the dynamic cost and persistence of asset inequality in an agrarian economy abstract a growing literature suggests that asset inequality can be economically costly in the presence of agency costs that constrain labor and capital markets unclear in this literature is whether asset markets and optimal individual accumulation of self finance capacity suffice to eliminate costly inequality over time this paper uses numerical dynamic programming methods to explore this question with a model of an initially inegalitarian agrarian economy while an egalitarian asset distribution emerges over time the process involves sufficiently great productivity losses along the way that a redistributive policy could improve on the market s performance by both equity and efficiency criteria

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

the charge ratio on individual accounts and investment plans in iceland this paper documents the lifetime costs on individual accounts and investment plans for a typical worker in iceland using typical wage profiles and information on current charges obtained from the providers the charge ratios calculated imply that costs at a current cost basis on individual accounts are substantially lower in iceland than for personal pensions in the uk and retail charges for individual pension accounts in other countries the icelandic charges are substantially lower than would ordinarily be expected in an emerging defined contribution market and given the low contribution rates associated with the icelandic accounts these low charges are attributed to a variety of factors including low levels of regulation competition for business between traditional financial institutions and workers main pension funds and the perception of a growing market

wealth effects distribution and the theory of organization abstract we construct a general equilibrium model of firm formation in which organization is endogenous firms are coalitions of agents providing effort and investment capital effort is unobservable unless a fixed monitoring cost is paid and borrowing is subject to a costly state verification problem because incentives vary with an agent s wealth different types of agents become attractive firm members under different circumstances when borrowing is not costly firms essentially consist of one type of agent and are organized efficiently but when the costly state verification problem is sufficiently severe firm organization will depend on the distribution of wealth with enough inequality it will tend to be dictated by incentives of rich agents to earn high returns to wealth even if the chosen organizational form is not a technically efficient way to provide incentives journal of economic literatureclassification numbers d2 d31 j41 l2

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

bargaining power and enforcement in credit markets abstract in a credit market with enforcement constraints we study the effects of a change in the outside options of a potential defaulter on the terms of the credit contract as well as on borrower payoffs the results crucially depend on the allocation of bargaining power between the borrower and the lender we prove that there is a crucial threshold of relative weights such that if the borrower has power that exceeds this threshold her expected utility must go up whenever her outside options come down but if the borrower has less power than this threshold her expected payoff must come down with her outside options in the former case a deterioration in outside options brought about say by better enforcement must create a lorenz improvement in state contingent consumption in particular borrower consumption rises in all bad states in which loans are taken in the latter case in contrast the borrower s consumption must decline at least for all the bad states these disparate findings within a single model permit us to interpret existing literature on credit markets in a unified way

the economics of poverty traps and persistent poverty an asset based approach abstract longitudinal data on household living standards open the way to a deeper analysis of the nature and extent of poverty while a number of studies have exploited this type of data to distinguish transitory from more chronic forms of income or expenditure poverty this paper develops an asset based approach to poverty analysis that makes it possible to distinguish deep rooted persistent structural poverty from poverty that passes naturally with time due to systemic growth processes drawing on the economic theory of poverty traps and bifurcated accumulation strategies this paper briefly discusses some feasible estimation strategies for empirically identifying poverty traps and long term persistent structural poverty as well as relevant extensions of the popular foster greer thorbecke class of poverty measures the paper closes with reflections on how asset based poverty can be used to underwrite the design of persistent poverty reduction strategies

expanding the life cycle model precautionary saving and public policy one of the key puzzles in understanding saving behavior is not so much why people save the title of this session but why people don t save according to the familiar life cycle model households should accumulate wealth to provide for their retirement consumption the surprising result from the data is the sizable fraction of the population who have accumulated so little even among those nearing retirement given that earnings will almost surely decline when households retire such behavior can imply poor living standards for the elderly some might interpret the low wealth accumulation as being evidence of myopia irrationality or a failure of households to enforce mental accounting richard thaler 1994 while others might view the low level of wealth accumulation as evidence of high individual rates of time preference determining the underlying causes of low wealth is crucial for public policies that seek to alleviate low aggregate saving rates in the united states as well as policies that seek to buttress the adequacy of financial resources for the elderly in this paper we outline what we believe to be the causes of why many people do not save we conclude by speculating about government policies that may be most effective at encouraging saving much of the research examining levels of consumption saving and wealth as well as their responsiveness to policy has been done using a life cycle model with the simplifying assumption of perfect certainty alan auerbach and laurence kotlikoff 1987 for example developed a model with 55 overlapping generations of individual lifecycle households each with empirically plausible age earnings profiles and utility parameters and used the model to address tax policy and demographic issues in a regime in which all households are identical within a generation and all generations know future earnings and interest rates more recently a line of inquiry has examined the effects of uncertainty on saving generally in the context of highly stylized models this research has shown that in these models uninsured earnings uncertainty can alter optimal saving behavior in a variety of important ways for a partial review of this precautionary saving literature see hubbard et al 1994 in two recent papers hubbard et al 1993 1994 we have combined these two strands of the literature by examining the implications of a life cycle model of consumption saving and wealth accumulation subject to what we think are the three most important sources of uninsured idiosyncratic risk facing households uncertainty about earnings medical expenses and length of life our intent has been to create a realistic model in which families live for many periods working for part of their lives and retiring later in life to parameterize the uncertainty facing families we estimate tdiscussants christopher carroll federal reserve board john b shoven stanford university laurence kotlikoff boston university

inequality control rights and rent seeking sugar cooperatives in maharashtra this paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members the two key assumptions are constraints on lump sum transfers from poorer members and disproportionate control rights wielded by wealthier members transfers of rents to the latter are achieved by depressing prices paid for inputs supplied by members and diverting resulting retained earnings the theory predicts that increased heterogeneity of landholdings in the local area causes increased inefficiency by inducing a lower input price and a lower level of installed crushing capacity predictions concerning the effect of the distribution of local landownership on sugarcane price capacity levels and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the indian state of maharashtra over the period 1971 93

the pension costs from a defined benefit to individual pension accounts do they cost more in the case of taiwan this article develops a market based liability valuation model to price individual pension costs of a defined benefit db pension plan the purpose is to compare them with the new labour pension plan individual pension accounts ipas in the case of taiwan the results based on the numerical approach show that the new ipas cost a company more than the old db plan except if the average wage growth relative to the risk free interest rate is high enough

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

unlocking the gates of paradise general equilibrium effects of information exchange abstract in a move to reduce bank secrecy and fight international tax evasion about 100 tax jurisdictions have so far committed to implement a new standard on the automatic exchange of information aeoi this paper examines the quantitative consequences of the aeoi for an onshore country using a neoclassical model with an offshore financial center our main findings are i the aeoi increases government revenues but reduces welfare ii welfare improves when using the aeoi revenues to reduce tax pressure or when including household wealth inequality iii government revenues increase further when accounting for a disclosure penalty cost these results depend on the general equilibrium effects absent from earlier papers on offshore financial centers

the funding for a defined benefit db pension plan based on the fair valuation of the plan s insolvency risk this study provides a contingent claims valuation approach model to value a sponsor s claim on a salary related defined benefit db pension plan the model is further developed to numerically estimate a suggested optimal contribution cost that allows the sponsor to fairly bear the risk of the plan s insolvency the results demonstrate that the traditional actuarial valuation underestimates the cost of pension benefits and that the normal contribution cost is not enough for the sponsor to fairly charge the value of bearing the plan s insolvency

the valuation of multiple claim insurance contracts this paper provides a closed form solution for the value of a multiple claim insurance contract that is subject to a deductible amount and or an upper limit on claims the solution is a time integral of european option prices the model provides three important insights first systematic risk in insurance policies is altered in the presence of deductibles and maximum indemnity levels second idiosyncratic risk affects policy valuation and the required rates of return on underwriting portfolios finally contrary to traditional actuarial intuition changes in the risk free interest rate may either increase or reduce policy values

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

homeownership community interactions and segregation the authors consider a multi community city where community quality is linked to residents civic efforts such as being proactive in preventing crime and ensuring the quality of publicly provided goods homeownership increases incentives for such efforts but credit market imperfections force the poor to rent within community externalities can lead to segregated cities with the rich living with the rich in healthy homeowner communities and the poor living with the poor in dysfunctional renter communities the pattern of tenure segregation across communities in the united states accords well with the study s prediction the authors analyze alternative tax subsidy policies to alleviate inefficiencies in the housing market and identify the winners and losers under such policies

technology driven inequality leads to poverty and resource depletion the rapid rise in inequality is often seen to go in hand with resource overuse examples include water extraction in pakistan land degradation in bangladesh forest harvesting in sub saharan africa and industrial fishing in lake victoria while access to ecosystem services provided by common pool resources mitigates poverty exclusive access to technology by wealthy individuals may fuel excessive resource extraction and deplete the resource thus widening the wealth gap we use a stylised social ecological model to illustrate how a positive feedback between wealth and technology may fuel local inequality the resulting rise in local inequality can lead to resource degradation and critical transitions such as ecological resource collapse and unexpected increase in poverty further we find that societies may evolve towards a stable state of few wealthy and many poor individuals where the distribution of wealth depends on how access to technology is distributed overall our results illustrate how access to technology may be a mechanism that fuels resource degradation and consequently pushes most vulnerable members of society into a poverty trap

income taxes and the destination of movers to multistate msas abstract we examine how differences in state income tax rates as well as other state and local taxes and public service expenditures influence the choice of state of residence for households federal tax filers moving into multistate metropolitan areas msas using data from the irs on the migration of taxpayers msas that are on borders provide a spatial discontinuity discrete differences in state tax rates within a single labor market these msas allow residents to live in one state and work in another state we find that differences in state income tax rates have a significant impact on the relative rate of migration to the states within an msa however contrary to what would be expected this impact is only significant in msas in which the filing state is based on employment states without reciprocity and not for those states in which the filing state is the state of residence states with reciprocity in msas where states do not have reciprocity agreements a difference of ten percent in tax rates leads to a 4 1 percent difference in the relative rate of incoming taxpayers analogously we find that a ten percent difference in state tax rates in these msas results in a 3 3 percent difference in the rate of tax base inflow agi our results suggest that one reason that differences in state income taxes appear to have more impact in multistate msas without reciprocity is that only relatively large differences in state income tax rates have any impact on migration and these differences are much more pronounced in msas without reciprocity

equilibrium in a market with sequential bargaining this paper considers a market where pairs of agents who are interested in carrying out a transaction are brought together by a stochastic process and upon meeting initiate a bargaining process over the terms of the transaction the basic bargaining problem is treated with the strategic approach the paper derives the steady state equilibrium agreements analyzes their dependence on market conditions such as the relative numbers of agents of different types and discusses their relations with the competitive equilibrium outcome and other results in the search equilibrium literature this paper considers a market that operates in the following way pairs of agents who have mutual interest in carrying out a transaction are brought together by a stochastic process when two agents meet they initiate a bargaining process over the terms of the transaction if two agents reach an agreement a transaction takes place and they leave the market of course the bargaining positions and hence the agreement reached in any particular meeting will be affected by the conditions prevailing in the market these will include the chances that each of the negotiating parties have of meeting other partners in the event that the agreement in the current negotiations is delayed also the expected length of time required to achieve an alternative transaction and the expected behavior of alternative partners the study of such a market mechanism is of interest for two reasons firstly it captures some realistic aspects of the trade in certain specific markets e g asset markets such as housing and some labor markets secondly it contributes to an understanding of the micro mechanisms of price formation and their role in shaping market outcomes in both cases the features studied are largely neglected in the traditional market equilibrium analyses the related literature includes the articles by diamond 4 5 diamond and maskin 6 mortensen 8 9 and zusman and bell 13 these articles consider markets of the type described above in which transactions are concluded at pairwise meetings of agents the major difference between our work and these articles is in the approach to the basic bargaining problem in the cited articles it is assumed that a meeting is concluded with an instantaneous agreement which divides the associated surplus in an arbitrary predetermined way when the surplus is assumed to be divided equally the division rule is in fact nash s axiomatic bargaining solution in contrast the present paper treats the basic bargaining problem with the strategic approach see rubinstein 19 which constitutes an attempt to look into the bargaining black box this approach explicitly models the time dimension of the bargaining process describes in detail the bargaining procedure and justifies the agreement as a perfect equilibrium in

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

capital accumulation with tangible assets abstract the paper develops a neoclassical growth model with capital accumulation and a retradable tangible asset in an overlapping generations framework it analyzes its effect on the dynamics of capital accumulation two period lived consumers hold portfolios consisting of real capital and the tangible asset it is shown that the possibility of trading the tangible asset as an alternative to capital may cause the coexistence of stable steady states with high and low levels of capital and with disjoint basins of attraction thus the so called poverty trap may appear purely endogenously generated as a consequence of asset trading alone the possibility of the occurrence of the poverty trap is reduced as factors of production become more substitutable however the result is robust for continua of homogeneous as well as heterogeneous consumers

offshore financial centres in the caribbean prospects in a new environment this paper reviews the development of offshore financial activities in the english speaking caribbean islands and takes stock of the size of these sectors today and analyses the future prospects a number of caribbean jurisdictions are market leaders in the offshore products they offer and have identified the growth of this sector as a development strategy established centres in the bahamas barbados and cayman islands have managed to become global players and have generated sizeable gains in employment and income however in view of the heightened concerns by the international community about money laundering and more recently terrorist financing the costs of compliance and risks to countries of having or establishing offshore sectors have risen considerably this is particularly relevant to the newer entrants with significant regulatory differences from international standards the paper assesses the risks benefits and costs of compliance with international best practices for established and newer offshore jurisdictions the paper asks the questions whether offshore jurisdictions constitute a sustainable development strategy and concludes that for nascent jurisdictions the gains are very small

access to capital and agrarian production organisation there are two problems both universal that entrepreneurs in any economy must contend with firstly an agent generally has access only to a limited amount of working capital secondly workers hired by an agent are subject to moral hazard and this necessitates their supervision this paper models for an agrarian economy the constraints imposed on entrepreneurs activities by these two problems and endogenously determines the various organisational forms of production as well as the allocation of resources that will obtain with a simple model we endeavour to explain a diverse set of empirical observations pertaining to the less developed countries in terms of the general processes that determine the distribution of income among the various agents and the hierarchical relationships that develop among them agricultural production typically involves a period of several months between the time the inputs are purchased and the time the output is marketed access to working capital and hence to the credit market thus plays an important role in a farmer s production decisions the distribution of access to credit in turn tends to be an important determinant of income distribution in poor agrarian economies credit is invariably rationed according to the ability to offer collateral the amount of working capital a farmer can mobilise therefore depends on the amount of land he owns which is often a good proxy for his overall wealth and thus his ability to offer collateral further since hired hands have a propensity to shirk they need to be supervised and therefore the

contractual structure and wealth accumulation can historical wealth distributions affect long run output and inequality despite rational saving convex technology and no externalities we consider a model of equilibrium short period financial contracts where poor agents face credit constraints owing to moral hazard and limited liability if agents have no bargaining power poor agents have no incentive to save poverty traps emerge and agents are polarized into two classes with no interclass mobility if instead agents have all the bargaining power strong saving incentives are generated the wealth of poor and rich agents alike drift upward indefinitely and history does not matter eventually d31 d91 i32 o17 q15

converting asset holdings into livelihood an empirical study on the role of household agency in south africa summary this paper analyzes the complexities of converting assets into livelihood and the role that agency constraints play drawing inspiration from the capabilities approach and using household data from south africa linkages between assets and agency are identified by decomposing asset endowments impact on future livelihood by employing a method of path analysis akin to early heritability of traits studies theoretical asset based studies of chronic poverty are bridged with capabilities literatures the interaction between assets and agency is shown to be as important as asset to asset complementarities the results have wide ranging policy implications

the second theorem of the second best abstract this paper interprets many results from the literature on incentive compatibility and cost benefit analysis as illustrations of a second theorem of the second best the theorem states that if there exists any restriction on transactions required for first best efficiency then there is no presumption that a social welfare maximum entails equal marginal social utilities of income across individuals one reason is that incentive constraints shift with redistributions of wealth so that redistributions have an instrumental role in relaxing constraints that make the economy second best two examples relate such wealth effects to countervailing incentives and hostage taking

team production endogenous learning about abilities and career concerns abstract this paper studies career concerns in teams where the support a worker receives depends on fellow team members efforts and abilities in this setting by exerting effort and providing support a worker can influence her own and her teammates project outputs in order to bias the learning process in her favor to manipulate the market s assessment we argue that in equilibrium a worker has incentives to help or even sabotage her colleagues in order to signal that she is of higher ability in a multiperiod stationary framework we show that the stationary level of work effort is above and help effort is below their efficient levels

on pareto improving commodity tax changes under fiscal competition this paper shows that when a noncooperative fiscal equilibrium of the mintz tulkens 1986 model of tax competition is inefficient pareto improving changes are positive for the taxes of both regions under concavity of the regions welfare functions it also identifies a class of such equilibria that are always efficient

non leaky buckets optimal redistributive taxation and agency costs abstract economists generally have argued that income redistribution comes at a cost in aggregate income we provide a counter example in a model where private information gives rise to incentive constraints in the model a wage tax creates the usual distortion in labor leisure choices but the redistributive grants that it finances reduce a distortion in investment in higher education we prove that simple redistributive policies can yield pareto improvements and increase aggregate income indeed redistributive policies are under most circumstances more effective in increasing efficiency than corrective taxes or subsidies where higher education is beyond the reach of the poor

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

endogenous effective discounting credit constraints and wealth inequality models of nonexponential time discount ing help to explain a variety of regularities in economic behavior including contract choice stefano dellavigna and ulrike malmendier 2004 procrastination ted o donoghue and matthew rabin 1999 dan ariely and klaus wertenbroch 2002 and life cycle consumption patterns david laibson andrea repetto and tobacman 2007 this paper applies the quasi hyperbolic time discounting model to the study of wealth inequality a large literature analyzes the nature and causes of inequality and poverty traps 1 here first i theoretically examine a simple autarkic mechanism that can cause exogenous dispersion in wealth to persist and grow specifically quasi hyperbolic discount functions endogenously

the demand for tax haven operations what types of firms establish tax haven operations and what purposes do these operations serve analysis of affiliate level data for american firms indicates that larger more international firms and those with extensive intrafirm trade and high r and d intensities are the most likely to use tax havens tax haven operations facilitate tax avoidance both by permitting firms to allocate taxable income away from high tax jurisdictions and by reducing the burden of home country taxation of foreign income the evidence suggests that the primary use of affiliates in larger tax haven countries is to reallocate taxable income whereas the primary use of affiliates in smaller tax haven countries is to facilitate deferral of u s taxation of foreign income firms with sizeable foreign operations benefit the most from using tax havens an effect that can be evaluated by using foreign economic growth rates as instruments for firm level growth of foreign investment outside of tax havens one percent greater sales and investment growth in nearby non haven countries is associated with a 1 5 to 2 greater likelihood of establishing a tax haven operation

poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity theories of poverty traps stand in sharp contrast to the view that anybody can make it through hard work and thrift however empirical detection of poverty traps is complicated by the lack of long panels measurement error and attrition this paper shows how dynamic pseudo panel methods can overcome these difficulties allowing estimation of non linear income dynamics and testing for the presence of poverty traps the paper explicitly allows for individual heterogeneity in income dynamics to account for the possibility that particular groups of individuals may face traps even if the average individual does not these methods are used to examine the evidence for a poverty trap in labor earnings income and expenditure in mexico and are compared to panel data estimates from a short rotating panel the results do find evidence of nonlinearities in household income dynamics and demonstrate large bias in the panel data estimates nevertheless even after allowing for heterogeneity and accounting for measurement error the paper finds no evidence of the existence of a poverty trap for any group in the sample

international tax coordination regionalism versus globalism tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor i study whether international tax coordination can alleviate this problem using a general equilibrium model synthesizing recent contributions to the tax competition literature the model highlights the crucial distinction between global tax coordination and regional coordination with high capital mobility between the tax union and the rest of the world the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination even if the tax union is large relative to the world economy

taxing an independent scotland if scotland were to become independent it would gain considerably more control over its tax system than it currently enjoys in this paper we consider the consequences of independence for the optimal design of a new scottish tax system an analysis which would also be of some relevance for considering the consequences for tax design of independence of other smaller nations scotland is different from the rest of the uk in some ways that are important for tax system design incomes are more equally distributed for example that is one reason why the progressive income tax currently raises less per head in scotland than in the rest of the uk it also suggests that there is less to be gained in terms of redistribution from sharply progressive taxation independence would create additional complexity for individuals and firms working or trading across borders it could also put downward pressure on tax rates and our analysis suggests that optimal tax rates in an independent scotland are likely to be lower than optimal rates in the uk as a whole at the same time the context of a substan tial budget deficit will continue to put upward pressure on tax rates

does sharecropping affect long term investment evidence from west bengal s tenancy reforms in india land reform has been high on the political agenda since independence in 1947 and early efforts at abolishing intermediaries are widely credited with having brought about significant social benefits the most prominent type is tenancy reform as it does not extinguish landlords ownership rights tenants who may have benefited from rent ceilings and cannot be evicted still have to pay annual share rent this weakness of rights may fail to create the incentives for effort supply and long term investment that have underpinned the success of land reforms elsewhere effectively adding a dynamic inefficiency to the disincentives created by the marshallian inefficiency of sharecropping this could imply that despite the high political price of implementing land reform in india the schemes so far have failed to reach their productivity and poverty reduction potential

equity and efficiency in human capital investment the local connection a general model of community formation and human capital accumulation with social spillovers and decentralized school funding is used to analyse the causes of economic segregation and its consequences for equity and efficiency significant polarization arises from minor differences in endowments preferences or access to capital markets this makes income inequality more persistent across generations but the same need not be true for wealth equilibrium stratification tends to be excessive resulting in low aggregate surplus whether state equalization of school resources can remedy these problems hinges on how purchased social and family inputs interact in education and in mobility decisions

bank secrecy illicit money and offshore financial centers this paper discusses the effects of pressure policies on offshore financial centers as well as their ability to enforce the compliance of those centers with anti money laundering regulations offshore banks can be encouraged to comply with rigorous monitoring of an investor s identity and the origin of his her funds when pressure creates a sufficiently high risk of reputational harm to the investor we show that such pressure policies harm both offshore and onshore investors and can benefit both the bank industry and tax administrations we show that social optimal pressure policies are dichotomous decisions between no pressure at all and a pressure great enough to persuade offshore banks to comply the delegation of pressure policies to onshore tax institutions may be inefficient deeper financial integration fosters compliance by the offshore center

asymmetric information and imperfect competition in lending markets we study the effects of asymmetric information and imperfect competition in the market for small business lines of credit we estimate a structural model of credit demand loan use pricing and firm default using matched firm bank data from italy we find evidence of adverse selection in the form of a positive correlation between the unobserved determinants of demand for credit and default our counterfactual experiments show that while increases in adverse selection increase prices and defaults on average reducing credit supply banks market power can mitigate these negative effects

adverse selection and entrepreneurship in a model of development this paper presents a theory in which talented entrepreneurs are identified as the key agents driving the process of development and modernisation entrepreneurial skills are private information which prevents full risk sharing development into a modern industrial economy might fail to take place since potentially talented entrepreneurs may refrain from taking on the entrepreneurial risks as a way to avoid income shocks an interesting feature of the model is the fact that the informational asymmetries are endogenous to the process of development as they are related to the heterogeneity in entrepreneurial skills required in the manufacturing activities

older or wealthier the impact of age adjustment on wealth inequality differences in individual wealth holdings are widely viewed as a driving force of economic inequality however as this finding relies on cross sectional data a concern is that older is confused with wealthier we propose a new method to adjust for age effects in cross sections which eliminates wealth inequality due to age yet preserves inequality arising from other factors using a new cross country comparable database we examine the impact of age adjustments on wealth inequality across countries and over time we find that the most widely used method yields a substantially different picture of age adjusted wealth inequality than our method 2011 the editors of the scandinavian journal of economics

on efficient distribution with private information this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with many consumers each of whom is subject to private idiosyncratic taste shocks we propose a recursive method for finding feasible allocations that are incentivecompatible and that are pareto optimal within this set the method is applied to several parametric examples we find that in an efficient allocation the degree of inequality continually increases with a diminishing fraction of the population receiving an increasing fraction of the resources we discuss the extent to which these allocations can be decentralized via market arrangements this paper is a study of the dynamics of the efficient distribution of consumption in an exchange economy with private information the economy we study has a constant endowment flow of a single non storable consumption good which is to be allocated each period among a large number of consumers each period these consumers experience unpredictable idiosyncratic privately observed taste shocks affecting their marginal utility of current consumption efficiency dictates that more resources be allocated to those consumers who in any given period have a high marginal utility of current consumption

the simple analytics of tobacco taxation with illegal supply this paper examines the impact of tobacco excise taxes where legal and illegal supplies coexist the government s objective is to minimize cigarettes smoked in the economy or to maximize revenue or to minimize illegal activity it reacts to a competitive illegal supply in an adjoining jurisdiction a model of consumer choice is used to demonstrate how demand response to tax changes can yield counterintuitive results while the model mimics the canadian market similar situations characterize the us and european markets a novel element of the paper is the treatment of externalities on the supply side rather than the demand side resume analytique simple des taxes sur le tabac quand il y a offre illegale ce memoire examine l impact des taxes sur la vente de tabac quand des offres legale et illegale coexistent l objectif du gouvernement est de minimiser les cigarettes fumees dans l economie ou de maximiser le revenu fiscal ou de minimiser l activite illegale il doit prendre en compte l offre concurrentielle illegale dans une juridiction contigue on utilise un modele de choix du consommateur pour montrer comment la reaction de la demande aux changements dans les taxes peut engendrer des resultats contre intuitifs bien que le modele soit concu pour le marche canadien on trouve des situations avec des caracteristiques similaires dans les marches americain et europeens un element novateur du memoire est sa prise en compte des externalites du cote de l offre plutot que du cote de la demande

the portable guarantee to exchange back an old defined benefit for a new defined contribution dc pension plan as a defined contribution dc pension plan is introduced to replace a defined benefit db pension plan the portability benefit from a dc pension plan costs the employees to bear the investment risk from managing the pension fund to protect the retirement income and maintain the portability benefit a guarantee to exchange back the old defined benefit is supposed to be demanded for the new dc plan s participants in the guarantee market in light of such a demand this article applies a claim terminating insurance pricing model to offer a contingent claims pricing model for a portable pension guarantee using the new labor pension plan of taiwan as an illustration a guaranteed dc pension will carry an extra cost of almost 50 up to over 100 of the plan s contributions over the participant s work life given the current mandatory minimum requirement of a contribution rate of 6

nash equilibrium tariffs for the united states and canada the roles of country size scale economies and capital mobility a theoretical analysis of optimal nash equilibrium tariff rates is presented a numerical general equilibrium model is then used to find nash equilibrium tariff rates for the united states and canada the nash equilibrium tariffs are small relative to partial equilibrium estimates 18 percent for the united states and 6 percent for canada the united states is essentially indifferent between the nash equilibrium and free trade while canada is better off at the latter by 4 billion empirical results support theoretical predictions that the optimal tariff is smaller when the country is smaller there are scale economies and free entry and capital is internationally mobile

economic underdevelopment the case of a missing market for human capital abstract this paper demonstrates that the coexistence of developed and underdeveloped countries can be a stationary equilibrium in a world economy with free trade in consumption goods and physical capital an underdeveloped country is characterized by a high ratio of unskilled workers in the labor force a small stock of physical capital a low gross national product a high rate of return on human capital and a corresponding large wage differential between skilled and unskilled workers the critical assumptions are that future labor earnings cannot serve as collateral on a loan and indivisibilities in education

poverty and land redistribution abstract despite a theoretical literature that promises that land transfers will have large impacts on the well being of poor households well identified empirical evidence on the efficacy of land redistribution is scarce in an effort to fill this gap this paper examines south africa s land redistribution for agricultural development lrad program we exploit features of lrad program implementation to extract exogenous variation in whether and for how long applicant households enjoyed land transfers binary treatment estimates which compare treated with untreated households show that beneficiary households on average experienced a 25 increase in per capita consumption our preferred continuous treatment estimates which analyze only the subset of treated households identify the impact time path of land transfers on consumption these estimates show that living standards initially drop and then after 3 4 years rise to 150 of their pre transfer level these results are statistically significant and robust to a statistically more conservative identification strategy

the equilibrium valuation of risky discrete cash flows in continuous time this paper values a contingent claim to discrete stochastic cash flows generated by a poisson arrival process with a randomly varying intensity parameter in the most general case both the size and the arrival intensity of cash flows may correlate wih state variables in a continuous time economy assuming the conditions of an intertemporal capital aset pricing model solutions for the value of the contingent claim can be found using various techniques the paper suggests immediate applications to the valuation of insurance contracts the decision to build a firm with unknown future investment opportunities and the pricing of mortgage backed securities

who benefits from partial tax coordination in this paper we investigate whether partial tax coordination is beneficial to countries within and outside a tax union in which countries are supposed to compete in taxes and infrastructure our results demonstrate that a subgroup of countries agreeing on a common tax rate can harm both member and nonmember states this is in contrast to the classical findings that partial tax harmonisation is pareto improving when a minimum tax rate is imposed within a tax union we demonstrate that it does not necessarily improve the welfare of the member countries moreover both the high tax and low tax countries can be worse off this conclusion is at odds with the classical result that a high tax country benefits from the imposition of a lower tax bound

endogenous timing in the presence of non monotonicities the aim of this paper is to generalize the endogenous timing game proposed by hamilton and slutsky games and economic behavior 1990 2 pp 29 46 by allowing the payoff or the marginal payoff of a player to become non monotonic with respect to the strategy of the opponent we propose a taxonomy of the subgame perfect nash equilibria based on the characteristics of the payoff functions proposed by eaton canadian journal of economics 2004 37 pp 805 29 we determine under which conditions of the initial payoff functions commitment has a social value and when the simultaneous move nash equilibrium is commitment robust and discuss its pareto efficiency

risk taking behavior in the presence of nonconvex asset dynamics a growing literature on poverty traps emphasizes the links between multiple equilibria and risk avoidance however multiple equilibria may also foster risk taking behavior by some poor people we illustrate this idea with a simple analytical model in which people with different wealth and ability endowments make investment and risky activity choices in the presence of known nonconvex asset dynamics this model underscores a crucial distinction between familiar static concepts of risk aversion and forward looking dynamic risk responses to nonconvex asset dynamics even when unobservable preferences exhibit decreasing absolute risk aversion observed behavior may suggest that risk aversion actually increases with wealth near perceived dynamic asset thresholds although high ability individuals are not immune from poverty traps they can leverage their capital endowments more effectively than lower ability types and are therefore less likely to take seemingly excessive risks in general linkages between behavioral responses and wealth dynamics often seem to run in both directions both theoretical and empirical poverty trap research could benefit from making this two way linkage more explicit jel d81 o12 d90

the spatial incidence of local retail taxation this paper examines the effects of local retail taxation in two simple models of spatial competition suppose that a suburb or central city imposes an excise tax or subsidy on a particular commodity such as gasoline liquor restaurant meals or groceries or imposes a general sales tax that affects many commodities simultaneously to what extent does this lead to higher prices within the jurisdiction and in neighboring jurisdictions section ii presents the basic model of spatial competition that forms a component of the fixed locations model of section iii and the entry model of section iv infinitely many stores are located along an infinite line and demand density is completely inelastic and uniform along the line the main endogenous variables of interest are the prices charged by the different stores throughout the paper a nash equilibrium in prices is assumed section iii presents the fixed locations model in which the tax is imposed after stores have already established themselves store locations are fixed due to location specific sunk costs if a suburb containing a single store imposes an excise tax on a commodity the store that is taxed and its first second and third nearest neighbors on each side increase their prices by 57 7 percent 15 5 percent 4 2 percent and 1 1 percent of the tax respectively this result is independent of the spacing of the stores and independent of whether or not they are evenly spaced if a suburb containing several stores imposes an excise tax the changes in price follow directly by adding the effects of taxes on several adjacent stores if a central city taxes all stores on the right half line the results are given by 12 the taxed and untaxed stores closest to the boundary

dynamic insurance with private information and balanced budgets this paper studies a dynamic insurance problem with bilateral asymmetric information and balanced budgets there are two infinitely lived agents in our model both risk averse and each has an i i d random endowment stream which is unobservable to the other in each period each agent must have a non negative consumption and together they must consume the entire aggregate endowment dynamic incentive compatibility in the nash sense is defined we give sufficient and necessary conditions for the existence of a constrained efficient contract we show that a constrained efficient contract can be characterized in a bellman equation we demonstrate that the long run distribution of expected utilities of each agent is not degenerate we also develop an algorithm for computing the efficient contract and in a numerical example we find that the consumption processes of the agents form stationary markov chains

limited liability wealth differences and tenancy contracts in agrarian economies abstract an explanation is provided for two observations concerning variations in the choice of tenants and their welfare differences in tenants wealth imply corresponding differences in liability when default is possible on fixed rental commitments in this context the inability of landlords to specify their tenants effort lead to effort choices that vary with the type of contract offered the selection of tenants and the contract terms they receive thus depend on wealth with wealthier tenants being preferred and receiving fixed rent contracts these results also predict that wealthier tenants earn higher profits on their leased plots

entrepreneurial talent occupational choice and trickle up policies we study market inefficiencies and policy remedies when agents choose their occupations and entrepreneurial talent is subject to private information untalented entrepreneurs depress the returns to entrepreneurship because of adverse selection the severity of this problem depends on the outside option of entrepreneurs which is working for wages this links credit product and labor markets a rise in wages reduces the adverse selection problem these multimarket interactions amplify productivity shocks and may generate multiple equilibria if it is impossible to screen entrepreneurs then all agents unanimously support a tax on entrepreneurs that drives out the less talented ones however if screening is possible e g if wealthy entrepreneurs can provide collateral for their loans then wealthy entrepreneurs do not support surplus enhancing taxes

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

the development and structure of financial systems abstract firms raise external finance via monitored bank loans and non monitored borrowing in a dynamic general equilibrium model access to credit and each type of financing depend on the wealth distribution due to moral hazard we study the depth of credit markets financial development and conditions under which the financial system relies more on either type of external finance financial structure initial inequality investment size and institutional factors determine the level of financial development while financial structure is shaped by the investment technology and legal and financial institutions the model s predictions are consistent with historical and recent development experience

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

empowerment and efficiency tenancy reform in west bengal the paper analyzes the effect of agricultural tenancy laws offering security of tenure to tenants and regulating the share of output that is paid as rent on farm productivity theoretically the net impact of tenancy reform is shown to be a combination of two effects a bargaining power effect and a security of tenure effect analysis of evidence on how contracts and productivity changed after a tenancy reform program was implemented in the indian state of west bengal in the late 1970s suggests that tenancy reform had a positive effect on agricultural productivity there

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

income fluctuation and asymmetric information an example of a repeated principal agent problem we examine a simple repeated principal agent model with discounting there are a risk averse borrower with an unobservable random income and a risk neutral lender the efficient contract is characterized it tends to the first best constant consumption contract as the discount factor tends to one and the time horizon extends to infinity if the time horizon is infinite and the contract is legally enforceable the borrower s utility becomes arbitrarily negative with probability one if the borrower has constant absolute risk aversion consumption is transferred between any two states at a constant interest rate which is less than the rate of time preference

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

eu regional policy and tax competition the european union eu provides coordination and financing of trans european transport infrastructures i e roads and railways which link the eu member states and reduce the cost of transport and mobility this raises the question of whether eu involvement in this area is justified by inefficiencies of national infrastructure policies moreover an often expressed concern is that policies enhancing mobility may boost tax competition we analyze these questions using a model where countries compete for the location of profitable firms we show that a coordination of investment in transport cost reducing infrastructures within union countries enhances welfare and mitigates tax competition in contrast with regard to union periphery infrastructure the union has an interest in a coordinated reduction of investment expenditures here the effects on tax competition are ambiguous our results provide a rationale for eu level regional policy that supports the development of intra union infrastructure

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

a three input model of the spatial effects of a central city wage tax abstract this paper considers the short run and long run spatial effects on wages employment and business capital as functions of location of a localized increase in wage tax rates the model is most applicable to a central city that has a higher wage tax rate than the surrounding suburbs the inclusion of land as a third input in production significantly reduces the long run effects of a central city wage tax on employment near the central city boundary as compared with a model in which labor and capital are the only two inputs the short run effects are significantly less than the long run effects

tax competition with parasitic tax havens we develop a tax competition framework in which some jurisdictions called tax havens are parasitic on the revenues of other countries the havens use real resources to help companies camouflage their home country tax avoidance and countries use resources in an attempt to limit the transfer of tax revenues to the havens the equilibrium price for this service depends on the demand and supply for such protection recognizing that taxes on wage income are also evaded we solve for the equilibrium tax rates on mobile capital and immobile labor and we demonstrate that the full or partial elimination of tax havens would improve welfare in non haven countries in part because countries would be induced to increase their tax rates which they have set at inefficiently low levels in an attempt to attract mobile capital we also demonstrate that the smaller countries choose to become tax havens and we show that the abolishment of a sufficiently small number of the relatively large havens leaves all countries better off including the remaining havens

on the long run implications of repeated moral hazard abstract this paper analyzes the effects of moral hazard on long run consumption or utility given exponential utility it is shown that the utility of those with unobservable endowments becomes arbitrarily negative as long as any positive fraction of otherwise identical agents have observable endowments next it is shown that assuming a finite number of agents results in essentially the same outcomes as with a continuum of agents finally it is shown that the key characteristic determining whether the utility of almost all agents becomes arbitrarily low is whether lim c u c is bounded away from zero journal of economic literature classification numbers d30 d31 d80 d82