performance rating and yardstick competition in social service provision abstract this paper investigates whether national evaluation of decentralised government performance tends by lessening local information spill overs to reduce the scope for local performance comparisons and consequently to lower the extent of spatial auto correlation among local government expenditures it analyses local government expenditures on personal social services in the uk before and after the introduction of a national performance assessment system sspr social services performance rating that would attribute a rating to each local authority the empirical evidence is consistent with the hypothesis that the sspr has reduced local yardstick competition

a life cycle consumption model with liquidity constraints theory and empirical results a structural consumption model incorporating endogenous liquidity constraints is fit to a cross section of 798 u s families liquidity constrained families are estimated to constitute 19 4 percent of the population sampled a group that accounts for 16 7 percent of consumption in the population sampled in sample simulations of the model suggest that a temporary tax has three to four times more impact on aggregate consumption than it would if liquidity constraints were not in effect copyright 1987 by the econometric society

current account imbalances and financial integration in the euro area abstract while the current account of the euro area as a whole has remained almost balanced in the past two decades several member countries have sizeable deficits or surpluses in this paper we interpret these imbalances as indicators of net capital flows among the euro area countries we distinguish between balances against the euro zone and the rest of the world and examine these for the eu 15 countries we find that for euro members the net flows follow differences in per capita incomes even before the introduction of the euro our results show further that with the introduction of the common currency the elasticity with respect to per capita incomes of net capital flows within the euro area has increased for the members of the euro zone this increase can neither be observed for the flows between the euro members and the rest of the world nor for the flows between the countries that stayed outside the monetary union and the euro zone we interpret this as evidence for increasing financial integration in the euro area there is also some evidence suggesting that the introduction of the euro has led to some financial diversion

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

does financial reform raise or reduce saving the effect of financial liberalization on private saving is theoretically ambiguous not only because the link between interest rate levels and saving is itself ambiguous but also because financial liberalization is a multidimensional and phased process sometimes involving reversals using principal components we construct 25 year time series indices of financial liberalization for each of eight developing countries chile ghana indonesia korea malaysia mexico turkey and zimbabwe these are employed in an econometric analysis of private saving in these countries our results cannot offer support for the hypothesis that financial liberalization will increase saving on the contrary the indications are that liberalization overall and in particular those elements that relax liquidity constraints may be associated with a fall in saving

financial deregulation and household saving the last decade has seen widespread domestic financial deregulation in the industrial world particularly in the united states united kingdom and the nordic countries resulting in an increase in competition both between banks and saving institutions thrifts or building societies as they moved into each others services and within each sector this opened up new financial options particularly for households the sector that was probably most affected by government regulation for example there was a significant increase in equity withdrawals from personal housing wealth in both the united kingdom and united states over the ig8os 2 this period also saw a significant change in household consumption behaviour the most dramatic illustration being the fall in the household saving ratio in those countries where the process of deregulation has gone furthest this paper reports the results from estimating a model of household saving using regional data for the united kingdom with a particular emphasis on the interaction between household saving and financial deregulation the estimates are used to calculate the relative importance of different factors in the fall in personal saving over the i98os i conclude that deregulation lowered the equilibrium level of saving over the i98os probably 2 percentage points per annum as well as making saving significantly more dependent on changes in wealth income and real interest rates there have been a number of earlier empirical studies looking at the interaction between financial deregulation and household behaviour manchester and poterba i 989 miles i 992 and koskela et al i 992 present empirical evidence on the interaction between deregulation the housing market and saving in the united states united kingdom and finland respectively others have estimated saving functions which include variables representing the effects of financial deregulation or have considered the impact of financial deregulation on liquidity constraints in consumption 3 the

migration and income redistribution responsibilities this study examines whether afdc benefits determine or discourage state to state migration flows in the united states a pooled cross section time series model is developed to estimate afdc benefits in a state and recipients and whether benefits in one state affect benefits in other states a second model using data from the 1980 census and the panel study of income dynamics estimates migration of afdc recipients and the level of benefits in in migration and out migration states both models indicate that small but statistically significant amounts of migration occur which may be quite important but only in the long run movers although small in number are much more likely to move to a state with higher benefits states perceive this migration as important indicating that states should have less control and the federal government more control over income redistribution

the effect of welfare and wage levels on the location decisions of female headed households abstract this paper develops and estimates a model designed to calculate the impact of welfare benefit levels wages and tax rates on the location choices of female headed households the empirical model assumes that women simultaneously choose both where they will live and whether or not they will participate in the welfare system based on their expected income and expected hours of work for each location participation possibility these income and hours expectations depend in turn on the welfare benefits wage and tax rates facing each household in each location it is found that both regional welfare levels and wage rates have a significant effect on the location decisions of this population the probability of a typical female headed household with little outside income leaving an area with low welfare payments and low wages can be as much as 12 points higher over a 4 year period than the probability of leaving a high welfare high wage area

the influence of psychic costs on rural urban migration psychic costs reflect differences in interregional utility an important determinant of population among regions following sjaastad s definition of psychic costs the consumer surplus foregone by appalachian migrants in two urban areas was measured as the difference between current urban income and an acceptable income level in eastern kentucky psychic costs varied significantly with the size of the city of destination migrants demographic characteristics and their satisfaction with jobs city services and interpersonal relationships in the city mobility which reduces psychic costs contributes to social well being but will not be measured in national economic accounts

the impact of state economic differentials on household welfare and labor force behavior abstract this paper calculates state specific income expectations for low income households using a simultaneous model of household labor force and welfare participation decisions a variety of simulations indicate the interlocking effects of existing state differences in welfare wages and taxes on work welfare choices and income significant differences among similar households in different states occur equalization of welfare benefits eliminates some but not all of these differences but generates potentially serious policy problems for the states

emerging stock markets portfolio capital flows and long term economie growth micro and macroeconomic perspectives abstract the paper examines two major components of financial liberalization stock market development and portfolio capital flows in the context of less developed countries the paper considers microeconomic and macroeconomic perspectives on their implications for long term development and economic growth it concentrates on 1 a the role of stock markets in financing corporate growth 2 b the implications of stock market volatility for resource allocation and productive efficiency and 3 c the interactions between the foreign exchange and stock markets in the context of economic shocks its policy recommendations are that ldcs should promote bank based systems influence the scale and composition of capital inflows and prevent a market for corporate control from emerging

the demand for welfare generosity this paper estimates economic models of the determinants of state benefit levels in the aid to families with dependent children afdc program using 1969 1992 data these models have been extensively researched however the existing literature has produced an unacceptably wide range of estimates using alternative econometric procedures this paper systematically examines both the specification assumptions underlying previous analyses as well as several additional specification issues it is therefore able to replicate and reconcile estimates from previous studies and to provide updated consensus estimates of the demand for welfare generosity it finds that changes in the average level of income within states have small but statistically significant positive effects on benefits with the confidence bounds on the elasticity extending from 0 11 to 0 82 changes in the effective price of redistribution are found to have at most weak negative effects with elasticities in the range of 0 14 to 0 02 these results are used to evaluate the effects of block grant provisions in the recently enacted welfare reform legislation

a model of welfare competition with evidence from afdc in this paper we test empirically for strategic behavior among the states using the cash support program aid to families with dependent children afdc to motivate the empirical work we adapt wildasin s model of income redistribution 1991 american economic review 81 757 773 to a model of interjurisdictional welfare competition although welfare competition may be generated from different frameworks we choose wildasin s model to illustrate how welfare benefit interdependence is genereated in the context of welfare migration we estimate a representative reaction function for afdc using both cross sections and pooled cross section data after controlling for other determinants of afdc benefit levels and for spatial error autocorrelation we find evidence showing competition 2000 academic press

current accounts in the euro area an intertemporal approach abstract current accounts have diverged substantially among euro area countries since the creation of the euro this divergence has raised concerns about the sustainability of some member countries external indebtedness this paper uses an intertemporal model of the current account to analyze the fluctuations in current account balances experienced by euro area countries over the last three decades and to disentangle its determinants we find that the model is not rejected for six of the ten euro area countries examined belgium france italy netherlands portugal and spain although it tends to underestimate their current account volatility for these countries we derive the expectations about future income and relative prices which according to the model underlie their current account balances expectations about future growth increased in all southern european countries at the creation of the euro but they diverged considerably by 2005 while in portugal these expectations were below its historical mean by then in spain they were at an historical high

house prices household saving and financial market liberalization in finland this paper describes some institutional aspects of housing markets and analyzes the price development of owner occupied housing and its interaction with the household saving ratio in finland during the last two decades in finland the volatility of house prices in relation to income can to a large extent be traced to the major changes in financial market conditions two other factors have also contributed to the house price volatility namely the favourable tax treatment of housing and othe r loans and the thin rental markets the former has increased the rate of retum on housing while the thin rental markets have resulted from rent regulation which has decreased the supply of rental housing the evidence suggests that in addition to the financial market conditions measured by the households indebtedness rate both the after tax rate of return and housing and the thinness of rental markets have all had a positive effect on house prices finally demographic factors seym to have some though relatively minor role in house price development while the real income variable cannot be estimated precisely as for the linkages between housing markets and saving behaviour our analysis lies in conformity with the view that the rate of change of real house prices has affected negatively and the after tax nominal interest rate positively the household saving ratio we are tempted to interpret these findings as suggesting that financial market conditions and particularly the financial market liberalization after the mid 1980 also explains the de cline in the household saving ratio during the housing market booms this abstract was borrowed from another version of this item

fundamental economic factors that affect housing prices comparative analysis between kosovo and slovenia the purpose of this study is to provide strategic implications for real estate appraisers and real estate managers to know the economic determinants of housing price dynamics in kosovo the fundamental economic determinants of housing prices adopted from previous studies are gross domestic product growth demographics real interest rates and construction costs the research methodology used is quantitative factor analysis the main question addressed is whether the conventional fundamental determinants of housing prices such as gross domestic product per capita real interest rates demographic factors and construction costs have driven the observed housing prices in kosovo by sampling the determinants of housing prices in kosovo the study shows their effects on housing price dynamics the study shows that housing prices in kosovo are significantly determined by the underlying conventional fundamentals this is the first research that tries to determine whether the fundamental economic factors influence the housing prices in kosovo

housing consumption and permanent income in developing countries estimates from panel data in el salvador the estimation of the parameters of housing demand equations occupies a prominent place in the urban economics literature of developed countries see de leeuw 4 and mayo 20 for thorough reviews of the state of the empirical art most research has focused on income and price elasticities of housing demand using both aggregated and micro level data the main conclusions of those studies which do not suffer from aggregation or other biases seem to be that a on average for a large segment of the population including both renters and owners permanent income elasticities are well below one b permanent income elasticities for owners ranging mostly from 0 5 to 0 7 in mayo s review are slightly higher than estimates for renters which ranged mostly from 0 3 to 0 5 c as predicted by the theory the permanent income demand elasticity generally exceeds that of current

thousands of models one story current account imbalances in the global economy the global financial crisis has led to a revival of the empirical literature on current account imbalances this paper contributes to that literature by investigating the importance of evaluating model and parameter uncertainty prior to reaching any firm conclusion we explore three alternative econometric strategies examining all models selecting a few and combining them all out of thousands or indeed millions of models a story emerges the chance that current accounts were aligned with fundamentals prior to the financial crisis appears to be minimal

a quantitative analysis of investment in new housing in greece this paper analyses empirically investment in housing in greece using aggregate data for the period 1958 89 and a version of the flexible accelerator model of investment demand housing production is undertaken mainly by households aiming at private home ownership and is subject to significant fluctuations which were more pronounced in the 1980s the estimation of the model shows that traditional determinants of housing demand such as income and population influence significantly investment decisions moreover the dynamic specification adopted seems to have traced well the dynamic adjustment of the housing stock finance variables on the other hand were not found to affect significantly housing investment tests of stability indicated that estimated equations are reasonably stable over the sample period

domestic credit growth and international capital flows during the pre crisis period europe experienced substantial cross country variation in domestic credit growth and cross border capital flows we investigate the inter relations between domestic credit growth and international capital flows during the period 1993 2008 with a special focus on the boom period of 2003 2008 we establish that domestic credit growth in european countries is strongly related to net debt inflows but not to net equity inflows this pattern also holds for an extended sample of 54 advanced and emerging economies

the savers spenders theory of fiscal policy the macroeconomic analysis of fiscal policy is usually based on one of two canonical models the barro ramsey model of infinitely lived families or the diamond samuelson model of overlapping generations this paper argues that neither model is satisfactory and suggests an alternative in the proposed model some consumers plan ahead for themselves and their descendants while others live paycheck to paycheck this model is easier to reconcile with the essential facts about consumer behavior and wealth accumulation and it yields some new and surprising conclusions about fiscal policy

decentralized welfare will there be underprovision abstract this paper develops an asymmetric nash equilibrium model of welfare provision by states when the benefit payment is a local public good and a fixed population of welfare recipients distributes itself between states with logistic migration function the model shows that state size is an important demand shifter across states because it alters the supply elasticity of recipients the model provides estimates of how the degree of benefit under provision varies with this migration elasticity other demand instruments such as taxpayer resources and generosity likewise generate positive correlation between benefits and recipients while supply shifters generate negative correlation between benefits and recipients the model s predictions are closely matched empirically when examining the reduced form impact of these instruments on the pattern of welfare benefits and recipients across states using these impacts to assign the instruments to either supply or demand sides of the model it is possible to estimate the model s structural elasticities these turn out to be high enough so that simulated solutions to the model generate considerable welfare underprovision and thus raise concern about a race to the bottom with decentralized control over afdc

is there a race to the bottom in the setting of welfare benefit levels evidence from a policy intervention abstract in this paper we investigate whether local governments react on the welfare benefit levels in neighboring jurisdictions when setting their own benefit levels we solve the simultaneity problem arising from the welfare game by utilizing a policy intervention more specifically we use a centrally geared exogenous placement of a highly welfare prone group refugees among swedish municipalities as an instrument the iv estimates indicate that there exists a race to the bottom and that the effect is economically as well as statistically significant if the neighboring municipalities decrease their welfare benefit level by 100 sek a municipality decreases its benefit level with approximately 41 sek this result is robust to several alternative model specifications

theory and estimation in the economics of housing demand the main purpose of this paper is to review recent theoretical and empirical developments in the economics of housing demand in particular we ask what is known concerning the permanent income elasticity of housing demand vis a vis the current or measured income elasticity what is known concerning price elasticities what is the appropriate functional form for housing demand equations what is the role of demographic variables what is known concerning dynamic aspects of housing demand what appear to be the major sources of bias in existing estimates of demand equations

the effects of grants in aid on state and local expenditures abstract this paper develops econometric methods to estimate the effect of the piecewise linear budget constraints created by grant formulas in which the subsidy rate is not constant over expenditures e g closed end grants the methods are applied to the afdc program the results show that because of the kinked nature of the grant formula 1 the present federal formula actually increases cross state inequality in afdc benefits 2 several subsidy rates in the formula actually reduce benefits and 3 the so called flypaper effect disappears

euro area current account imbalances a tale of two financial liberalizations abstract this paper explores the extent to financial liberalization in the euro area had a differential impact on members current account positions theoretically it builds on an inter temporal consumption model augmented with household heterogeneity low middle income groups are impatient and constrained whilst high income groups are patient and under no constraint increased access to international credit in previously financially repressed countries implies a relaxation of collateral constraints specifically for the low skilled low middle income group who differently from high income agents borrows to finance current consumption it follows that financial liberalization is associated with deteriorating external positions there where initial levels of financial openness are lowest and the share of the low skilled low middle income group with potentially binding collateral constraints largest the same approach is useful to understand asymmetric current account reversals which relates to suddenly biting collateral constraints in indebted peripheral countries where the great recession hit disproportionally the low skilled

an empirical investigation of interstate afdc benefit competition claims that states which offer generous welfare benefits attract the poor and that some states pay low benefits intending to drive the poor away are neither uncommon nor entirely un founded this paper employs a two player state generalized game to model states choice of a benefit level in the aid to families with dependent children afdc program migration by the poor in response to interstate differentials in earnings and welfare opportunities and the subse quent changes in afdc caseloads drive this game estimation of the model using 1979 data suggests that states within approximately 750 miles of each other do engage in a benefit setting game the rival s initial number of poor and preference for non afdc consumption appear to be the more influential rival characteristics these findings while derived from a different methodological approach are consistent with previous studies which indicate that welfare recipients tend to move toward higher benefit states such migration may impede the efficient spatial allocation of labor the results also indicate that states will tend to offer lower benefits given recipient migration than would be the case otherwise state jurisdiction over benefits consequently leads to underprovision of afdc federalization of the afdc program would improve efficiency in terms of the spatial allocation of labor and the provision of afdc

welfare reform and the race to the bottom theory and evidence economists have argued that welfare migration leads to a race to the bottom in the choice of welfare benefits although a system of federal matching grants can remedy this problem the recent welfare reform law replaced the existing matching grant structure with block grants a policy change that appears undesirable to judge whether this critique of welfare reform is justified this paper evaluates the evidence in favor of a race to the bottom after explaining the theoretical effects of welfare migration the paper surveys the empirical evidence on the occurrence of such migration concluding that the evidence is mixed the discussion also considers recent empirical tests for strategic interaction which show that benefit levels in nearby states affect a given state s benefit choice the most plausible source of such interaction is a concern about welfare migration which leads policymakers to look at benefits in neighboring states when making their own choices judging that the evidence appears consistent with the existence of a race to the bottom the paper concludes that the demise of matching grants may be undesirable from a policy perspective