testing for the long run relationship between nominal interest rates and inflation using cointegration techniques 1989 testing for the long run relationship between nominal interest rates and inflation using cointegration techniques applied economics vol 21 no 4 pp 439 447

supply demand and uncertainty implications for prelisting conservation policy abstract the endangered species act esa faces a shortage of incentives to motivate the scale of conservation activities necessary to address and reverse the decline of at risk species a recent policy proposal attempts to change this by allowing landowners to generate credits for voluntary prelisting conservation activities we explore the proposed policy from the perspective of potential participants we find that uncertainty present in species listing processes complicates the decision to undertake conservation activities leading to less conservation being supplied than when a listing decision is certain while also delaying implementation until late in the listing determination process incentives created by the prelisting policy may likewise push species status closer to a listing threshold and thus exacerbate uncertainty in the listing process to counter this tendency and encourage a more efficient allocation of conservation activity early actor bonuses weighted credits or limited windows of eligibility could be used to target or place increased premiums on early conservation activity though these findings are most directly applicable to the specific prelisting policy considered here they are nonetheless relevant to a wider array of conservation policies that seek to encourage voluntary early action in advance of a regulatory alternative

measuring urban economic density agglomeration economies are at the heart of urban economics driving the existence and extent of cities and are central to structural transformation and the urbanization process this paper evaluates the use of different measures of economic density in assessing urban agglomeration effects by examining how well they explain household income differences across cities and neighborhoods in six african countries the paper examines simple scale and density measures and more nuanced ones that capture the extent of clustering within cities the evidence suggests that more nuanced measures attempting to capture within city differences in the extent of clustering do no better than a simple density measure in explaining income differences across cities at least for the current degree of accuracy in measuring clustering however simple city scale measures such as total population are inferior to density measures and to some degree misleading the analysis finds large household income premiums from being in bigger and particularly denser cities over rural areas in africa indicating that migration pull forces remain very strong in the structural transformation process moreover the marginal effects of increases in urban density on household income are very large with density elasticities of 0 6 in addition to strong city level density effects the analysis finds strong neighborhood effects for household incomes overall city density and density of the neighborhood matter

a panic analysis on regional and sectoral inflation the spanish case this article studies the stochastic properties of several inflation rates for the spanish economy using the consumer price index cpi for the 17 regions and 12 groups of goods and services and the producer price index ppi for 26 industrial sectors to this end we employ the panel analysis of nonstationarity in idiosyncratic and common components panic approach proposed by bai and ng 2004 2010 this methodology enables us to decompose the observed inflation rate series into a common and an idiosyncratic component thus allowing us to identify the exact source of nonstationarity our analysis provides strong evidence of the presence of a common stochastic trend driving the observed series forming the panel of cpi based inflation rates for the regions this coupled with the presence of a jointly stationary idiosyncratic component implies the existence of pairwise cointegration across the regional cpi based inflation rates which show a clear pattern of convergence over time this gives an indicat

gibrat s law for all cities reply this reply refutes the objection raised by levy 2009 about the fit of the upper tail of the city size distribution in eeckhout 2004 i show that the method on which his conclusion is based is unsubstantiated the visual interpretation of the fit on log log plots is misleading in addition the methodology used to estimate a truncated subsample of the distribution while testing its significance against a distribution with prespecified parameters is ill founded the main conclusion is that gibrat s law holds city sizes follow proportionate growth thus giving rise to a lognormal size distribution tail included jel r11 r12 r23

optimal urban population size national vs local economic efficiency this paper explores whether the population size of the seoul metropolitan area sma in korea is efficient in terms of the national economy to undertake this analysis a recursively dynamic interregional computable general equilibrium icge model with a population module is developed in this model the explicit costs and benefits of population growth are estimated by using the industrial value added and consumer price inflation functions for each region the counter factual analysis shows that national population decentralisation away from the sma is desirable for korea s economic growth korea s gdp is estimated to be maximised when the sma s national population share is at 39 per cent in the short term and 35 per cent in the long term however the sma government is likely to have incentive to maintain its population at around 40 per cent of the national population where per capita income at the regional not national level is maximised

economic growth in a cross section of cities abstract we examine the relationship between urban characteristics in 1960 and urban growth between 1960 and 1990 income and population growth move together and both types of growth are 1 positively related to initial schooling 2 negatively related to initial unemployment and 3 negatively related to the initial share of employment in manufacturing racial composition and segregation are uncorrelated with urban growth across all cities but in cities with large nonwhite communities segregation is positively correlated with population growth government expenditures except for sanitation are uncorrelated with growth government debt is positively correlated with later growth

urban hierarchies and city growth in the balkans this paper uses empirical evidence from the balkan peninsula during the 1981 2001 period in order to study the dynamic patterns of a conflict affected city size distribution by examining the time variations of the pareto exponent on the one hand and by exploring cities relative growth patterns and intradistribution mobility on the other the paper shows that city growth dynamics follow a hybrid pattern where city size filters the effects of external shocks city size dynamics thus seem more complex than that predicted by random growth or endogenous growth theories in the balkan peninsula during the 1981 2001 period medium sized city demographics have resisted external shocks due to conflicts redrawing of national frontiers and institutional upheaval better than large conglomerations however this does not lead to convergence towards a steady city size

disaggregate evidence on spanish inflation persistence this article investigates the degree of persistence of different inflation rates for the spanish economy using the consumer price index cpi for the aggregate as well as for the regions provinces

intergovernmental fiscal transfers international lessons for developing countries abstract this paper reviews the central issues that arise in designing intergovernmental transfers and surveys the approaches adopted in a number of countries with special emphasis on developing countries since circumstances and objectives differ from country to country no simple uniform pattern of transfers is universally appropriate but experience around the world makes it clear that if services are to be efficiently provided transfers must be designed so that those receiving them have a clear mandate adequate resources sufficient flexibility to make decisions and are accountable for results

do the world s largest cities follow zipf s and gibrat s laws we examine whether the size distribution and the growth process of the world s largest cities follow zipf s law and gibrat s law the parametric results of the size distribution analysis reject zipf s law for all sample sizes and also show the zipf exponent systematically declines as the sample size increases the growth process analysis confirms gibrat s law and yields a local zipf exponent of one for cities with a normalized population less than 0 53 which includes about 95 of the total observations the deviations from zipf s law occur at the extreme upper tail and are likely a result of restricted mobility of population across countries however given that gibrat s law holds we can expect the size distribution to converge to zipf s law with a decline in the barriers to immigration

gibrat s law for all cities comment jan eeckhout 2004 reports that the empirical city size distribution is lognormal consistent with gibrat s law we show that for the top 0 6 percent of the largest cities the empirical distribution is dramatically different from the lognormal and follows a power law this top part is extremely important as it accounts for more than 23 percent of the population the empirical hybrid lognormal power law distribution revealed may be characteristic of other key distributions such as the wealth distribution and the income distribution this distribution is not consistent with a simple gibrat proportionate effect process and its origin presents a puzzle yet to be answered jel r11 r12 r23

power laws in economics an introduction paul samuelson 1969 was once asked by a physicist for a law in economics that was both nontrivial and true this is a difficult challenge as many roughly true results are in the end rather trivial for example demand curves slope down while many nontrivial results in economics in fact require too much sophistication and rationality on the part of the agents to actually hold true in practice 1 samuelson answered the law of comparative advantage the story does not say whether the physicist was satisfied the law of comparative advantage is a qualitative law and not a quantitative one as is the rule in physics indeed many of the insights of economics seem to be qualitative with many fewer reliable

strategic public policy around population thresholds abstract political economists have long maintained that politicians respond to both re election and financial incentives this article contributes to the latter literature by analysing whether when and how local office holders respond to the economic incentives embedded in exogenously imposed population thresholds leading to an increased number and remuneration of local politicians building on insights from the urban economics and public finance literatures we argue that local politicians may strategically adjust fiscal and housing policies to stimulate in migration when approaching a population threshold where their remuneration increases using data from all 589 belgian municipalities over the period 1977 2016 our results confirm that approaching important population thresholds causes lower local tax rates and the granting of additional building permits particularly for apartments these policy changes occur early in the election cycle and at least for housing policy are restricted to incumbent mayors themselves expecting to benefit from crossing the population threshold

the relevance of supply shocks for inflation the spanish case the methodology applied in this article to the spanish economy is based on ball and mankiw 1995 these authors assume that a good proxy for supply shocks is the third moment of the price changes distribution the main data used are the monthly consumer price indexes of each region disaggregated in 57 categories for the 1993 2005 period we estimate the relation between mean inflation and the higher moments of the distribution including several control variables our results point out that spanish regions show a common pattern with regard to nominal rigidities and that spanish inflation is vulnerable to supply shocks

pareto models top incomes and recent trends in uk income inequality i determine uk income inequality levels and trends by combining inequality estimates from tax return data for the rich and household survey data for the non rich taking advantage of the better coverage of top incomes in tax return data which i demonstrate and creating income variables in the survey data with the same definitions as in the tax data to enhance comparability for top income recipients i estimate inequality and mean income by fitting pareto models to the tax data examining specification issues in depth notably whether to use pareto i or pareto ii generalized pareto models and the choice of income threshold above which the pareto models apply the preferred specification is a pareto ii model with a threshold set at the 99th or 95th percentile depending on year conclusions about aggregate uk inequality trends since the mid 1990s are robust to the way in which tax data are employed the gini coefficient for individual gross income rose by around 7 or 8 between 1996 7 and 2007 8 with most of the increase occurring after 2003 4 the corresponding estimate based wholly on the survey data is around 5

searching for the parallel growth of cities in china based on the parallel growth implications of the four urban growth theories endogenous growth theory random growth theory hybrid growth theory and locational fundamentals theory this paper use

gibrat s law for all cities two empirical regularities concerning the size distribution of cities have repeatedly been established zipf s law holds the upper tail is pareto and city growth is proportionate census 2000 data are used covering the entire size distribution not just the upper tail the nontruncated distribution is shown to be lognormal rather than pareto this provides a simple justification for the coexistence of proportionate growth and the resulting lognormal distribution an equilibrium theory of local externalities that can explain the empirical size distribution of cities is proposed the driving force is a random productivity process of local economies and the perfect mobility of workers

ghost citizens using notches to identify manipulation of population based grants this paper analyzes how local governments misreport population figures to obtain higher per capita grant allocations in 1998 the allocation of a formula based grant in spain switched from using the centrally administered census to local population registers administered by municipalities the value of this per capita grant changes at fixed population thresholds for the entire local population we exploit these notches to analyze the size distribution of municipalities to detect deliberate manipulation of the grant assignment variable this allows us to causally identify the effect of grant generosity on population over reporting we document an excess mass of municipalities to the right of the notch threshold and a density hole to the left of it local registers included a proportion of ghost citizens that is people who presented no trace of actually residing in the municipalities which benefit the most from inflating population figures to pass the relevant threshold we document that manipulation rather than real population responses is the mechanism at work the main channel behind manipulation is the incorrect treatment of foreign residents to inflate total local population

the economics of conjunctive groundwater management with stochastic surface supplies abstract groundwater management with stochastic surface flows and artificial recharge is considered theoretical analysis characterizes the decision rules and establishes conditions for convergence of socially optimal and common property withdrawals and pumping lifts to limiting probability distributions an empirical application to kern county california finds that optimal withdrawals are generally increasing in hydraulic head and decreasing in surface flows however nonmonotone behavior is observed in some instances artificial recharge is not observed in the limiting distribution due to an interaction of several factors optimal management implies relatively small gains over unregulated groundwater use when preferences are risk neutral

optimal regional redistribution under asymmetric information this paper studies optimal redistribution among two different regions in a federal state regional governments supply local public goods financed with distorting local taxes they have better information on their tax bases than the federal government we model this both as an adverse selection problem on the size of local tax bases and or as moral hazard problem on local tax enforcement moral hazard alone does not affect the first best redistribution rule which is a lump sum transfer from the rich to the poor region in all other cases the optimal transfer rule involves a lump sum tax on the rich regions and a premium for fiscal effort by the poor regions with the transfer falling short of the first best level in the equilibrium with moral hazard and adverse selection tax evasion occurs only in the poor region even though the possibility of lax tax enforcement benefits the rich and harms the poor region because it reduces equilibrium redistribution this abstract was borrowed from another version of this item

central place theory and city size distribution this paper proposes a theory of city size distribution via a hierarchy approach rather than the popular random growth process it does so by formalizing central place theory using an equilibrium entry model and specifying the conditions under which city size distribution follows a power law central place theory describes the way in which a hierarchical city system with difierent layers of cities serving difierently sized market areas is formed from a uniformly populated space the force driving the city size difierences in this model is the heterogeneity in economies of scale across goods the city size distribution under a central place hierarchy exhibits a power law if the distribution of scale economies is regularly varying which is a general class that encompasses many well known commonly used distributions this model is also consistent with a power law for flrms and a number average size rule which is the log linear relationship between the number and average size of the cities in which an industry is located

rainwater harvesting and groundwater conservation when endogenous heterogeneity matters in this paper we focus on resource conservation in a model of decentralized management of groundwater and rainwater we show that a conservation policy may have opposite effects on the level of the resource depending on the outcome of the decentralized management more precisely we consider identical farmers who can use two water resources groundwater and or rainwater and we study the symmetric and asymmetric feedback stationary nash equilibria of the dynamic game we show that a subsidy on the use of rainwater may increase the level of the aquifer at the symmetric equilibrium whereas it decreases the level of the aquifer at the asymmetric equilibrium this suggests that the usual focus on interior symmetric equilibria in dynamic games may provide misleading policy implications

is there a unit root in the inflation rate new evidence from panel data models with multiple structural breaks in this article we examine whether or not the inflation rate for 17 oecd countries can be modelled as a stationary process we find that 1 conventional univariate unit root tests without any structural breaks generally reveal that the inflation rate contains a unit root 2 the kpss univariate test with multiple structural breaks reveals that for 10 out of 17 countries inflation is stationary and 3 the kpss panel unit root test reveals strong evidence for stationarity of the inflation rate for panels consisting of countries which were declared nonstationary by univariate tests

on the economic geography of international migration we exploit the bilateral and skill dimensions from recent data sets of international migration to test for the existence of zipf s and gibrat s laws in the context of aggregate and high skilled international immigration and emigration using graphical parametric and non parametric analysis the top tails of the distributions of aggregate and high skilled immigrants and emigrants adhere to a pareto distribution with an exponent of unity i e zipf s law holds we find some evidence in favour of gibrat s law holding for immigration stocks i e that the growth in stocks is independent of their initial values and stronger evidence that immigration densities are diverging over time conversely emigrant stocks are converging in the sense that countries with smaller emigrant stocks are growing faster than their larger sovereign counterparts lastly high skilled immigration and emigration stocks expressed in levels or as densities all exhibit signs of convergence we conclude by discussing some competing mechanisms that could be driving the observed patterns including differing fertility rates reductions in emigration restrictions migrant sorting and selective immigration policies immigrant networks and persisting wage differentials

meeting strangers and friends of friends how random are social networks we present a dynamic model of network formation where nodes find other nodes with whom to form links in two ways some are found uniformly at random while others are found by searching locally through the current structure of the network e g meeting friends of friends this combination of meeting processes results in a spectrum of features exhibited by large social networks including the presence of more high and low degree nodes than when links are formed independently at random having low distances between nodes in the network and having high clustering of links on a local level we fit the model to data from six networks and impute the relative ratio of random to network based meetings in link formation which turns out to vary dramatically across applications we show that as the random network based meeting ratio varies the resulting degree distributions can be ordered in the sense of stochastic dominance which allows us to infer how the formation process affects average utility in the network

lobbying political competition and local land supply recent evidence from spain abstract we analyze whether local land supply is influenced by the degree of political competition and interpret the findings as indications of the influence wielded by land developer lobbies we use a new database including both political and land supply data for more than 2 000 spanish municipalities for the period 2003 2007 in spain land use policies are largely a local responsibility with municipalities needing periodically to pass comprehensive land use plans the main policy variable in these plans and the one analyzed here is the amount of land classified for potential development we measure local political competition as the margin of victory of the incumbent government this variable is however potentially endogenous since not only do votes affect policy but also policy is expected to affect votes to deal with this problem we instrument this variable using the votes at the first national legislative elections following the re establishment of democracy and votes actually obtained regionally at the same type of election the results indicate that stiffer political competition does indeed reduce the amount of new land designated for development this effect is found to be most marked in suburbs in towns with a high percentage of commuters and homeowners and in municipalities governed by the left

inflation stationarity during latin american inflation insights from unit root and structural break analysis inflation stationarity has important theoretical and policy implications yet most of the literature has focused on low inflation countries this article investigates inflation stationarity in brazil argentina chile mexico and bolivia during a hyperinflationary period from 1980 to 2004 we test for structural breaks in inflation discuss the breaks in terms of changes in monetary regimes and test if accounting for these structural breaks changes the nonstationarity results for those nations that fail the traditional augmented dickey fuller adf test for inflation all five are found to have inflation rates that are i 0 once the structural breaks analysis is incorporated into our unit root tests

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

local economic development agglomeration economies and the big push 100 years of evidence from the tennessee valley authority we study the long run eects of one of the most ambitious place based economic development policies in u s history the tennessee valley authority using a rich panel dataset of counties we conduct an evaluation of the dynamic eects of the tva on local economies in the seventy years following the program s inception we nd that the tva led to short run gains in agricultural employment that were eventually reversed while impacts on manufacturing employment continued to intensify well after the program s subsidies had lapsed a pattern consistent with the presence of strong agglomeration economies in the manufacturing sector economists have long cautioned that the local gains created by place based policies may be oset by losses elsewhere yielding ambiguous eects on the u s as a whole building on the framework in glaeser and gottlieb 2008 we develop a novel approach to assessing the aggregate consequences of shifting the spatial distribution of manufacturing employment our ndings suggest the aggregate productivity gains associated with relocating manufacturing activity to the tva region were probably minimal

redistributive politics and economic efficiency the political process often compensates the losers from technical change or international competition in an economically inefficient way namely by subsidizing or protecting declining industries instead of encouraging the movement of resources to other more productive uses we find that a dynamic inconsistency in the game of redistributive politics contributes to this outcome to achieve economically efficient outcomes it is necessary that those making economically inefficient choices not be given offsetting transfers but the political process distributes income on the basis of political characteristics which are in general different from the economic characteristics that are rewarded by the market we identify circumstances in which the inefficient choosers have desirable political characteristics and are therefore immune from threats of having to face the economic consequences of their choices

on the form of transfers to special interests an important question in political economy concerns the form of transfers to special interests the chicago view is that political competition leads politicians to make such transfers efficiently the virginia position is that lack of information on the part of voters leads politicians to favor inefficient sneaky methods of redistribution this paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests it shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians inefficient methods of redistribution may be employed

optimal policies in cities with congestion and agglomeration externalities congestion tolls labor subsidies and place based strategies abstract this paper develops a spatial general equilibrium model that accommodates both congestion and agglomeration externalities while firms and households land use decisions are endogenous across continuous space focusing on the interaction between externalities and land use patterns we examine the efficiencies of first best policies and second best pricing and place based strategies using numerical simulations a first best policy must combine both pigouvian congestion tolling pct and pigouvian labor subsidies pls instruments or design an optimal toll or subsidy internalizing agglomeration externalities or congestion externalities we also examine second best pricing policies if only one instrument is adopted congestion pricing policies alone e g a partial pct or a flat rate toll can improve social welfare only in heavy congestion cities and their welfare gains may be insignificant e g below 10 of the welfare improvement achieved by first best policies in contrast second best labor subsidy policies alone are a more effective alternative to first best policies as to place based policies the firm cluster zoning fcz regulation is more efficient than the urban growth boundary ugb policy ugbs only have small effects on the agglomeration economy but could worsen land market distortions via residential rent escalation effects these findings suggest that it is important to internalize business land use decisions and relax monocentricity assumptions in order to appreciate the interplay of both urban externalities since spatial adaptations to policy interventions can distort system efficiencies

more powerful panel data unit root tests with an application to mean reversion in real exchange rates unit root tests seeking mean or trend reversion are frequently applied to panel data we show that more powerful variants of commonly applied tests are readily available moreover power gains persist when the modifications are applied to bootstrap procedures that may be employed when cross correlation of a rather general sort among individual panel members is suspected copyright 2004 john wiley sons ltd

gale nikaido debreu and milgrom shannon communal interactions with endogenous community structures abstract this paper examines nash jurisdictional stability in a model with a continuum of agents whose characteristics are distributed over a unidimensional interval communal benefits and costs of each individual depend on her identity and the composition of the community which she belongs to since the framework is too general to yield an existence of nash equilibrium we introduce the essentiality of membership in one of the communities for all individuals we highlight the border indifference property bip when all individuals located on a border between two adjacent jurisdictions are indifferent about joining either of them and show that bip is a necessary condition for yielding a nash equilibrium we invoke the celebrated gale nikaido debreu lemma to guarantee the existence of a partition that satisfies bip we then proceed to demonstrate that bip is not sufficient to yield a nash equilibrium the equilibrium existence under bip is rescued when we use the milgrom shannon monotone comparative statics conditions

political competition policy and growth theory and evidence from the us this paper develops a simple model to analyse how a lack of political competition may lead to policies that hinder economic growth we test the predictions of the model on panel data for the us states in these data we find robust evidence that lack of political competition in a state is associated with anti growth policies higher taxes lower capital spending and a reduced likelihood of using right to work laws we also document a strong link between low political competition and low income growth

cities and countries if one ranks cities by population the rank of a city is inversely related to its size a well documented phenomenon known as zipf s law further the growth rate of a city s population is uncorrelated with its size another well known characteristic known as gibrat s law in this paper i show that both characteristics are true of countries as well as cities the size distributions of cities and countries are similar but theories that explain the size distribution of cities do not obviously apply in explaining the size distribution of countries the similarity of city and country size distributions is an interesting riddle

tax rates and tax evasion evidence from missing imports in china tax evasion by its very nature is difficult to observe we quantify the effects of tax rates on tax evasion by examining the relationship in china between the tariff schedule and the evasion gap which we define as the difference between hong kong s reported exports to china at the product level and china s reported imports from hong kong our results imply that a one percentage point increase in the tax rate is associated with a 3 percent increase in evasion furthermore the evasion gap is negatively correlated with tax rates on closely related products suggesting that evasion takes place partly through misclassification of imports from higher taxed categories to lower taxed ones in addition to underreporting the value of imports

nonparametric methods and local time based estimation for dynamic power law distributions summary this paper introduces nonparametric econometric methods that characterize general power law distributions under basic stability conditions these methods extend the literature on power laws in the social sciences in several directions first we show that any stationary distribution in a random growth setting is shaped entirely by two factors the idiosyncratic volatilities and reversion rates a measure of cross sectional mean reversion for different ranks in the distribution this result is valid regardless of how growth rates and volatilities vary across different economic agents and hence applies to gibrat s law and its extensions second we present techniques to estimate these two factors using panel data third we describe how our results imply predictability as higher ranked processes must on average grow more slowly than lower ranked processes we employ our empirical methods using data on commodity prices and show that our techniques accurately describe the empirical distribution of relative commodity prices we also show that rank based out of sample forecasts of future commodity prices outperform random walk forecasts at a 1 month horizon

are rules based government programs shielded from special interest politics evidence from revenue sharing transfers in brazil abstract manipulation of government finances for the benefit of narrowly defined groups is usually thought to be limited to the part of the budget over which politicians exercise discretion in the short run such as earmarks analyzing a revenue sharing program between the central and local governments in brazil that uses an allocation formula based on local population estimates i document two main results first that the population estimates entering the formula were manipulated and second that this manipulation was political in nature consistent with swing voter targeting by the right wing central government i find that municipalities with roughly equal right wing and non right wing vote shares benefited relative to opposition or conservative core support municipalities these findings suggest that the exclusive focus on discretionary transfers in the extant empirical literature on special interest politics may understate the true scope of tactical redistribution that is going on under programmatic disguise

zipf s law and maximum sustainable growth abstract zipf s law states that the number of firms with size greater than s is inversely proportional to s most explanations start with gibrat s rule of proportional growth but require additional constraints we show that gibrat s rule at all firm levels yields zipf s law under a balance condition between the effective growth rate of incumbent firms which includes their possible demise and the growth rate of investments in entrant firms under the additional assumption that firms do not consume more resources than available we show that zipf s law is the signature that firms grow at the maximum reachable long term rate

external imbalances in the eurozone the paper examines the extent to which current account imbalances of euro area countries are related to intra euro area factors and to external trade shocks we argue that the traditional explanations for the rising imbalances are correct but are incomplete we uncover a large impact of declines in export competitiveness and asymmetric trade developments vis a vis the rest of the world x96 in particular vis a vis china central and eastern europe and oil exporters x96 on the external balance of euro area debtor countries while current account imbalances of euro area deficit countries vis a vis the rest of the world increased they were financed mostly by intra euro area capital inflows in particular by the purchase of government and financial institutions securities and cross border interbank lending which permitted external imbalances to grow over time ruo chen gian maria milesi ferretti and thierry tressel

unwilling or unable to cheat evidence from a tax audit experiment in denmark this paper analyzes a tax enforcement field experiment in denmark in the base year a stratified and representative sample of over 40 000 individual income tax filers was selected for the experiment half of the tax filers were randomly selected to be thoroughly audited while the rest were deliberately not audited the following year threat of audit letters were randomly assigned and sent to tax filers in both groups we present three main empirical findings first using baseline audit data we find that the tax evasion rate is close to zero for income subject to third party reporting but substantial for self reported income since most income is subject to third party reporting the overall evasion rate is modest second using quasi experimental variation created by large kinks in the income tax schedule we find that marginal tax rates have a positive impact on tax evasion for self reported income but that this effect is small in comparison to legal avoidance and behavioral responses third using the randomization of enforcement we find that prior audits and threat of audit letters have significant effects on self reported income but no effect on third party reported income all these empirical results can be explained by extending the standard model of rational tax evasion to allow for the key distinction between self reported and third party reported income

ghost house busters the electoral response to a large anti tax evasion program the incentives of political agents to enforce tax collection are key determinants of the levels of compliance we study the electoral response to the ghost buildings program a nationwide anti tax evasion policy in italy that used innovative monitoring technologies to target buildings hidden from tax authorities two million buildings were registered as a result of the program our difference in differences identification strategy exploits both variation across towns in the ex ante program scope to increase enforcement as well as administrative data on actual building registrations local incumbents experience an increase in their reelection likelihood as a consequence of the policy in addition these political returns are higher in areas with lower tax evasion tolerance and with higher speed of public good provision implying complementarity among enforcement policies the underlying tax culture and government efficiency

nonlinearity and stationarity of inflation rates evidence from the euro zone countries earlier studies hardly reject the hypothesis of a unit root in inflation few studies have examined the possibility of nonlinearity in inflation and tested nonlinear stationarity of the inflation rates this study thus intends to fill the gap this study utilizes the tests for nonlinearity along with the unit root tests that allow for nonlinearity in the variables to examine the stationarity of inflation rates of 12 european countries that formed the euro zone ez later in the sample period the results suggest that the majority of these countries inflation rates can be characterized by mean reversion during the floating exchange rate period many of them appear to be nonlinear stationary this finding is essential in conducting applied economic studies for these countries when constructing models whose validity relies on whether or not inflation is stationary the results of this study also imply that shocks to inflation have a transitory effect on inflation in the euro area therefore it would be le

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

the area and population of cities new insights from a different perspective on cities the distribution of city populations has attracted much attention in part because it constrains models of local growth however there is no consensus on the distribution below the very upper tail because available data need to rely on legal rather than economic definitions for medium and small cities to remedy this difficulty we construct cities from the bottom up by clustering populated areas obtained from high resolution data we find that zipf s law for population holds for cities as small as 5 000 inhabitants in great britain and 12 000 inhabitants in the us we also find a zipf s law for areas jel r11 r12 r23

optimal management of a renewable and replaceable resource the case of coastal groundwater the nonrenewable with backstop model of resource management is extended to cover renewables and applied to the case of coastal groundwater in the optimal management trajectory efficiency price exceeds extraction cost by the sum of scarcity rent and drawdown cost the latter remaining large even after the backstop price is reached in the case of rising demand optimal management may call for a stage of conservation followed by a stage of drawdown

current issues in the economics of groundwater resource management the issue of groundwater management remains a practical concern in many regions throughout the world while water managers continue to grapple with the question of how to manage this resource in this article we attempt to bring the most advanced and appropriate tools to bear on the issue of resource allocation involving groundwater our objective is to demonstrate the state of the art in the literature on ways to think about this complex resource and to deal with the important economic issues emanating from its complexity we present the conceptual framework within which economists examine the elements interacting in the management of groundwater resources indicate why the role of the market is limited with respect to the price of this very complex resource and point to the mechanisms that can pull competitive groundwater price and quality graded quantity of groundwater in line with their equilibrium levels in particular we critically review economic models of groundwater use examine the potential for groundwater management discuss the difficulties encountered in the estimation of the relevant control variables of such models and identify the advantages and limitations of the instruments devised for the efficient use allocation of this resource finally we argue that devised regulatory schemes usually ignore the information and knowledge needed for their implementation and we suggest a core of conditions necessary for successful groundwater management reforms

industry churning and the evolution of cities evidence for germany abstract in this paper we show that the recent model by gilles duranton duranton g 2007 urban evolutions the fast the slow and the still american economic review 97 197 221 performs remarkably well in replicating the city size distribution of west germany much better than the simple rank size rule known as zipf s law the main mechanism of this theoretical framework is the churning of industries across cities little is known in urban economics about the determinants of local industry turnover so far we present an empirical analysis of the excess churning index for west german cities which describes the strength of intra city industry reallocations over time we find that urban growth and industry turnover are not notably correlated some but not all fast growing cities have notably changed secondly human capital is positively related to growth and turnover but only among successful cities industrial change within unsuccessful cities is driven by the disappearance of old fashioned and declining sectors such as agriculture or mining on a more general level our results suggest that the recent model by duranton is a powerful description of the urban growth process still there are some aspects that are not captured by that model which are at the core of other theories of urban growth

the effects of party competition on budget outcomes empirical evidence from local governments in spain this paper investigates the link between local budget outcomes and the intensity of party competition measured as the margin of victory obtained by the incumbent in the previous local election i e the difference between the vote share and 50 two competing hypotheses are tested in the paper on the one hand the leviathan government hypothesis suggests that the lower the intensity of party competition is the greater is the increase in the size of the local public sector irrespective of the ideology of the party in power on the other hand the partisan government hypothesis suggests that the incumbent will find it easier to advance its platform when intensity of competition is low i e parties on the left right will increase decrease the size of the local public sector when the intensity of the challenge from the opposition is low these hypotheses are tested with information on spending own revenues and deficit for more than 500 spanish local governments over 8 years 1992 1999 and information on the results of two local electoral contests 1991 and 1995 the evidence favors the partisan hypothesis over the leviathan one we found that for left wing governments spending taxes and deficits increased as the electoral margin increases whereas for right wing governments a greater margin of victory led to reductions in all these variables

a nonparametric analysis of the growth process of indian cities we examine the growth process of the largest cities in india for the post economic reform period 1991 2011 to analyze gibrat s and zipf s laws by applying nonparametric estimation the results from stochastic kernel contour plots and expected growth rate and variance conditional on city size establish that gibrat s law holds for largest cities in india i e city growth is independent of population size and the local zipf exponent is around one and stable gibrat s law is also confirmed by the parametric regression of the aggregate relationship of the growth rate on city size

the optimal distribution of population across cities abstract we develop an urban model that incorporates 1 heterogeneous sites 2 fiscal and urban externalities and 3 an endogenous number of cities i e the extensive margin of urban development within and across city decreasing returns to scale cause agents to perceive their city as being too large in the socially optimal allocation as a consequence in equilibrium the largest cities on the most amenable sites are undersized whereas the smaller cities on less amenable sites are oversized we propose a test for optimal city size with heterogeneous sites extending the henry george theorem

competitive versus efficient extraction of a common property resource the groundwater case abstract in this paper socially optimal and private extraction of a common property aquifer are compared open loop equilibrium and feedback equilibrium in linear strategies have been computed to characterize private extraction the use of these two equilibrium concepts allows us to distinguish between cost and strategic externalities as long as the open loop solution captures only the cost externality and the feedback solution captures both the results show that strategic behaviour increases the overexploitation of the aquifer compared to the open loop solution however if the groundwater storage capacity is large the difference between the socially optimal and private extraction the latter characterized by a feedback equilibrium is negligible

using notches to uncover optimization frictions and structural elasticities theory and evidence from pakistan we develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches discontinuities in the choice sets of agents introduced by tax and transfer policies notches create excess bunching on the low tax side and missing mass on the high tax side of a cutoff and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world by combining excess bunching observed response attenuated by frictions with missing mass in the dominated region frictions it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long run behavior we apply our framework to tax notches in pakistan using rich administrative data while observed bunching is large and sharp optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives the combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large but the underlying structural elasticity driving this response is nevertheless modest this highlights the inefficiency of notches by creating extremely strong price distortions they induce large behavioral responses even when structural elasticities are small

cities skills and regional change glaeser e l ponzetto g a m and tobio k cities skills and regional change regional studies one approach to urban areas emphasizes the existence of certain immutable relationships such as zipf s or gibrat s law an alternative view is that urban change reflects individual responses to changing tastes or technologies this paper examines almost 200 years of regional change in the united states and finds that few if any growth relationships remain constant including gibrat s law education does a reasonable job of explaining urban resilience in recent decades but it does not seem to predict county growth a century ago after reviewing this evidence a simple model of regional change is presented and estimated where education increases the level of entrepreneurship human capital spillovers occur at the city level because skilled workers produce more product varieties and thereby increase labour demand it is found that skills are associated with growth in productivity or entrepreneurship not

cheating ourselves the economics of tax evasion no government can announce a tax system and then rely on taxpayers sense of duty to remit what is owed some dutiful people will undoubtedly pay what they owe but many others will not over time the ranks of the dutiful will shrink as they see how they are being taken advantage of by the others thus paying taxes must be made a legal responsibility of citizens with penalties attendant on noncompliance but even in the face of those penalties substantial tax evasion exists and always has the history of taxation is replete with episodes of evasion often notable for their inventiveness during the third century many wealthy romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth century england temporarily bricked up their fireplaces to escape notice of the hearth tax collector webber and wildavsky 1986 p 141 this essay reviews what is known about the magnitude nature and determinants of tax evasion with an emphasis on the u s income tax alm 1999 andreoni erard and feinstein 1998 and slemrod and yitzhaki 2002 offer more comprehensive recent reviews of the literature it then places this information into a conceptual and policy context

econometric models of asymmetric price transmission abstract in this paper we review the existing empirical literature on price asymmetries in commodities providing a way to classify and compare different studies that are highly heterogeneous in terms of econometric models type of asymmetries and empirical findings relative to the previous literature this paper is novel in several respects first it presents a detailed and updated survey of the existing empirical contributions on price asymmetries in the transmission mechanism linking input prices to output prices second this paper presents an extension of the traditional distinction between long run and short run asymmetries to new categories of asymmetries such as contemporaneous impact distributed lag effect cumulated impact reaction time equilibrium and momentum equilibrium adjustment path regime effect regime equilibrium adjustment path each empirical study is then critically discussed in the light of this new classification of asymmetries third this paper evaluates the relative merits of the most popular econometric models for price asymmetries namely autoregressive distributed lags partial adjustments error correction models regime switching and vector autoregressive models finally we use the meta regression analysis to investigate whether the results of asymmetry tests are not model invariant and find which additional factors systematically influence the rejection of the null hypothesis of symmetric price adjustment the main results of our survey can be summarized as follows i each econometric model is specialized to capture a subset of asymmetries ii each asymmetry is better investigated by a subset of econometric models iii the general significance of the f test for asymmetric price transmission depends mainly on characteristics of the data dynamic specification of the econometric model and market characteristics overall our empirical findings confirm that asymmetry in all its forms is very likely to occur in a wide range of markets and econometric models

dots to boxes do the size and shape of spatial units jeopardize economic geography estimations this paper evaluates in the context of economic geography estimates the magnitude of the distortions arising from the choice of zoning system which is also known as the modifiable areal unit problem maup we consider three standard economic geography exercises the analysis of spatial concentration agglomeration economies and trade determinants using various french zoning systems differentiated according to the size and shape of spatial units which are the two main determinants of the maup while size matters a little shape does so much less both dimensions seem to be of secondary importance compared to specification issues

why has house price dispersion gone up we calibrate a dynamic general equilibrium island model to investigate the 30 year increase in the level of house prices and their dispersion across u s metropolitan areas the model is based on two main assumptions households o w in and out metropolitan areas in response to local productivity shocks and the housing supply cannot adjust instantly because of technological and regulatory constraints the calibration reveals that the observed tightening of housing supply regulation cannot quantitatively account for the rise in the level and dispersion of house prices in equilibrium workers o w out of tightly regulated towards less regulated metropolitan areas undoing most of the price impact of local supply restrictions in contrast the observed increase in wage dispersion across metropolitan areas does create the observed increase in the level and dispersion of house prices workers o w towards exceptionally productive metropolitan areas and drive house prices up the calibration also suggests that the welfare eects of housing supply regulation are large when wages become more dispersed

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

new evidence on gibrat s law for cities the aim of this work is to test empirically the validity of gibrat s law in the growth of cities using data on the complete distribution of cities without size restrictions or a truncation point in three countries the us spain and italy for the entire 20th century for this we use different techniques first panel data unit root tests tend to confirm the validity of gibrat s law in the upper tail distribution and second we find mixed evidence in favour of gibrat s law in the long term in general size affects the variance of the growth process but not its mean when using nonparametric methods that relate the growth rate to city size moreover the lognormal distribution works as a good description of city size distribution across the whole century when no truncation point is considered

relocation of the rich migration in response to top tax rate changes from spanish reforms a spanish reform granted regions the authority to set income tax rates resulting in substantial tax differentials using administrative data we find that conditional on moving taxes have a signi

joint quantity quality management of groundwater economic literature on groundwater managementhas traditionally been split into two areas there are papers that evaluate different schemes of dynamicaquifer management considering that pumping costs vary with stock but ignoring water quality on the other hand there are papers that considercontamination problems caused by specificpollutants this paper presents two alternative models for joint quantity quality management and it shows that existing models are in fact special cases of these the framework isdynamic and considers both the stock of waterquantity and a stock measure of water quality optimal taxes are derived and shown to be different from those in existing quantity only or quality only models implementationproblems are briefly discussed

strategic behavior and efficiency in the common property extraction of groundwater groundwater has always been regarded as a common property resource where entry is restricted by land ownership and private exploitation is inefficient in 1980 gisser and sanchez presented a first estimation of this inefficiency cornparing socially optimal exploitation with private competitive exploitation using a model with linear water demand average extraction cost independent of the rate of extraction and linearly decreasing with respect to the water table level they characterized the private exploitation of the aquifer assuming that farmers are myopic and choose their rate of extraction to maximize their current profits whereas optimal exploitation is obtained by maximizing the present value of the stream of aggregate profits their results show that if the storage capacity of the aquifer is relatively large the difference between the two systems is so small that it can be ignored for practical consideration this result has been called the gisser sanchez rule by nieswiadomy 1985 and it has and important policy implication regulation of the resource does not seem justified since the profits it brings are not very high 1

from gibrat s law to zipf s law through cointegration abstract this article investigates the role of cointegration in the context of urban growth processes it proposes the use of cointegration tests to distinguish between two versions of gibrat s law a standard formalization with growth shocks that are iid across time and cities and an alternative one with shocks that are only iid over time it then shows that city size distributions converge to zipf s law under the standard version of gibrat s law in contrast they are perfectly preserved under the alternative formalization an empirical application to french data provides support for non cointegrated city growth and thus for the standard formalization

gibrat s law for cities growth regressions and sample size this paper uses un truncated city population data from six countries the united states spain italy france england and japan to illustrate how parametric growth regressions can lead to biased results when testing for gibrat s law in city size distributions the ols results show non monotonic behaviours depending on the sample size moreover it is possible to find a critical sample size from which we reject gibrat s law

human capital divergence and the size distribution of cities is gibrat s law obsolete this article studies how the changing geographic distribution of skilled workers in the us affects theoretical models that use gibrat s law to explain the size distribution of cities in the empiri

women and power unpopular unwilling or held back we use spain s equality law to test for the existence of agency problems between party leaders and their constituents the law mandates a 40 percent female quota on electoral lists in towns with populations above 5 000 using pre and postquota data by party and municipality we implement a triple difference design we find that female quotas resulted in slightly better electoral results for the parties that were most affected by the quota our evidence shows that party leaders were not maximizing electoral results prior to the quota suggesting the existence of agency problems that hinder female representation in political institutions

riding the wave of urban growth in the countryside spread backwash or stagnation the advisability of an urban centered growth strategy to reap the benefits of urban agglomeration economies is much debated rural areas benefit when the growth spreads to the hinterlands especially within daily commuting distance yet in distant peripheral locations urban growth may create a backwash as households relocate to the urban center this study examines spread vs backwash as separate from long run distance from urban center trend effects using a novel canadian gis database the unique nation wide approach yields a spread and backwash rural growth topography that varies by distance from the urban center by urban population vs income growth and by size of rural community

regression discontinuity designs based on population thresholds pitfalls and solutions in many countries important features of municipal government such as the electoral system mayors salaries and the number of councillors depend on whether the municipality is above or below arbitrary population thresholds several papers have used a regression discontinuity design rdd to measure the effects of these threshold based policies on political and economic outcomes using evidence from france germany and italy we highlight two common pitfalls that arise in exploiting population based policies compound treatment and sorting and we provide guidance for detecting and addressing these pitfalls even when these problems are present population threshold rdd may be the best available research design for studying the effects of certain policies and political institutions

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null