industry characteristics and interest group formation an empirical study the role of interest groups in the political process has been the subject of much analysis in both political science and economics however few studies have examined directly the factors which influence the variation in interest group formation across industrial sectors and between countries using data on 75 industrial sectors in 10 countries we examine the way in which variations in interest group formation are explained by variations in industrial and political characteristics in cross sectional empirical relationships we test for the significance of a variety of industry and political variables our results indicate that industry characteristics such as the proportion of total demand purchased by households and the concentration ratio are related to variations in interest group formation we discuss the implications that our results have for recent theoretical work on the effect of interest groups on economic policy

occupational choice and the process of development this paper models economic development as a process of institutional transformation by focusing on the interplay between agents occupational decisions and the distribution of wealth because of capital market imperfections poor agents choose working for a wage over self employment and wealthy agents become entrepreneurs who monitor workers only with sufficient inequality however will there be employment contracts otherwise there is either subsistence or self employment thus in static equilibrium the occupational structure depends on distribution since the latter is itself endogenous we demonstrate the robustness of this result by extending the model dynamically and studying examples in which initial wealth distributions have long run effects in one case the economy develops either widespread cottage industry self employment or factory production employment contracts depending on the initial distribution in the other example it develops into prosperity or stagnation

a microsimulation model of swedish housing demand abstract this paper presents a microsimulation model of housing demand aimed at analyzing effects of changes in tax schedules like many other countries sweden s income tax laws treat homeowners and renters asymmetrically therefore most changes in tax laws will affect housing demand and tenure choice we develop a microsimulation model which generates consistent estimates of the mean and variance of total housing demand and show that commonly used measures like analytic elasticities evaluated at mean values of the exogenous variables can yield very misleading predictions our model can be used to simulate almost any change in the tax system here we report results of three simple experiments one of which is a change in the rate at which imputed income from owner occupied housing is taxed

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

optimal progressive labor income taxation and education subsidies when education decisions and intergenerational transfers are endogenous abstract we quantitatively characterize the optimal mix of progressive income taxes and education subsidies in a model with endogenous human capital formation borrowing constraints income risk and incomplete financial markets in addition to the distortions of labor supply progressive taxes weaken the incentives to acquire education the latter distortion can potentially be mitigated by an education subsidy we find that the welfare maximizing fiscal policy is indeed characterized by a substantially progressive labor income tax code and a positive subsidy for college education both the degree of tax progressivity and the education subsidy are larger than in the current us status quo

public versus private investment in human capital endogenous growth and income inequality in this paper we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth we use simple functional forms for preferences technologies and income distribution to highlight the distinction between economies with public education and those with private education we find that income inequality declines more quickly under public education on the other hand private education yields greater per capita incomes unless the initial income inequality is sufficiently high we also find that societies will choose public education if a majority of agents have incomes below average

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

human capital risk in life cycle economies i study the effect of market incompleteness on the aggregate economy in a model where agents face idiosyncratic uninsurable human capital investment risk the environment is a general equilibrium lifecycle model with a version of a ben porath 1967 human capital accumulation technology modified to incorporate risk a cara normal specification keeps endogenous decisions independent of individual shock realizations i study stationary equilibria of calibrated cases in which idiosyncratic uninsurable risk arises from specialization risk and career risk specialization risk is such that both mean and variance of the return from training are increasing in the endogenous decision to invest in human capital in the case of career risk however only the mean return is increasing in the decision to invest in human capital with career risk only stationary equilibria resemble those studied by aiyagari 1994 and one concludes that the impact of uninsurable idiosyncratic risk is relatively small with a significant amount of specialization risk however stationary equilibria are severely distorted relative to a complete markets benchmark one aspect of this distortion is that human capital is only about 57 percent as large as its complete markets counterpart this suggests that the two types of risk have very different and quantitatively significant general equilibrium implications keywords human capital risk life cycle incom

the political economy of public subsidies the article presents a model to explain cross national variations in public subsidies the model incorporates demand and supply variables as well as the effects of policy linkages it predicts that public subsidies are higher in small countries where unemployment is high agriculture plays a large role in the economy left wing parties are in power and tariffs and social security transfers are low the findings tend to confirm six of the seven hypotheses the study supports cameron s 1978 assertion that the openness of the economy is a major factor in the expansion of the public economy even though the data do not clearly confirm or disconfirm any specific theoretical framework they are more consistent with the pluralist model with its insistence that political influence varies from issue to issue and that political actors play a major role in the policy process finally the most interesting finding pertains to the role of policy linkages

fractionalization and the size of government i study the effect of voters with a group based social conscience voters care more about the well being of those belonging to their own group than the rest of the population within a model of political tax determination both fractionalization and group antagonism reduce the support for redistribution whereas within group inequality increases support for redistribution inequality between groups has the opposite effect these results hold even if a poor group forms a majority using a panel constructed from us micro data i find support for the hypothesis that within race inequality increases redistribution while between race inequality decreases redistribution

gradual tax reforms if you like it you can keep it abstract one of the key practical challenges facing by tax reforms are their short run welfare consequences in this paper i focus on a consumption based tax reform for which despite long run welfare gains it generates welfare for some groups such as retirees or the working poor falls during transition between steady states using a life cycle model with heterogeneous households i show how to devise a transition path from the current u s federal tax system to a consumption based tax system that improves the welfare of current as well as future generations in a nutshell all households alive at the time of the policy change can choose when they want to switch to the new tax system or whether they want to switch at all i find that implementing a tax reform with this feature improves the welfare of 95 of population in the short run compared to less than a quarter of population in the conventional case with no choice it takes about twenty years for half of the population to pay their taxes under the new tax code

bi level game approaches for coordination of generation and transmission expansion planning within a market environment the main purpose of this paper is to develop methodologies for simultaneous generation and transmission expansion planning problem of power networks while investigating interactions between these two important sections in the proposed methodologies a transmission operator to operating under different incentives decides about investment in transmission network while anticipating the outcome of a purely competitive electricity market where several rival generation firms complete with each other to determine operating level of their generators amount of their sales and amount of their investment in generation capacity the proposed methodologies rely on bi level programming models whose upper level model represent the problem of investment in transmission by to and the lower level problems represent market outcomes obtained from clearing the market these bi level models are reduced to mixed integer linear and nonlinear programming using the duality theory and karush kuhn tucker kkt optimality conditions the results of the proposed models are analyzed and compared using two illustrative examples

the distribution of abilities and the progressive income tax abstract this paper develops a model of endogenous labor supply where agents are uncertain about their future wages assuming risk aversion some redistributive taxation is thus warranted it is shown that for a particular parameterization of the tax system an optimally progressive income tax exists comparative ststics analysis demonstrates how this tax system is effected by changes in the wage distribution the paper ends with a discussion of whether an optimally progressive income tax can be politically sustained it is shown that generally this is not the case in a political system with majority voting

a three level static milp model for generation and transmission expansion planning we present a three level equilibrium model for the expansion of an electric network the lower level model represents the equilibrium of a pool based market the intermediate level represents the nash equilibrium in generation capacity expansion taking into account the outcomes on the spot market and the upper level model represents the anticipation of transmission expansion planning to the investment in generation capacity and the pool based market equilibrium the demand has been considered as exogenous and locational marginal prices are obtained as endogenous variables of the model the three level model is formulated as a mixed integer linear programming milp problem the model is applied to a realistic power system in chile to illustrate the methodology and proper conclusions are reached

welfare analysis of tax reforms using household data abstract this paper discusses a methodology for calculating the distribution of gains and losses from a policy change using data for a large sample of households estimates are based on the equivalent income function which is money metric utility defined over observable variables this enables calculations to be standardised and a computer program to compute the statistics presented in the paper is available for a general demand system equivalent income is related to measures of deadweight loss and standard errors are computed for each of the welfare measures an application to u k data for 5 895 households is given which simulates a reform that involves eliminating housing subsidies

the evolution of wealth inequality over half a century the role of taxes transfers and technology over the last 50 years the u s tax system went through a striking transformation that reduced the effective tax rates for top income groups and raised transfers to seniors this paper investigates the macroeconomic repercussions of this change in policy particularly for the distributions of income wealth and consumption changes in taxes and transfers account for nearly half of the rise in wealth concentration nonetheless their impact on the distributions of income and consumption has been minor due to changes in equilibrium prices and the offsetting effects of tax cuts and transfers on the dispersion of consumption results highlight the role of increasing wage dispersion during this period as the main driver of trends in inequality

the effectiveness of government debt and transfers as insurance abstract government debt and redistributive taxation can help people to smooth consumption when facing uninsurable individual specific risk i examine the effects that variations in public debt and transfers have on risk sharing efficiency and the distribution of resources i find that risk sharing can be improved significantly by both debt and transfers but that debt has adverse effects on equity when used in isolation debt will enhance welfare if transfers are lower than optimal however the beneficial effects of public debt vanish if transfers are used optimally

socially optimal social security and education subsidization in a dynastic model with human capital externalities fertility and endogenous growth abstract this paper considers socially optimal government policies in a dynastic family model with physical capital human capital endogenous fertility and positive spillovers from average human capital such spillovers reduce human capital investment but raise fertility from their social optimum we first characterize the social optimum with a non convex feasible set due to the quantity quality tradeoff concerning children we then show that social security and education subsidization together financed by labor income taxes can fully eliminate the efficiency losses of the spillovers and achieve the social optimum under plausible conditions however none of the policies can do so alone

inequality in landownership the emergence of human capital promoting institutions and the great divergence this paper suggests that inequality in the distribution of landownership adversely affected the emergence of human capital promoting institutions e g public schooling and thus the pace and the nature of the transition from an agricultural to an industrial economy contributing to the emergence of the great divergence in income per capita across countries the prediction of the theory regarding the adverse effect of the concentration of landownership on education expenditure is established empirically based on evidence from the beginning of the 20th century in the u s

housing prices and tenure choice with asymmetric taxes and progressivity abstract this paper studies the effects of tax schedule changes on prices and tenure choice in the housing market it is shown that given the present asymmetric treatment of owner occupants vs renters an increase in the degree of progressivity is likely to lead to an increasein the prices of both owner occupied and rental housing a numerical example indicates that the effects may be quite large equilibrium prices are calculated based on the actual swedish income tax schedules for 1971 and 1979 according to these simulations the tax changes that took place between these years caused the price of owner occupied houses to increase by around 30 percent and the rent level to increase by 2 or 3 percent

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

endogenous comparative advantage gains from trade and symmetry breaking abstract similar countries often choose very different policies and specialize in very distinct industries this paper proposes a novel mechanism to explain policy diversity between similar countries from an open economy perspective i study optimal policies in a two country model where policies affect the determinants of trade patterns symmetric countries choose asymmetric policies in equilibrium if aggregate income is sufficiently convex in own policy such high social increasing return to policy despite constant returns to scale in production generate enough gains from trade to sustain policy diversity in equilibrium any asymmetric equilibrium is welfare improving compared to the common autarky optimum similarly a more asymmetric nash equilibrium pareto dominates a less asymmetric one as an application i consider a model in which the government s choice of education policy affects skill distribution and comparative advantage in this application the existence of an asymmetric nash equilibrium in education policy requires that the elasticity of the education cost of agents with respect to skill is relatively low

the effect of income taxation on the labor supply of married men in sweden abstract this paper presents labor supply functions estimated on a sample of prime age swedish males the model used takes account of the nonlinear character of individuals budget sets caused by the progressive income tax it also allows preferences to vary between individuals calculations with the estimated functions using a partial equilibrium framework indicate a sizeable effect of the income tax on hours of work the average expected deadweight loss of the income tax is found to be approximately 20 percent of tax revenue

unequal societies income distribution and the social contract this paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political fundamentals can sustain such different systems of social insurance fiscal redistribution and education finance as those of the united states and western europe with imperfect credit and insurance markets some redistributive policies can improve ex ante welfare and this implies that their political support tends to decrease with inequality conversely with credit constraints lower redistribution translates into more persistent inequality hence the potential for multiple steady states with mutually reinforcing high inequality and low redistribution or vice versa

distributional effects of housing subsidies in the united kingdom this paper examines the first round distributional effects of subsidies to public sector tenants and tax concessions to owner occupiers in the united kingdom excluding income related housing benefits the average values per family of the two are found to be of similar magnitude local authority rates property taxes are found to have provided a roughly equivalent offset to the shortfall from economic rents for local authority tenants and the lack of taxation of owner occupiers imputed rents their abolition substantially improves the position of housing compared with other forms of consumption or investment

toward fully renewable electric energy systems renewable energy sources are here to stay for a number of important reasons including global warming and the depletion of fossil fuels we explore in this paper how a thermal dominated electric energy system can be transformed into a renewable dominated one this study relies on a stochastic programming model that allows representing the uncertain parameters plaguing such long term planning exercise being the final year of our analysis 2050 we represent the transition from today to 2050 by allowing investment in both production and transmission facilities with the target of achieving a renewable dominated minimum cost system the methodology developed is illustrated using a realistic large scale case study finally policy conclusions are drawn

consumption inequality and family labor supply we examine the link between wage and consumption inequality using a life cycle model incorporating consumption and family labor supply decisions we derive analytical expressions for the dynamics of consumption hours and earnings of two earners in the presence of correlated wage shocks nonseparability progressive taxation and asset accumulation the model is estimated using panel data for hours earnings assets and consumption we focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks once family labor supply assets and taxes are properly accounted for there is little evidence of additional insurance jel d12 d14 d91 j22 j31

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

on the political economy of welfare expansion a comparative analysis of 18 advanced capitalist democracies 1960 1971 this article elaborates the thesis that economic growth and various types of collective action by class linked actors determine the expansion and decline of welfare spending in rich capitalist democracies our multivariate model of this thesis specified to 1960 1971 growth rates in direct cash transfer payments as proportions of gross domestic product is supported strongly by regression analyses these indicate that economic growth notably facilitates transfer payment growth they also suggest that rightist party participation in government notably dampens welfare expansion while leftist centrist and christian democratic party participation in government are conducive to welfare expansion and they suggest that the political influences of both unions and large industrial corporations are conducive to growth in transfers payments as well in addition state authorities appear to augment welfare spending in response to working class protests strike activity and capital investment disinvestment activ

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

market based generation and transmission planning with uncertainties this paper presents a stochastic coordination of generation and transmission expansion planning model in a competitive electricity market the monte carlo simulation method is applied to consider random outages of generating units and transmission lines as well as inaccuracies in the long term load forecasting the scenario reduction technique is introduced for reducing the computational burden of a large number of planning scenarios the proposed model assumes a capacity payment mechanism and a joint energy and transmission market for investors costs recovery the proposed approach simulates the decision making behavior of individual market participants and the iso it is an iterative process for simulating the interactions among gencos transcos and iso the iterative process might be terminated by the iso based on a pre specified stopping criterion the case studies illustrate the applications of proposed stochastic method in a coordinated generation and transmission planning problem when considering uncertainties

a bilevel approach to transmission expansion planning within a market environment we present a bilevel model for transmission expansion planning within a market environment where producers and consumers trade freely electric energy through a pool the target of the transmission planner modeled through the upper level problem is to minimize network investment cost while facilitating energy trading this upper level problem is constrained by a collection of lower level market clearing problems representing pool trading and whose individual objective functions correspond to social welfare using the duality theory the proposed bilevel model is recast as a mixed integer linear programming problem which is solvable using branch and cut solvers detailed results from an illustrative example and a case study are presented and discussed finally some relevant conclusions are drawn

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

should germany have built a new wall macroeconomic lessons from the 2015 18 refugee wave abstract in 2015 2016 germany experienced a wave of predominantly low skilled refugee immigration we evaluate its macroeconomic and distributional effects using a quantitative overlapping generations model calibrated using german micro data to replicate education and productivity differentials between foreign born and native workers workers are modelled as imperfect substitutes in aggregate production leading to endogenous wage differentials we simulate the dynamic effects of this refugee wave with specific focus on the welfare impact on low skilled natives our results indicate that the small losses this group suffers can be compensated by welfare gains of other parts of the native population

the heterogeneous responses of consumption between poor and rich to government spending shocks government spending shocks have substantially different effects on consumers across the income distribution consumption increases for the poor whereas it decreases for the rich in response to a rise in government expenditure i shed light on this issue by incorporating a progressive tax scheme and productive public expenditure into a heterogeneous agent model economy with indivisible labor the model economy is able to successfully match aggregate and disaggregate effects of government spending shocks on consumption when the government increases its spending and accompanies it by a rise in tax progressivity the poor are employed and increase their consumption since after tax wage rates increase while the rich decrease their consumption because of a fall in after tax wage rates

taxation and long run growth abstract a number of recent papers have investigated the growth effects of tax reforms in the context of neoclassical growth models with human capital growth effects were found to be large but highly sensitive to parameter choices this paper shows that growth effects are smaller and much less sensitive in models that generate realistic life cycle behavior which requires that households are finitely lived but generations may be altruistically linked and face diminishing point in time returns in human capital accumulation reasonable upper bounds for growth effects in such models are less than one third of some values reported in the literature

how should tax progressivity respond to rising income inequality we address this question in a heterogeneous agent incomplete markets model featuring exogenous idiosyncratic risk endogenous skill investment and flexible labor supply the tax and transfer schedule is restricted to be log linear in income a good description of the us system rising inequality is modeled as a combination of skill biased technical change and growth in residual wage dispersion when facing shifts in the income distribution like those observed in the us a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change overall optimal progressivity is approximately unchanged between 1980 and 2016 we document that the progressivity of the actual us tax and transfer system has similarly changed little since 1980 in line with the model prescription

taxing residential housing capital this paper discusses the main aspects of the taxation of housing drawing on general principles of optimal taxation it focuses on the role of the property tax in achieving neutrality between rental and owner occupied housing assuming that landlords are taxed according to a neutral profits tax it follows that the property tax should be based on the rate of interest the paper discusses how the tax rate could be adjusted to account for the lack of effective taxation of capital gains the double taxation of dividends and the differences in the cost of labour between rental and owner occupied housing in most oecd countries the combined effect of the different housing taxes amounts to a tax subsidy to owner occupied housing it is demonstrated how this subsidy has been reduced in sweden as in many other countries in the past decade as a result of tax reforms and a lower rate of inflation the subsidy has effects on consumption patterns saving capital accumulation the distribution of welfare across gener

optimal timing of college subsidies enrollment graduation and the skill premium abstract the large increase in the skill premium has led many policy makers to propose increasing college subsidies as a strategy to increase college enrollment and reduce inequality existing analyses typically assume that there is no distinction between enrollment and graduation but in fact more than 50 of college enrollees do not graduate this highlights the need to explicitly model the decision to drop out in assessing the effect of subsidies i build a general equilibrium model of education choice that features an explicit dropout decision calibrate it to match key features of the us economy and use it to evaluate the impact of college subsidies on the supply of college educated labor i show that moving to a system in which subsidies are back loaded i e higher for juniors and seniors than for freshmen and sophomores will increase the supply of college educated labor even holding total subsides constant in fact this effect is larger than what would be accomplished by a uniform 50 increase in subsidies

insurance and opportunities a welfare analysis of labor market risk abstract using a model with constant relative risk aversion preferences endogenous labor supply and partial insurance against idiosyncratic wage risk this paper provides an analytical characterization of three welfare effects a the welfare effect of a rise in wage dispersion b the welfare gain from completing markets and c the welfare effect from eliminating risk the analysis reveals an important trade off for these welfare calculations on the one hand higher wage uncertainty increases the cost associated with missing insurance markets on the other hand greater wage dispersion presents opportunities to raise aggregate productivity by concentrating market work among more productive workers welfare effects can be expressed in terms of the underlying parameters defining preferences and wage risk or alternatively in terms of changes in observable second moments of the joint distribution over individual wages consumption and hours

transmission and wind power investment this paper jointly considers wind power investment and transmission reinforcement the proposed model is a mathematical program with equilibrium constraints mpec that seeks to identify the optimal wind projects to be developed and the required network reinforcements under the transmission system operator perspective this mpec seeks to minimize consumer payments and is constrained by investment conditions and the equilibria of the market under different operating conditions an array of subsidies is considered to promote independent wind power investment an example and two case studies illustrate the characteristics of the proposed model

efficiency and equality in a simple model of efficient unemployment insurance abstract this paper describes the efficient allocation of consumption and work effort in an economy in which workers face idiosyncratic employment risk and considerations of moral hazard prevent full insurance we impose a lower bound on the expected discounted utility that can be assigned to any agent from any date onward and show with this feature added that the efficient unemployment insurance scheme induces an invariant cross sectional distribution of individual entitlements to utility the paper thus provides a simple prototype model suited to the study of the normative question what is the trade off between equality and efficiency in resource allocation journal of economic literature classification numbers d31 d63 d82 j65

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

market based coordination of transmission and generation capacity planning we propose an iso model for coordinating transmission expansion planning with competitive generation capacity planning in electricity markets the purpose of the model is a holistic simulation of generation and transmission capacity expansion in the market environment the solution represents an iterative process for simulating the interactions among gencos transcos and the iso which might be terminated by the iso based on a pre specified stopping criterion the proposed model adopts a joint energy and transmission auction market and a capacity mechanism the joint auction market enables competition to occur among generation and transmission resources the capacity mechanism offers incentives for market participant investments that reflect the locational values of additional capacity transmission capacity expansion decisions are made by merchant transmission lines that recover their capacity investments through transmission marginal pricing and capacity payments transmission network security is reflected in the proposed competitive resource planning model the examples illustrate a coordinated planning of generation and transmission in restructured power systems

the demand for military expenditures an international comparison earlier studies have explained inter country variations in the share of gnp devoted to military expenditures by international spillovers and by differences in the threat of attack related to relative incomes in this paper we use the theory of public choice to explain these differences we attempt to measure the importance of both international spillovers and relative incomes along with two other factors the tax price elasticity of demand and economies of scale in the consumption of security we find that international spillovers are significant and positive that the income elasticity of demand is greater than unity that the tax price elasticity of demand explains part of observed inter country differences and that there are considerable economies of scale in the consumption of military spending finally between 1960 and 1975 there was apparently a substantial increase in the value which each country derived from a dollar of military spending by its allies this phenomenon which seems related to the increased importance of deterrent weapons has tended to induce individual alliance members to reduce the share of their national income devoted to defense

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

tax reform and housing demand the distribution of welfare gains and losses abstract we study distributional effects of a recent reform of the swedish system of income taxation which affects the price of owner occupied housing in calculating the welfare effects we account both for the non linearities of the income tax schedule and the dichotomous choice aspect of housing demand to own or to rent small and rosen 1981 have shown how the standard harberger type approximation formulae can be adapted to handle discrete choices and we modify their analysis for a non linear budget constraint

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

feasible smooth income tax schedules benefits and distributional implications existing tax schedules are often overly complex and characterized by discontinuities in the marginal tax burden in this paper we propose a class of progressive smooth functions to replace persona

tax and education policy in a heterogeneous agent economy what levels of redistribution maximize growth and efficiency this paper studies the effects of progressive income taxes and education finance in a dynamic heterogeneous agent economy such redistributive policies entail distortions to labor supply and savings but also serve as partial substitutes for missing credit and insurance markets the resulting tradeoffs for growth and efficiency are explored both theoretically and quantitatively in a model that yields complete analytical solutions progressive education finance always leads to higher income growth than taxes and transfers but at the cost of lower insurance overall efficiency is assessed using a new measure that properly reflects aggregate resources and idiosyncratic risks but unlike a standard social welfare function does not reward equality per se simulations using empirical parameter estimates show that the efficiency costs and benefits of redistribution are generally of the same order of magnitude resulting in plausible values for the optimal rates aggregate income and aggregate welfare provide only crude lower and upper bounds around the true efficiency tradeoff

the econometrics of nonlinear budget sets traditional empirical analysis of consumer demand has usually made the assumption of linear budget sets that is the consumer is assumed to purchase any desired quantity at a constant price subject to a budget constraint the major exception to this framework is the analysis of demand when some goods are rationed 2 in the rationed case the price is constant up to a quantity limit in contrast to the rationed case here i consider the situation where the price varies with the amount of the good purchased empirical situations with nonconstant prices come readily to mind and of course they have received much recent attention from theorists since mirrlees 44 paper on optimal nonlinear taxation the following examples are meant to give a partial listing of cases when nonlinear budget sets occur i electricity prices many electric utilities engage in declining block pricing that is the marginal price of successive kwh s of electricity decrease at a given number of points determined by total demand thus the budget set is piecewise linear houthakker 36 was the first to propose an approach to this problem taylor 51 analyzes the problem at length and hausman kinnucin and mcfadden 31 use an instrumental variables estimator to provide consistent estimates of the demand function

insurance and opportunities the welfare implications of rising wage dispersion this paper develops a series of heterogeneous agents economies in order to characterize analytically the welfare implications of changes in the uncertainty in individual labor productivity we perform two types of welfare calculations first we compute the welfare consequences of a rise in labor market risk given a particular asset market structure complete markets incomplete markets autarky second we compute the expected gain from completing markets starting from autarky or incomplete markets for a given level of wage dispersion we are able to derive intuitive closed form expressions for these welfare eects which depend only on preference parameters and the size of the change in wage dispersion a higher level of productivity dispersion has always two eects it tends to reduce welfare in presence of partial insurance but it also tends to improve production opportunities in presence of flexible labor supply we can separate analytically the insurance and the opportunity components we quantify the welfare consequences of the rise in wage inequality observed in the united states over the past three decades as roughly 3 of lifetime consumption moreover we calculate that completing the asset markets given the current level of inequality would lead to a welfare improvement equivalent to 35 of lifetime consumption

lorenz dominance and welfare changes in the u s distribution of income 1967 1986 this paper examines income inequality in the untied states over the period 1967 86 using recently developed tests for differences in lorenz curves the authors are able to rank eighteen of nineteen annual comparisons in contrast standard techniques are able to rank only twelve these results suggest that the lorenz dominance principle is more empirically relevant than previously thought the tests reveal a sharp rise in u s inequality between 1978 and 1982 as well as a shift toward greater inequality over the entire period the authors also examine changes in economic welfare using the joint mean lorenz dominance principle copyright 1991 by mit press

the short run comparative statics of a rental housing market abstract this paper examines the short run effects of changes in exogenous variables including several government policies on the schedule relating market equilibrium rent to quality level the basic model differs from sweeney econometrica 42 147 167 1974 by use of a bid rent closed city approach rather than a supply and demand partially open city approach the mathematics changes completely the analytics simplify and the results change somewhat housing is treated as a durable quality differentiated good but frictional forces and the multidimensionality of the housing package are ignored the exception is an extension to a monocentric city context so that housing units vary in both quality and location

consumption and labor supply with partial insurance an analytical framework we develop a model with partial insurance against idiosyncratic wage shocks to quantify risk sharing closed form solutions are obtained for equilibrium allocations and for moments of the joint distribution of consumption hours and wages we prove identification and demonstrate how labor supply data are informative about risk sharing the model estimated with us data over the period 1967 2006 implies that i 39 percent of permanent wage shocks pass through to consumption ii the share of wage risk insured increased until the early 1980s and iii preference heterogeneity is important in accounting for observed dispersion in consumption and hours jel e21 e23 e31 e52

effects of the swedish 1983 85 tax reform on the demand for owner occupied housing a microsimulation approach the effects of the swedish 1983 85 tax reform are analyzed with respect to the housing market a microsimulation model is used which takes into account the household s tenure choice owning vs renting as well as the quantity demanded conditional on the tenure choice the reform consists of a reduction in marginal tax rates and limitations on the deductibility of mortgage interest the simulations show that this will cause a general reduction in demand for owner occupied houses on a disaggregated level there will be an increase in the demand for small and medium sized houses while the demand for large units will fall sharply

the injustice of inequality in many countries the operation of legal political and regulatory institutions is subverted by the wealthy and the politically powerful for their own benefit this subversion takes the form of corruption intimidation and other forms of influence we present a model of such institutional subversion focusing specifically on courts and of the effects of inequality in economic and political resources on the magnitude of subversion we then use the model to analyze the consequences of institutional subversion for the law and order environment in the country as well as for capital accumulation and growth we illustrate the model with historical evidence from gilded age united states and the transition economies of the 1990s we also present some cross country evidence consistent with the basic prediction of the model

taxation and labor supply of married couples across countries a macroeconomic analysis we document contemporaneous dierences in the aggregate labor supply of married couples across 18 oecd countries relative to their us counterparts european married men work on average 9 to 17 percent and married women in western and southern europe 26 and 31 percent fewer hours married women in scandinavia and eastern europe however work almost as many hours as us married women we nd that a model of joint household decision making can largely replicate these facts if the full non linearity of labor income taxes and the tax treatment of married couples are taken into account going to a system of strictly separate taxation would increase labor supply of married women by more than 100 hours annually in a third of our sample countries

multistage stochastic investment planning with multiscale representation of uncertainties and decisions we propose a multistage multiscale linear stochastic model to optimize electricity generation storage and transmission investments over a long planning horizon the multiscale structure captures large scale uncertainties such as investment and fuel cost changes and long run demand growth rates and small scale uncertainties such as hour to hour demand and renewable availability uncertainty the model also includes a detailed treatment of operating periods so that the effect of dispatch decisions on long term investments are captured the proposed model can be large in size the progressive hedging algorithm is applied to decompose the model by scenario greatly reducing computation times we also derive bounds on the optimal objective function value to assess solution quality we use a case study based on the state of texas to demonstrate the model and show the benefits of its detailed representation of the operating periods in making investment decisions

co planning of investments in transmission and merchant energy storage suitably located energy storage systems are able to collect significant revenue through spatiotemporal arbitrage in congested transmission networks however transmission capacity expansion can significantly reduce or eliminate this source of revenue investment decisions by merchant storage operators must therefore account for the consequences of potential investments in transmission capacity by central planners this paper presents a tri level model to co optimize merchant electrochemical storage siting and sizing with centralized transmission expansion planning the upper level takes the merchant storage owner s perspective and aims to maximize the lifetime profits of the storage while ensuring a given rate of return on investments the middle level optimizes centralized decisions about transmission expansion the lower level simulates market clearing the proposed model is recast as a bi level equivalent which is solved using the column and constraint generation technique a case study based on a 240 bus 448 line testbed of the western electricity coordinating council interconnection demonstrates the usefulness of the proposed tri level model

labor market trends and the changing value of time abstract during the past two decades households experienced increases in their average wages and expenditures alongside with divergent trends in their wages expenditures and time allocation we develop a model with incomplete asset markets and household heterogeneity in market and home technologies and preferences to account for these labor market trends and assess their welfare consequences using micro data on expenditures and time use we identify the sources of heterogeneity across households document how these sources have changed over time and perform counterfactual analyses given the observed increase in leisure expenditures relative to leisure time and the complementarity of these inputs in leisure technology we infer a significant increase in the average productivity of time spent on leisure the increasing productivity of leisure time generates significant welfare gains for the average household and moderates negative welfare effects from the rising dispersion of expenditures and time allocation across households

a theory of trickle down growth and development this paper develops a model of growth and income inequalities in the presence of imperfect capital markets and it analyses the trickle down effect of capital accumulation moral hazard with limited wealth constraints on the part of the borrowers is the source of both capital market imperfections and the emergence of persistent income inequalities three main conclusions are obtained from this model first when the rate of capital accumulation is sufficiently high the economy converges to a unique invariant wealth distribution second even though the trickle down mechanism can lead to a unique steady state distribution under laissez faire there is room for government intervention in particular redistribution of wealth from rich lenders to poor and middle class borrowers improves the production efficiency of the economy both because it brings about greater equality of opportunity and also because it accelerates the trickle down process third the process of capital accumulation initially has the effect of widening inequalities but in later stages it reduces them in other words this model can generate a kuznets curve

fiscal multipliers in the 21st century fiscal multipliers appear to vary greatly over time and space based on vars for a large number of countries we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers in an attempt to account for this finding we develop a life cycle overlapping generations economy with uninsurable labor market risk we calibrate our model to match key characteristics of a number of oecd economies including the distribution of wages and wealth social security taxes and government debt and study how a fiscal multiplier depends on various country characteristics we find that the fiscal multiplier is highly sensitive to the fraction of the population who face binding credit constraints and also to the average wealth level in the economy these findings together help us generate a cross country pattern of multipliers that is quite similar to that in the data

the dynamics of the wealth distribution and the interest rate with credit rationing are uniquely determined and wealth dispersion among individuals or firms is irrelevant introducing credit rationing into the solow model modifies these conclusions multiple stationary interest rates and wealth distributions can exist because higher initial rates can be self reinforcing through higher credit rationing and lower capital accumulation the wealth accumulation process is ergodic in every steady state but wealth mobility is lower with higher steady state interest rates aggregate output is higher in steady states with lower interest rates because credit is better allocated short run interest rate or distribution shocks can be self sustaining and can have long run effects on output through the induced dynamics of the wealth distribution and credit rationing

the intergenerational conflict over the provision of public education abstract we study the intergenerational conflict over the provision of public education this conflict arises because older households without children have weaker incentives to support the provision of high quality educational services in a community than younger households with school age children we develop an overlapping generations model for households in a system of multiple jurisdictions this model captures the differences in preferred policies over the life cycle we show that the observed inequality in educational policies across communities is not only the outcome of stratification by income but is also determined by the stratification by age and a political process that is dominated by older voters in many urban communities with low quality of educational services the mobility of older households creates a positive fiscal externality since it creates a larger tax base per student this positive tax externality can dominate the negative effects that arise because older households tend to vote for lower educational expenditures as a consequence sorting by age can reduce the inequality in educational outcomes that is driven by income sorting

teachers growth and convergence this paper examines the role of individual instruction and teacher quality in determining economic growth and convergence across school districts the model shows that if teacher quality is more important for human capital accumulation than individual instruction human capital convergence will occur between two school districts this convergence arises because a poor school district hires relatively better teachers but uses them in larger classes in comparison with a rich school district the model is estimated on panel data of the states of the united states from 1882 to 1990 the estimates indicate that teacher quality is relatively more important for human capital accumulation than individual instruction the model accounts for all the mean growth in state per capita incomes and between 80 and 100 percent of convergence in state per capita incomes

trade and the political economy of redistribution this paper shows how international trade affects the support for policies which redistribute income between workers across sectors and how the existence of such policies changes the support for trade liberalization workers who are imperfectly mobile across sectors vote on whether to subsidize ailing sectors thereby redistributing income but also distorting the labor allocation we present three main findings first redistributive policies are more likely to arise in a small open than in a closed economy for a broad range of parameters second if a redistributive policy is adopted in both situations income differences across sectors tend to be lower in the open economy third the possibility to redistribute income across sectors raises the political support for trade liberalization in the first place

optimal taxation in a limited commitment economy this paper studies optimal ramsey taxation when risk sharing in private insurance markets is imperfect due to limited enforcement in a limited commitment economy there are externalities associated with capital and labor because individuals do not take into account that their labor and saving decisions aect aggregate supply wages

inheritance taxation and wealth effects on the labor supply of heirs abstract the taxation of bequests can have a positive impact on the labor supply of heirs through wealth effects this leads to an increase in labor income tax revenue on top of direct bequest tax revenue we first show in a theoretical model that a simple back of the envelope calculation based on existing estimates for the reduction in earnings after wealth transfers fails the marginal propensity to earn out of unearned income is not a sufficient statistic for the calculation of this effect because i heirs anticipate the reduction in net bequests and adjust their labor supply already prior to inheriting and ii when bequest receipt is stochastic even those who ex post end up not inheriting anything respond ex ante to the implied change in their distribution of net bequests we quantitatively elaborate the size of the overall revenue effect due to labor supply changes of heirs by using a state of the art life cycle model that we calibrate to the german economy besides the joint distribution of income and inheritances quasi experimental evidence regarding the size of wealth effects on labor supply is a key target for this calibration we find that for each euro of bequest tax revenue the government mechanically generates it obtains an additional 9 cents of labor income tax revenue in net present value through higher labor supply of non heirs

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association