistent with many of the fiscal outcomes predicted by the leviathan theory several although not all of the specific leviathan theory hypotheses considered received empirical support the evidence was consistent with the hypothesis that states utilizing comprehensive tax bases especially a personal income tax can be expected to generate higher levels of aggregate revenues strong support was also observed for the contention that intergovernmental competition by general purpose substate governments may serve as a substitute for constitutional constraints in limiting the revenue generating power of local governments

the power to tax analytical foundations of a fiscal constitution preface 1 taxation in constitutional perspective 2 natural government a model of leviathan 3 constraints on base and rate structure 4 the taxation of commodities 5 taxation through time income taxes capital taxes and public debt 6 money creation and taxation 7 the disposition of public revenues 8 the domain of politics 9 open economy federalism and taxing authority 10 toward authentic tax reform prospects and prescriptions epilogue notes selected bibliography index

interregional tax competition and intraregional political competition the optimal provision of public goods under representative democracy abstract this paper explores the implications of the interaction between inter regional tax competition and intra regional political competition for the optimal provision of public goods under representative democracy a la osborne and slivinski 1996 and besley and coate 1997 as an extension of hoyt s 1991 finding that intensified tax competition is always harmful and aggravates the extent to which public goods are undersupplied in a region we show that intensified tax competition can be beneficial if political as well as tax competition is considered in particular we identify plausible conditions under which i there is an optimal intensity of tax competition such that the interaction between interregional tax competition and intraregional political competition will result in the optimal provision of public goods and ii intensified tax competition will be beneficial if and only if the degree of tax competition is less than this optimal intensity

price effects of energy efficient technologies a study of residential demand for heating and cooling energy efficient appliances reduce the marginal price of the services they deliver this article shows empirically that such price reductions result in energy savings that are smaller than those engineering techniques generally project using econometric techniques with data from a unique utility experiment and a detailed engineering thermal load model we find that actual conservation is as much as 13 below engineering estimates for cooling and 8 12 below for heating customers who conserve electricity are also persistent their houses are comparatively warmer in summer and cooler in winter

privatization and government size a budget constraint view of government shows that privatization need not alter spending when it is implemented without a rule forbidding re use of the funding backing newly privatized programs only when these funds are eliminated from the budget process e g tax rebates or permanent deficit reduction can these funds not back new programs or expand existing programs this is an important caveat since privatization proposals do not contain such rules with such rules privatization can increase allocational efficiency and lead to smaller government size

devolution grants and fiscal competition following half a century of fiscal activism and federal leadership the call now is for downsizing the federal budget and a devolution of fiscal responsibilities to states and localities the call for federalism meant to secure a stronger center in james madison s time now seeks to decentralize this paper outlines the main features of fiscal federalism as i see them sketching a vision which differs in major respects from that offered by the lead paper in this symposium first i highlight the role of distribution which i see as a central function then i focus attention on grants in aid and their role in the federal system finally i consider competition cooperation and coordination between jurisdictions

the politics of government decision making a theory of regulatory capture the paper develops an agency theoretic approach to interest group politics and shows the following 1 the organizational response to the possibility of regulatory agency politics is to reduce the stakes interest groups have in regulation 2 the threat of producer protection leads to low powered incentive schemes for regulated firms 3 consumer politics may induce uniform pricing by a multiproduct firm 4 an interest group has more power when its interest lies in inefficient rather than efficient regulation where inefficiency is measured by the degree of informational asymmetry between the regulated industry and the political principal congress

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

forecasting with medium and large bayesian vars this paper is motivated by the recent interest in the use of bayesian vars for forecasting even in cases where the number of dependent variables is large in such cases factor methods have been traditionally used but recent work using a particular prior suggests that bayesian var methods can forecast better in this paper we consider a range of alternative priors which have been used with small vars discuss the issues which arise when they are used with medium and large vars and examine their forecast performance using a us macroeconomic dataset containing 168 variables we find that bayesian vars do tend to forecast better than factor methods and provide an extensive comparison of the strengths and weaknesses of various approaches typically we find that the simple minnesota prior forecasts well in medium and large vars which makes this prior attractive relative to computationally more demanding alternatives our empirical results show the importance of using forecast metrics based on the entire predictive density instead of relying solely on those based on point forecasts

shifting endpoints in the term structure of interest rates abstract this paper links the term structure to perceptions of monetary policy long horizon forecasts of short rates required by no arbitrage term structure models are heavily influenced by the endpoints or limiting conditional forecasts of the short rate process common assumptions that the short rate is mean reverting or contains a unit root are shown to generate unrealistic yield predictions failures occur because these assumptions inadequately account for historical shifts in market perceptions of the policy target for inflation this paper links endpoint shifts to agent learning about shifts in long term policy goals shifting endpoints in short rate processes significantly improve yield predictions

quantifying the impact of r d on pv project financing costs abstract energy technology research and development r d typically focuses on advancing the performance and reducing equipment and installation costs however such r d can also have significant indirect impacts on other factors incorporating the impact that r d activities have on financing costs can provide a more complete picture of the consequences of these decisions and may allow policymakers to make better decisions in this paper we discuss some historical examples of r d impacting financing costs in the solar energy sector summarize the areas of r d that can impact financing and describe methodological approaches that can be used to quantify the impact of r d on financing costs and as a result the levelized cost of energy lcoe we estimate that r d driven reductions in financing costs in the solar sector from current levels to low risk levels could reduce lcoe approximately 25 alternatively without the r d advances needed to prevent future risks and complications financing costs in the solar sector could increase by as much as 115

a new model of inflation trend inflation and long run inflation expectations a knowledge of the level of trend inflation is key to many current policy decisions and several methods of estimating trend inflation exist this paper adds to the growing literature which uses survey based long run forecasts of inflation to estimate trend inflation we develop a bivariate model of inflation and long run forecasts of inflation which allows for the estimation of the link between trend inflation and the long run forecast thus our model allows for the possibilities that long run forecasts taken from surveys can be equated with trend inflation that the two are completely unrelated or anything in between by including stochastic volatility and time variation in coefficients it extends existing methods in empirically important ways we use our model with a variety of inflation measures and survey based forecasts for several countries we find that long run forecasts can provide substantial help in refining estimates and fitting and forecasting inflation the same evidence indicates it is less helpful to simply equate trend inflation with the long run forecasts

identification issues in limited information bayesian analysis of structural macroeconomic models the likelihood of the parameters in structural macroeconomic models typically has non identification regions over which it is constant when sufficiently diffuse priors are used the posterior piles up in such non identification regions use of informative priors can lead to the opposite so both can generate spurious inference we propose priors posteriors on the structural parameters that are implied by priors posteriors on the parameters of an embedding reduced form model an example of such a prior is the jeffreys prior we use it to conduct bayesian limited information inference on the new keynesian phillips curve with a var reduced form for us data

oil and energy price volatility it is commonly believed that since the 1973 oil crisis oil and energy prices have been more volatile than other commodity prices this study examines monthly producer prices for thousands of products over the period january 1945 through august 2005 the results show that crude oil refined petroleum and natural gas prices are more volatile than prices for about 95 of products sold by domestic producers relative to crude commodities however crude oil prices are currently more volatile than about 65 of other products and oil price volatility first exceeded the median for crude commodities following the 1986 drop in oil prices

accountability and decentralisation in government an incomplete contracts model this paper approaches the question of the appropriate level of decentralisation of power in government as a problem in the allocation of control rights under incomplete contracts the model of the paper compares allocations of power to local central and regional government as alternative means of motivating governments to act in the interests of citizens centralisation allows benefits from policy coordination but has costs in terms of diminished accountability which can be precisely defined as the reduced probability that the welfare of a given region can determine the re election of the government the model is extended to allow for conflicts of interest within regions and externalities between central and local governments in a federation it is also applied to determining levels of fiscal transfer between localities and to circumstances where governments may act as leviathans appropriating resources for their own use

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

evaluating energy efficiency investments accounting for risk in the discounting process a prominent feature of the literature regarding the economics of energy conservation is the debate over the existence and nature of the so called efficiency gap a frequent subject of debate is whether consumers apply a reasonable discount rate when evaluating the future benefits of energy efficiency measures a key aspect of the discounting debate is the manner in which consumer attitudes toward risk are accounted for when discounting this paper suggests that an appropriate approach to incorporating risk into the evaluation of energy efficiency projects would yield higher net benefits to such projects than standard evaluation techniques we argue that analysing the purchase of fuel saving capital as though it were a standard investment in a physical asset obscures an important feature of the decision rather than deciding whether or not to invest in an asset with an uncertain future benefit stream the consumer is actually choosing between two future cost streams each of which is uncertain this seemingly minor change in perspective has important implications for how the risk associated with fuel saving capital should be brought into the discounting process an example based on lighting technologies is used to illustrate the principles discussed

the effects of tax competition when politicians create rents to buy political support abstract we set up a probabilistic voting model to explore the hypothesis that tax competition improves public sector efficiency and social welfare in the absence of tax base mobility distortions in the political process induce vote maximising politicians to create rents to public sector employees allowing tax base mobility may be welfare enhancing up to a point because the ensuing tax competition will reduce rents however if tax competition is carried too far it will reduce welfare by causing an underprovision of public goods starting from an equilibrium where tax competition has eliminated all rents a coordinated rise in capital taxation will always be welfare improving for plausible parameter values it will even be welfare enhancing to carry tax coordination beyond the point where rents to public sector workers start to emerge

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

posterior predictive evidence on us inflation using extended new keynesian phillips curve models with non filtered data changing time series properties of us inflation and economic activity measured as marginal costs are modeled within a set of extended new keynesian phillips curve nkpc models it is shown that mechanical removal or modeling of simple low frequency movements in the data may yield poor predictive results which depend on the model specification used basic nkpc models are extended to include structural time series models that describe typical time varying patterns in levels and volatilities forward and backward looking expectation components for inflation are incorporated and their relative importance is evaluated survey data on expected inflation are introduced to strengthen the information in the likelihood use is made of simulation based bayesian techniques for the empirical analysis no credible evidence is found on endogeneity and long run stability between inflation and marginal costs backward looking inflation appears stronger than forward looking inflation levels and volatilities of inflation are estimated more precisely using rich nkpc models the extended nkpc structures compare favorably with existing basic bayesian vector autoregressive and stochastic volatility models in terms of fit and prediction tails of the complete predictive distributions indicate an increase in the probability of deflation in recent years

property taxation nash equilibrium and market power abstract differences in tax policy arise from differences in the number of jurisdictions in a metropolitan area following wildasin 4 and bucovetsky 2 the tax rates in the jurisdictions are determined in a nash game in the tax rate the tax rate and public service level as well as the welfare of residents increase as the number of jurisdictions in the metropolis decreases

forecasting with bayesian vector autoregressions estimated using professional forecasts summary we propose a bayesian shrinkage approach for vector autoregressions vars that uses short term survey forecasts as an additional source of information about model parameters in particular we augment the vector of dependent variables by their survey nowcasts and claim that each variable modelled in the var and its nowcast are likely to depend in a similar way on the lagged dependent variables in an application to macroeconomic data we find that the forecasts obtained from a var fitted by our new shrinkage approach typically yield smaller mean squared forecast errors than the forecasts obtained from a range of benchmark methods copyright 2015 john wiley sons ltd

searching for leviathan an empirical study in several papers and a recent book geoffrey brennan and james buchanan 1977 1978 1980 have put forth a striking and controversial view of the public sector drawing by analogy on the conventional theory of monopoly in the private sector they envision a monolithic government that systematically seeks to exploit its citizenry through the maximization of the tax revenues that it extracts from the economy from this perspective they develop a fiscal constitution whose central purpose is to constrain leviathan by limiting in various ways its access to tax and other fiscal instruments while the leviathan hypothesis has been the source of lively debate and a wide range of policy proposals it has not been the subject of much systematic empirical work or testing this is a matter of some importance since the policy implications of the leviathan view are disturbing to put it mildly in particular brennan and buchanan virtually stand on their heads many of the basic theorems in public finance for an efficient and equitable tax system if in fact the leviathan view is an inaccurate depiction of the functioning of the public sector the introduction of their policy proposals is likely to make a sorry mess of the fiscal system the leviathan model does however have some straightforward implications for observable fiscal behavior it is the purpose of this paper to examine one of these testable implications brennan and buchanan stress that fiscal decentralization is itself a powerful constraint on leviathan competition among governments in the context of the interjurisdictional mobility of persons in pursuit of fiscal gains can offer partial or possibly complete substitutes for explicit fiscal constraints on the taxing power 1980 p 184 such competition among governments in a federal system that places heavy reliance on local fiscal decisions will greatly limit the capacity of leviathan to channel resources into the public sector in short as indicated by the epigraph to this paper the leviathan model implies that other things equal the size of the public sector should vary inversely with the extent of fiscal decentralization 2

tax competition rent seeking and fiscal decentralization abstract the present paper provides a basis for evaluating fiscal decentralization of expenditure and tax responsibilities by encompassing the literature on tax competition and rent seeking both tax and rent seeking competitions are conceived of as being wasteful and self defeating we find that rent seeking activities account for political distortions which may be mitigated in the process of fiscal decentralization while tax competition results in economic distortions associated with decentralization welfare evaluation should be based on the balance of the political gain and the economic cost

explaining the energy efficiency gap expected utility theory versus cumulative prospect theory abstract energy efficiency is one of the key factors in mitigating the impact of climate change and preserving non renewable resources although environmental and economic justifications for energy efficiency investments are compelling there is a gap between the observable and some notion of optimized energy consumption the so called energy efficiency gap behavioral biases in individual decision making have been resonated by environmental research to explain this gap to analyze the influence of behavioral biases on decisions upon energy efficiency investments quantitatively we compare expected utility theory with cumulative prospect theory on basis of a real world example we illustrate how the extent of the gap is influenced by behavioral biases such as loss aversion probability weighting and framing our findings indicate that cumulative prospect theory offers possible explanations for many barriers discussed in literature for example the size of the gap rises with increased risk and investment costs because behavioral biases are systematic and pervasive our insights constitute a valuable quantitative basis for environmental policy measures such as customer focused and quantitatively backed public awareness campaigns financial incentives or energy savings insurances in this vein this paper may contribute to an accelerated adaption of energy efficiency measures by the broader public