capital taxation and government debt policy with public discounting abstract this paper characterizes capital taxation and public debt policy in a quantitative macroeconomic model with an impatient government and uncertainty the government has access to linear taxes on capital and labor and to non state contingent bonds government impatience generates positive and empirically realistic long run levels of both capital taxes and public debt prior predictive analysis shows that the simulated model matches the distribution of both variables in a sample of 42 countries alongside other statistics the paper then presents econometric evidence that countries with higher political instability used as an approximation of unobservable public discount rates have both higher capital taxes and debt

budget processes and commitment to fiscal discipline abstract we present a framework of investigation into the political economy of the budget process our model suggests that institutional rules governing the budget process can be found to limit the importance of fiscal illusion empirical evidence supports that proposition the choice of rules depends on the political environment as well as the dominant source of uncertainty in the budget process

the influence of design dimensions on stated choices in an environmental context discrete choice experiments are increasingly used in the context of environmental valuation however there is still little known about the influence of the complexity of the choice task on model outcomes in this paper we investigate task complexity in terms of the design dimensionality of the choice experiment by systematically varying the number of choice sets alternatives attributes and levels as well as the level range we largely follow a design of designs approach originally introduced in transportation first we analyse the influence of the design dimensionality on participants dropout behaviour finding that the probability to drop out of the survey is influenced by socio demographic characteristics and increases with the number of choice sets attributes as well as with designs having five alternatives second we investigate the impact of the design dimensions on stated choices by estimating a multinomial logit model and heteroskedastic logit models results show that the error term variance is influenced by socio demographic characteristics as well as by all design dimensions moreover we find that accounting for the impact of the design dimension on the error variance does not significantly change willingness to pay estimates

temporal stability of stated preferences for endangered species protection from choice experiments abstract benefit transfer methods rely on past models and results so it is important to know whether economic values are stable over time or are subject to change either because of the reliability of the methodology or due to actual preference changes the temporal stability of willingness to pay wtp has been tested extensively for contingent valuation but rarely for stated preference choice experiments ce we use data from two identical ce surveys on different samples from the same population that occurred 17 months apart spring 2009 and fall 2010 to estimate and compare mean wtp and preference parameters associated with threatened and endangered marine species protection our models account for both preference and scale heterogeneity and the results suggest both types of heterogeneity matter tests of preference stability suggest stable preferences between 2009 and 2010 furthermore wtp values estimated from both surveys are not statistically different this provides evidence that economic values estimated using ce methods are temporally stable

the generalized multinomial logit model accounting for scale and coefficient heterogeneity the mixed or heterogeneous multinomial logit mixl model has become popular in a number of fields especially marketing health economics and industrial organization in most applications of the model the vector of consumer utility weights on product attributes is assumed to have a multivariate normal mvn distribution in the population thus some consumers care more about some attributes than others and the iia property of multinomial logit mnl is avoided i e segments of consumers will tend to switch among the subset of brands that possess their most valued attributes the mixl model is also appealing because it is relatively easy to estimate recently however some researchers have argued that the mvn is a poor choice for modelling taste heterogeneity they argue that much of the heterogeneity in attribute weights is accounted for by a pure scale effect i e across consumers all attribute weights are scaled up or down in tandem this implies that choice behaviour is simply more random for some consumers than others i e holding attribute coefficients fixed the scale of their error term is greater this leads to a scale heterogeneity mnl model s mnl here we develop a generalized multinomial logit model g mnl that nests s mnl and mixl by estimating the s mnl mixl and g mnl models on 10 data sets we provide evidence on their relative performance we find that models that account for scale heterogeneity i e g mnl or s mnl are preferred to mixl by the bayes and consistent akaike information criteria in all 10 data sets accounting for scale heterogeneity enables one to account for extreme consumers who exhibit nearly lexicographic preferences as well as consumers who exhibit very random behaviour in a sense we formalize below

ordering effects and choice set awareness in repeat response stated preference studies we present an experiment designed to investigate the presence and nature of ordering effects within repeat response stated preference sp studies our experiment takes the form of a large sample full factorial discrete choice sp exercise investigating preferences for tap water quality improvements our study simultaneously investigates a variety of different forms of position dependent and precedent dependent ordering effect in preferences for attributes and options and in response randomness we also examine whether advanced disclosure of the choice tasks impacts on the probability of exhibiting ordering effects of those different types we analyze our data both non parametrically and parametrically and find robust evidence for ordering effects we also find that the patterns of order effect in respondents preferences are significantly changed but not eradicated by the advanced disclosure of choice tasks a finding that offers insights into the choice behaviors underpinning order effects

political instability capital taxation and growth abstract in cross country studies of economic growth average growth rates of gdp per capita tend to be negatively associated both with the size of government and with measures of political instability we show that a linear endogenous growth model with a very simple model of government spending and taxation in the presence of political instability can account for both empirical correlations in addition the model predicts that both correlations are intimately linked thus greater political instability leads to both lower growth rates and a higher share of government spending in gdp

social discounting and incentive compatible fiscal policy abstract this paper considers a representative agent model of linear capital and labor income taxation in which the government cannot commit ex ante to a sequence of policies for the future in this setup if the government is more impatient than the households the capital income tax will be positive in steady state thus impatience and lack of commitment are able to generate positive capital taxes in the long run although each of these characteristics individually was not furthermore the steady state to which the economy converges is independent of initial conditions

uncovering context induced status quo effects in choice experiments abstract in this study five design dimensions are varied systematically investigating context induced status quo effects in choice experiments additionally two structural complexity measures entropy and the number of attribute level changes are used to capture status quo effects from the similarity between alternatives and the number of trade offs a crucial finding is that the frequency of status quo choices is negatively associated with the number of alternatives indicating preference matching effects by contrast the probability of choosing the status quo increases with a higher number of choice tasks a wider level range and the similarity between alternatives status quo choices are further affected by the current environmental situation perceived by respondents we also find that marginal and non marginal welfare estimates are significantly affected by the choice design one key finding is that the most used choice task format in environmental economics i e two hypothetical and a status quo alternative is likely to increase the propensity to choose the status quo option

preference anomalies preference elicitation and the discovered preference hypothesis there is wide ranging evidence much of it deriving from economics experiments of anomalies in behaviour that challenge standard preference theories this paper explores the implications of these anomalies for preference elicitation methods because methods that are used to inform public policy such as contingent valuation are based on standard preference theories their validity may be called into question by the anomaly data however on a new interpretation these anomalies do not contradict standard theory but are errors in stated preference that can be expected to disappear as people become more experienced in relevant decision environments we explore the evidence for this interpretation and what implications follow for preference elicitation methodology

a learning design for reducing hypothetical bias in the contingent valuation method over the last few years a great deal of research has focussed on hypothetical bias in value estimates obtained with the contingent valuation cv method and on means for ameliorating if not eliminating such bias to date efforts to eliminate hypothetical bias have relied on calibration techniques or on word smithing of one kind or another to induce subjects to provide responses to hypothetical questions that mimic responses made by subjects facing actual payments in the valuation experiment this paper introduces a different approach for eliminating hypothetical bias a design for a cv survey format is presented which provides subjects with the opportunity to learn how the cv institution works sequential referenda are conducted where respondents gain experience in cv settings by participating in both hypothetical and real referenda the logic of this learning design is a straightforward application of the trials process used in experimental economics we demonstrate that the learning design is effective in eliminating hypothetical bias in surveys concerning donations to two different public goods

the choice theory approach to market research this paper surveys economic choice theory stressing developments that permit use of data from psychometric and conjoint experiments to produce market demand forecasts alternatives to the widely used multinomial logit model are summarized and a new method for estimating multinomial probits is described an integration of choice models with attitudinal scaling and perceptual mapping within a latent variable system is described estimation of such systems under either random effects or fixed effects descriptions of heterogeneity across individuals is discussed issues in the use of choice models to describe responses from conjoint experiments are presented new regression diagnostic tests for the consistency of multinomial logit representations are discussed

ordering anomalies in choice experiments this paper investigates whether responses to choice experiments ces are subject to ordering anomalies while previous research has focussed on the possibility that such anomalies relate to position in the sequence of choice tasks our research reveals that the particular order of tasks matters using a novel experimental design that allows us to test our hypotheses using simple nonparametric statistics we observe ordering anomalies in ce data similar to those recorded in the dichotomous choice contingent valuation literature those ordering effects operate in both price and commodity dimensions and are observed to compound over a series of choice tasks our findings cast serious doubt on the current practice of asking each respondent to undertake several choice tasks in a ce while treating each response as an independent observation on that individual s preferences

time consistency of fiscal and monetary policy a solution this paper demonstrates how time consistency of the ramsey policy the optimal fiscal and monetary policy under commitment can be achieved each government should leave its successor with a uniq

testing preference formation in learning design contingent valuation using advance information and repetitive treatments policymakers have largely replaced single bounded discrete choice valuation by the more statistically efficient repetitive method double bounded discrete choice and discrete choice experiments repetitive valuation permits classification into rational and irrational preferences 1 a priori well formed 2 consistent nonarbitrary values discovered through repetition and experience 3 consistent but arbitrary values as shaped by preceding bid level and 4 inconsistent and arbitrary values policy valuations should demonstrate behaviorally rational preferences we outline novel methods for testing this in double bounded discrete choice experiments applied to renewable energy premiums in chile

optimal fiscal policy in a business cycle model this paper develops the quantitative implications of optimal fiscal policy in a business cycle model in a stationary equilibrium the ex ante tax rate on capital income is approximately zero there is an equivalence class of ex post capital income tax rates and bond policies that support a given allocation within this class the optimal ex post capital tax rates can range from close to independently and identically distributed to close to a random walk the tax rate on labor income fluctuates very little and inherits the persistence properties of the exogenous shocks thus there is no presumption that optimal labor tax rates follow a random walk most of the welfare gains realized by switching from a tax system like that of the united states to the ramsey system come from an initial period of high taxation on capital income

nonparametric nonlinear cotrending analysis with an application to interest and inflation in the united states given the assumption that the components of a vector time series are stationary around nonlinear deterministic time trends nonlinear cotrending is the phenomenon that one or more linear combinations of the time series are stationary around a linear trend or a constant hence the series have common nonlinear deterministic time trends in this article i develop nonparametric tests for nonlinear cotrending and i derive nonparametric estimators of the cotrending vectors i apply this approach to the federal funds rate and the consumer price index inflation rate in the united states using monthly data to analyze the price puzzle

the new political economy of taxation in advanced capitalist democracies earlier versions of this paper were presented at the 1999 annual meeting of the american political science association september 1 5 atlanta ga and the 2000 annual meeting of the midwest political science association april 27 30 chicago il the authors thank steffen ganghof philip genschel mark hallerberg alex hicks william keech dennis quinn and the anonymous reviewers and editor of this journal for many helpful comments and dennis quinn for generously sharing data duane swank thanks the german marshal fund of the united states and marquette university for support of work incorporated in this paper data utilized in this paper are available from duane swank marquette edu

the trade balance and fiscal policy in the oecd abstract we explore the short run impact of movements in different components of fiscal policy on the trade balance exports and imports for a panel of oecd countries over 1960 1995 we find that the composition of a shift in fiscal policy and the exchange rate regime matter for its transmission to the external account the strongest result is that an expansion in wage government consumption causes a contraction in exports and a deterioration of the trade balance especially under flexible exchange rates we discuss the implications of our results for fiscal and current account adjustment

environmental inequality and economic valuation i study how the economic value of a heterogeneously distributed environmental public good depends on how the endowment with this good and income are distributed i find that the effect of environmental inequality on the societal willingness to pay wtp for the environmental good is determined both by its substitutability and by the correlation of its provision with income specifically environmental inequality decreases societal wtp for substitutes but this effect is reversed if the environmental good is a complement or distributed strongly in favour of richer households moreover i show that richer households living in places where environmental good endowment is high increases decreases societal wtp if and only if the environmental good is a substitute for complement to consumption goods i propose novel adjustment factors for structural benefit transfer to control for differences in the spatial distribution of environmental goods using forest preservation in poland as an empirical example i find that societal wtp is up to 4 higher for equal access to forests and up to 8 higher for an equal distribution of both income and access to forests

measuring the impact of fiscal policy in the face of anticipation a structural var approach empirical estimates of the impact of government spending shocks disagree on central issues such as the size of output multipliers and the responses of consumption and the real wage one explanation for the disagreement is that fiscal shocks are often anticipated due to misspecification of the information set anticipation effects may invalidate svar estimates of impulse responses we use economic theory to derive a fiscal svar estimator that is applicable when fiscal shocks are anticipated we study its properties and apply it to us data we fail to find evidence that anticipation effects overturn the existing findings from the fiscal svar literature despite years of intensive research the empirical literature on fiscal policy has yet to reach consensus on the macroeconomic impact of fiscal policy shocks disagreements concern central issues such as the size of output multipliers and the impact of government spending shocks on consumption and the real wage clearly such level of disagreement constrains our ability to give simple guidelines for the operation of one of the most important stabilisation policies a key empirical obstacle is the measurement of innovations to fiscal policy one strand of the literature employs structural vector autoregressive svar methods and achieves identification based on the presence of decision lags or sign restrictions

modelling recreation demand using choice experiments climbing in scotland this paper is concerned with the use of thechoice experiment method for modelling thedemand for recreation using the example ofrock climbing in scotland we begin byoutlining the method itself including itstheoretical and econometric underpinnings datacollection procedures are then outlined wepresent results from both nested and non nestedmodels and report some tests for theimplications of choice complexity andrationality finally we compare our resultswith a revealed preference data model based onthe same sample of climbers

the effect of government spending on private consumption a puzzle the empirical finding that cyclical changes in government spending tend to be associated with positive responses of private consumption has been interpreted as a challenge for representative agent intertemporal optimizing theories which usually imply that the negative wealth effect of higher fiscal spending reduces the households consumption and leisure the present paper shows that the evidence can be explained by a standard real business cycle type model with a nonadditively separable utility function and a small intertemporal consumption elasticity higher fiscal spending can raise consumption and lower investment as in the data the nonseparable utility model is shown to imply the same consumption euler equation as a model with rule of thumb consumers who mechanically spend their income

choice certainty and consistency in repeated choice experiments the main objective of this study is to examine how repeated choice affects preference learning in stated preference experiments we test different hypotheses related to preference learning by analyzing response patterns and asking respondents in a choice experiment to report their experienced certainty when going through the choice tasks in a split sample test we show that follow up choice certainty questions are procedural invariant the self reported certainty results indicate that learning occurs but econometric testing procedures do not identify any significant impact of learning effects on parameter estimates or variance across choice tasks additional tests of choice consistency suggest that preferences in the choice experiment are stable and coherent

government debt and optimal monetary and fiscal policy how do different levels of government debt affect the optimal conduct of monetary and fiscal policies and what do these optimal policies imply for the evolution of government debt over time to provide an answer this paper studies a standard monetary policy model with nominal rigidities and monopolistic competition and adds to it a fiscal authority that issues nominal non state contingent debt levies distortionary labor income taxes and determines the level of public goods provision higher government debt levels make it optimal to reduce public spending so as to dampen the adverse incentive effects of distortionary taxes but also strongly influence the optimal stabilization response following technology shocks in particular higher debt levels give rise to larger risks to the fiscal budget and to tax rates this makes it optimal to reduce government debt over time the optimal speed of debt reduction is missed when using first order approximations to optimal policies but is shown to be quantitatively significant in a second order approximation especially when technology movements are largely unpredictable in nature

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

planning to cheat eu fiscal policy in real time using real time data from europe s stability and convergence programs we explore how fiscal plans and their implementation in the eu are determined we find that 1 implemented budgetary adjustment falls systematically short of planned adjustment and this shortfall increases with the projection horizon 2 variability in the eventual fiscal outcomes is dominated by the implementation errors 3 there is a limited role for traditional political variables 4 stock flow adjustments are more important when plans are more ambitious and 5 most importantly both the ambition in fiscal plans and their implementation benefit from stronger national fiscal institutions we emphasize also the importance of credible plans for the eventual fiscal outcomes roel beetsma massimo giuliodori and peter wierts

twin deficits openness and the business cycle in this paper we study the co movement of the government budget balance and the trade balance at business cycle frequencies in a sample of 10 oecd countries we find that the correlation of the two time series is negative but less so in more open economies moreover for the us the cross correlation function is s shaped we show that a standard business cycle model featuring government spending and technology shocks is able to replicate these empirical regularities the model predicts that conditional on spending shocks the correlation of the budget balance and the trade balance is close to perfect consistent with the twin deficit hypothesis despite this high correlation however the economic effect of spending shocks on the trade balance is contained if the economies are not very open to trade

temporal aggregation and svar identification with an application to fiscal policy abstract we show how to assess identifying assumptions for a low frequency svar using estimates from a higher frequency model in our application quarterly data support identified annual svars in government spending and output by assuming zero within year impact of output on spending

optimal taxation without state contingent debt in an economy studied by lucas and stokey tax rates inherit the serial correlation structure of government expenditures belying barro s earlier result that taxes should be a random walk for any stochastic process of government expenditures to recover a version of barro s random walk tax smoothing outcome we modify lucas and stokey s economy to permit only risk free debt having only risk free debt confronts the ramsey planner with additional constraints on equilibrium allocations beyond one imposed by lucas and stokey s assumption of complete markets the ramsey outcome blends features of barro s model with lucas and stokey s in our model the contemporaneous effects of exogenous government expenditures on the government deficit and taxes resemble those in lucas and stokey s model but incomplete markets put a near unit root component into government debt and taxes an outcome like barro s however we show that without ad hoc limits on the government s asset holdings outcomes can diverge in importa

a theory of optimal inheritance taxation this paper derives optimal inheritance tax formulas that a capture the key equityeciency trade o b are expressed in terms of estimable sucient statistics c are robust to the underlying structure of preferences we consider dynamic stochastic models with general and heterogeneous bequest tastes and labor productivities we limit ourselves to simple but realistic linear or two bracket tax structures to obtain tractable formulas we show that long run optimal inheritance tax rates can always be expressed in terms of distributional parameters aggregate behavioral elasticities and social preferences for redistribution importantly those results carry over with tractable modications to a the case with social discounting instead of steady state welfare maximization b the case with partly accidental bequests c the standard barro becker dynastic model in all cases the optimal inheritance tax rate increases with the concentration of bequest received and decreases with the elasticity of aggregate bequests to the net of tax rate the optimal tax rate is positive and quantitatively large if concentration is high the elasticity is low and society cares mostly about those receiving little inheritance in contrast the optimal tax rate is negative when society cares mostly about inheritors we propose a calibration using micro data for france and the united states we nd that for realistic parameters

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

the role of shocks and institutions in the rise of european unemployment the aggregate evidence two key facts about european unemployment must be explained the rise in unemployment since the 1960s and the heterogeneity of individual country experiences while adverse shocks can potentially explain much of the rise in unemployment there is insufficient heterogeneity in these shocks to explain cross country differences alternatively while explanations focusing on labour market institutions explain current heterogeneity well many of these institutions pre date the rise in unemployment based on a panel of institutions and shocks for 20 oecd nations since 1960 we find that the interaction between shocks and institutions is crucial to explaining both stylised facts

gender specific starting point bias in choice experiments evidence from an empirical study abstract in this paper we test whether preferences and willingness to pay estimates obtained in a choice experiment study are susceptible to starting point bias as is often the case in dichotomous choice contingent valuation studies on the basis of a multinomial probit model we find that preferences are indeed susceptible to starting point bias in a split sample design our results suggest that varying the price levels displayed in a so called instructional choice set presented prior to the actual preference eliciting choice sets significantly impacts respondents preferences and willingness to pay for protecting danish nature areas from new motorway development in particular our results show that the bias is gender specific only female respondents are significantly affected results further reveal that the impact of the starting point bias decays as respondents evaluate more and more choice sets this supports the discovered preference hypothesis and on the basis of this we suggest a number of ways to potentially mitigate the starting point bias

is there a nonlinear co movement in the eu countries unemployment this paper analyzes the hypothesis of hysteresis and co movement among european unemployment rates using unit root and co trending tests that allow for nonlinearities the results are favorable to stationarity and common patterns in european unemployment

seigniorage and political instability the importance of seigniorage relative to other sources of government revenue differs markedly across countries this paper tries to explain this regularity by studying a political model of tax reform the model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and thus will rely more heavily on seigniorage this prediction of the model is tested on cross sectional data for seventy countries the authors find that after controlling for other variables political instability is positively associated with seigniorage copyright 1992 by american economic association

do ecolabels cheapen wines abstract while some studies find that ecolabels might impose price penalties to wines several aspects remain unclear particularly if the mainstream consumers are in fact disliking ecolabeled wines if there exists a systematic difference between organic and sustainable wines or if the ecolabels purported negative correlation to prestige is robust in this study these questions are investigated with a choice experiment which estimates the consumption utility of the ecolabels and of the relevant interaction effects we find that consumers are willing to pay premiums for either organic or sustainable wines the premium is especially prevalent in the higher percentile of the willingness to pay distributions appellations of origin play a role the willingness to pays for the ecolabels are higher for wines from less prestigious regions but it diminishes for wines from higher prestige regions no eco penalty is detected at the mean level nor do the ecolabels penalize higher priced wines within the examined price range however a small segment of consumer dislikes the ecolabels lastly the preference correlates positively with the perception of quality implied by the ecolabels we recommend wineries that target mainstream consumers to pursue ecolabels

do hypothetical and actual marginal willingness to pay differ in choice experiments application to the valuation of the environment abstract in this paper we test the validity of choice experiments with donations for environmental projects in particular we test whether or not there are differences in preferences between a hypothetical and an actual choice experiment our experiments indicate no differences in addition internal tests of validity indicate transitive and stable preferences in both experiments although there are some indications of possible learning effects during the experiment

the effects of public spending shocks on trade balances and budget deficits in the european union we investigate the consequences of an increase in public spending for trade balances and budget deficits in the european union using a panel var approach whereas the literature tends to treat the trade balance gdp ratio as a single variable we include exports and imports as separate variables this allows us to track in more detail the sources of trade balance movements further we use annual rather than quarterly data this facilitates the interpretation of the shocks and reduces potential anticipation effects of fiscal policy changes however the identification assumptions become stronger and we extensively check their validity according to our baseline estimate a 1 gdp increase in public spending produces a 1 2 on impact with a 1 6 peak rise in gdp rising imports and falling exports are responsible for a fall of the trade balance by 0 5 of gdp on impact and a peak fall of 0 8 in addition the spending increase produces a 0 7 impact and peak budget deficit thereby pointing to the potential relevance of the twin deficits hypothesis for the european union jel e62 h60

hysteresis in unemployment unemployment has risen sharply in a number of countries and it appears to be becoming more persistent the experience of the 1970s and 1980s showed that adverse unemployment shocks could have long lasting effects with very serious economic and social consequences a key mechanism producing these adverse consequences was hysteresis in unemployment whereby temporary rises in unemployment generated by supply and or demand shocks had permanent or at least very persistent effects clearly it is important to understand how hysteresis mechanisms might operate in order to avoid such adverse outcomes on the other hand experience during the subsequent two decades showed that under more favourable macroeconomic conditions it is possible to observe good hysteresis effects now is a very appropriate time to re visit the issue of hysteresis in unemployment in order to avoid the errors of the 1970s and 1980s and if possible to get hysteresis effects working in a positive direction copyright 2011 oxford university press

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

how do respondents process stated choice experiments attribute consideration under varying information load the popularity of stated choice sc experiments has produced many design strategies in which researchers use increasingly more complex choice settings to study choice behaviour when the amount of information to assess increases we wonder how an individual handles such information in making a choice defining the amount of information as the number of attributes associated with each choice set we investigate how this information is processed as we vary its complexity four ordered heterogeneous logit models are developed each for an sc design based on a fixed number of attributes in which the dependent variable defines the number of attributes that are ignored we find that the degree to which individuals ignore attributes is influenced by the dimensionality of the sc experiment the deviation of attribute levels from an experienced reference alternative the use of adding up attributes where feasible the number of choice sets evaluated and the personal income of the respondent the empirical evidence supports the view that individuals appear to adopt a range of coping strategies that are consistent with how they process information in real markets and that aligning choice complexity with the amount of information to process is potentially misleading relevancy is what matters copyright 2006 john wiley sons ltd

markov perfect capital and labor taxes abstract this paper analyzes the markov perfect equilibrium of an economy were a benevolent government that lacks the ability to commit to future policy choices uses taxes on capital and labor income to finance the provision of a public good the main finding is that the government taxes capital and subsidizes labor so that only the dynamic inefficiency of future capital taxes remains if agents preference for the public good is sufficiently high then capital is confiscated setting bounds on taxes alleviates the dynamic inefficiency inherent in capital taxation but some implementations carry a high welfare cost allowing for endogenous capital utilization makes the current capital tax distortionary and implies capital and labor tax rates that are relatively close to those measured for the u s economy

the timing and persistence of fiscal policy impacts on growth evidence from oecd countries the literatures testing for aggregate short run or long run growth impacts of fiscal policy use quite different methodologies the former generally focuses on temporary fiscal shocks the latter typically have no short run dynamics or assume homogeneity we use regression methods that treat heterogeneous short run dynamics explicitly within a long run model results suggest that previously estimated long run growth effects of fiscal policy are typically achieved quickly consistent with results from short run models in principle these short run effects persist in practice regular fiscal policy changes in oecd countries mean that persistent increases or decreases in growth rates are rare the recent global recession has brought renewed interest in the question can fiscal policy affect the growth rate of output if so are these effects temporary affecting only output levels over the longer run or permanent so that output growth rates are persistently higher perhaps surprisingly the literatures looking for growth impacts of fiscal policy over the short run say up to five years and over the longer run of 10 years or more have tended to be quite distinct and followed quite different methodologies this article considers how far the results from these two literatures are consistent to do so we apply the heterogeneous panel econometric methods mean group and pooled mean group proposed by pesaran and smith 1995 pesaran 1997 and pesaran et al 1999 to an annual panel dataset for oecd countries these methods allow both long run equilibrium relationships and short run dynamic adjustments around those equilibria to be investigated simultaneously in brief our results support the conclusion that changes in fiscal structure that is between different types of tax

dynamic models incorporating individual heterogeneity utility evolution in conjoint analysis it has been shown in the behavioral decision making marketing research and psychometric literature that the structure underlying preferences can change during the administration of repeated measurements e g conjoint analysis and data collection because of effects from learning fatigue boredom and so on in this research note we propose a new class of hierarchical dynamic bayesian models for capturing such dynamic effects in conjoint applications which extend the standard hierarchical bayesian random effects and existing dynamic bayesian models by allowing for individual level heterogeneity around an aggregate dynamic trend using simulated conjoint data we explore the performance of these new dynamic models incorporating individual level heterogeneity across a number of possible types of dynamic effects and demonstrate the derived benefits versus static models in addition we introduce the idea of an unbiased dynamic estimate and demonstrate that using a counterbalanced design is important from an estimation perspective when parameter dynamics are present

designing conjoint choice experiments using managers prior beliefs abstract the authors provide more efficient designs for conjoint choice experiments based on prior information elicited from managers about the parameters and their associated uncertainty the authors use a bayesian design procedure that assumes a prior distribution of likely parameter values and optimizes the design over that distribution the authors propose a way to elicit prior information from managers and show in monte carlo studies that the procedure provides more efficient designs than the current procedures the authors provide an empirical application in which they elicit prior information on the parameter values and the associated uncertainty from managers here the bayesian design provides 30 50 lower standard errors of the estimates and an expected predictive validity that is approximately 20 higher

tentative evidence of tax foresight abstract when lagged interest rates and prices are included in a var responses to a tax shock decrease this reduced form result is consistent with tax foresight and hence casts doubt on estimates of tax effects under the no foresight assumption

trade spill overs of fiscal policy in the european union a panel analysis we explore the international spillovers from fiscal policy shocks via trade in europe a fiscal expansion stimulates domestic activity which leads to more foreign exports and hence higher foreign output to quantify this we combine a panel var model in government spending net taxes and gdp with a panel trade model on average a public spending increase equal to 1 of gdp implies 2 3 more foreign exports over the first two years the corresponding figure for an equal size net tax reduction is 0 6 both estimates are statistically significant as far as the effect on foreign activity is concerned a 1 of gdp spending increase net tax reduction in germany on average raises gdp of trading partners by 0 23 0 06 over the first two years these figures are likely to form lower bounds for the actual effects and suggest that it may be worthwhile to further investigate the benefits from coordinated fiscal expansions contractions in response to european wide cyclical downturns upswings

the importance of composition of fiscal policy evidence from different exchange rate regimes abstract we study the macroeconomic effects of fiscal policies in an open economy we emphasize two transmission mechanisms the cost channel by which wage government spending and labor taxes raise the real wage firms must pay and the exchange rate channel by which the nominal exchange rate shifts induced by fiscal policy have real effects if some prices and wages are sticky the latter channel implies that changes in wage government spending or in labor taxation should have different effects under flexible than under fixed exchange rates in a 1964 93 panel of oecd countries we find significant evidence for both channels moreover we find that the real product wage and profitability are more responsive than quantities employment and output to fiscal policy innovations

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

learning and fatigue effects revisited investigating the effects of accounting for unobservable preference and scale heterogeneity using multiple choice tasks per respondent in discrete choice experiment studies increases the amount of available information however respondents learning and fatigue may lead to changes in observed utility function preference taste parameters as well as the variance in its error term scale they need to be controlled to avoid potential bias a sizable body of empirical research offers mixed evidence in terms of whether these ordering effects are observed we point to a significant component in explaining these differences we show how accounting for unobservable preference and scale heterogeneity can influence the magnitude of observed ordering effects

uncovering the distribution of motorists preferences for travel time and reliability we apply recent econometric advances to study the distribution of commuters preferences for speedy and reliable highway travel our analysis applies mixed logit to combined revealed and stated preference data on commuter choices of whether to pay a toll for congestion free express travel we find that motorists exhibit high values of travel time and reliability and substantial heterogeneity in those values we suggest that road pricing policies designed to cater to such varying preferences can improve efficiency and reduce the disparity of welfare impacts compared with recent pricing experiments

the effects of experience on preferences theory and empirics for environmental public goods this article develops a choice model for environmental public goods which allows for consumers to learn about their preferences through consumption experiences we develop a theoretical model of bayesian updating perform comparative statics over the model and show how the theoretical model can be consistently incorporated into a reduced form econometric model our main findings are that in a random utility model rum discrete choice model a subject s scale should increase and the variability of scale should decrease with experience if subjects are bayesians we then estimate the model using field data regarding preferences for one particular public good water quality we find strong evidence that additional experience increases scale thereby making consumer preferences more predictable from the econometrician s perspective we find supportive but less convincing evidence that experience decreases the variability of scale across subjects

understanding the dynamic effects of government spending on foreign trade abstract using vector autoregressions on u s time series the present paper documents the effects of fiscal policy on foreign trade an increase in government spending significantly depreciates the nominal exchange rate appreciates the terms of trade and increases net exports exposed to the same spending shock a new keynesian general equilibrium model is shown to match qualitatively the response of relative prices the response of net exports in contrast depends on the intra and intertemporal elasticities of substitution and the degree of home bias in private spending an accommodating monetary policy dampens but does not alter the response of net exports

the effects of government purchases shocks review and estimates for the eu in this article we review the theoretical consequences of government purchases shocks for both closed and open economies followed by a discussion of the empirical literature next we provide our own estimates for the eu countries we find that an increase in government purchases raises output consumption and investment and reduces the trade balance however the stimulating effect is weaker and the trade balance reduction is larger for the more open eu economies consistent with larger leakage effects further we show that government purchases shocks in large eu economies have non negligible consequences for economic activity in the main trading partners

capital taxation and ownership when markets are incomplete this paper is a normative investigation of the properties of optimal capital taxation in the neoclassical growth model with aggregate shocks and incomplete markets the model features a representative agent economy with linear taxes on labor and capital i first allow the government to trade only a real risk free bond optimal policy has the following features labor taxes fluctuate very little capital taxes are volatile and feature a positive negative spike after a negative positive shock to the government budget and capital taxes average to roughly zero across periods i then consider the implications of allowing the government to trade capital

government spending shocks in quarterly and annual time series government spending shocks are frequently identified in quarterly time series data by ruling out a contemporaneous response of government spending to other macroeconomic aggregates we provide evidence that this assumption may not be too restrictive for annual time series data

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

income distribution and sociopolitical instability as determinants of savings a cross sectional model the purpose of this cross national study is twofold first it introduces income distribution and sociopolitical instability as arguments in the savings function second it presents some empirical evidence in relation to their quantitative effects on savings it is shown that sociopolitical instability has profound effects on the savings ratio it is also shown that the bulk of savings is produced by the middle income class as a result a redistribution of income at the expense of the upper income class yields a constant or an increased savings ratio developing on whether such a redistribution includes the lower income class or not

dynamic learning and context dependence in sequential attribute based stated preference valuation questions a hybrid stated preference model is presented that combines the referendum contingent valuation response format with an experimentally designed set of attributes a sequence of valuation questions is asked to a random sample in a mailout mail back format econometric analysis shows greater discrimination between alternatives in the final choice in the sequence and the vector of preference parameters shifts lead and lag choice sets have a structural influence on current choices and unobserved factors induce positive correlation across the responses these results indicate that people learn about their preferences for attributebased environmental goods by comparing attribute levels across choice sets

taxing capital is a good idea the role of idiosyncratic risk in an olg model abstract we investigate an overlapping generations olg model in which agents who live for two periods receive idiosyncratic productivity shocks when they are old we show that around zero tax equilibria we can always construct a combination of a small capital tax and a lump sum transfer that are pareto improving as davila et al econometrica 2012 show a capital reduction in one period raises the welfare level of agents who are old in that period but lowers that of the young agents because it reduces their wages we show that the government can compensate for these wage losses by additionally taxing the old agents such that their welfare gains remain positive our result is unchanged when earnings are uncertain at young age

controlling for the effects of information in a public goods discrete choice model this paper develops a reduced form method of controlling for differences in information sets of subjects in public good discrete choice models using stated preference data the main contribution of our method comes from accounting for the effect of information provided during a survey on the mean and the variance of individual specific scale parameters in this way we incorporate both scale heterogeneity as well as observed and unobserved preference heterogeneity to investigate differences across and within information treatments our approach will also be useful to researchers who want to combine stated preference data sets while controlling for scale differences we illustrate our approach using the data from a discrete choice experiment study of a biodiversity conservation program and find that the mean of individual specific scale parameters and its variance in the sample is sensitive to the information set provided to the respondents

learning design contingent valuation ldcv noaa guidelines preference learning and coherent arbitrariness we extend the contingent valuation cv method to test three differing conceptions of individuals preferences as either i a priori well formed or readily divined and revealed through a single dichotomous choice question as per the noaa cv guidelines k arrow r solow p r portney e e leamer r radner h schuman report of the noaa panel on contingent valuation fed reg 58 1993 4601 4614 ii learned or discovered through a process of repetition and experience j a list does market experience eliminate market anomalies q j econ 2003 41 72 c r plott rational individual behaviour in markets and social choice processes the discovered preference hypothesis in k arrow e colombatto m perleman c schmidt eds rational foundations of economic behaviour macmillan london st martin s new york 1996 pp 225 250 iii internally coherent but strongly influenced by some initial arbitrary anchor d ariely g loewenstein d prelec coherent arbitrariness stable demand curves without stable preferences q j econ 118 1 2003 73 105 findings reject both the first and last of these conceptions in favour of a model in which preferences converge towards standard expectations through a process of repetition and learning in doing so we show that such a learning design cv method overturns the stylised facts of bias and anchoring within the double bound dichotomous choice elicitation format

the influence of task complexity on consumer choice a latent class model of decision strategy switching the literature indicating that person context and task specific factors cause consumers to utilize different decision strategies has generally failed to affect the specification of choice models used by practitioners and academics alike who still tend to assume an utility maximizing omniscient indefatigable consumer this article 1 introduces decision strategy selection within a maintained compensatory framework into aggregate choice models via latent classes which arise because of task complexity 2 it demonstrates that within an experimental choice task the model reflects changing aggregate preferences as choice complexity changes and as the task progresses the import of these findings for current practice model interpretation and future research needs is examined

the competitive externalities and the optimal seignorage this study analyzes the inflation tax in an economy with several competing decisionmakers who can effectively print more money via the central bank the author derives the sequential rational expectation equilibrium and shows that the presence of competing decisionmakers increases the inflation rate and may put the economy on the wrong side of the inflation tax laffer curve the analysis is interpreted for a country consisting of several states or provinces where the centralized government system is weak similar results apply to the case of competing ministers in an economy where the central bank is weak copyright 1992 by ohio state university press

position dependent order effects on the prediction of consumer preferences in repeated choice experiments abstractusing stated choice data collected by experimental design with repeated choice tasks this study developed an approach to quantify the position dependent order effects on the prediction of

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

twin deficit or twin divergence fiscal policy current account and real exchange rate in the u s abstract in spite of concerns about twin deficits fiscal and the current account deficits for the united states economy empirical evidence suggests that twin divergence is a more usual feature of the historical data i e when fiscal accounts worsen the current account improves and vice versa this paper empirically studies the effects of fiscal policy government budget deficit shocks on the current account and the real exchange rate during the flexible exchange rate regime period based on var vector auto regression models we identified exogenous fiscal policy shocks after controlling for business cycle effects on fiscal balances in contrast to the predictions of most theoretical models the u s results suggest that an expansionary fiscal policy shock or a government budget deficit shock improve the current account and depreciate the real exchange rate increases in private savings and declines in investment contribute to the current account improvement while a nominal exchange rate depreciation as opposed to a relative price level change is mainly responsible for the real exchange rate depreciation the twin divergence of fiscal balances and current account balances is also explained by the prevalence of output shocks i e output shocks more than fiscal shocks appear to drive the co movements of the current account and the fiscal balance

spatial heterogeneity of willingness to pay for forest management the paper investigates the spatial heterogeneity of public s preferences for the implementation of a new country wide forest management and protection program in poland spatial econometric methods and high resolution geographical information system data related to forest characteristics are used to explain the variation in individual specific willingness to pay wtp values derived from a discrete choice experiment study we find that respondents wtp is higher the closer they live to their nearest forest and the scarcer forests are in the area where they live interestingly the higher the ecological value of forests in respondents area the more people prefer extending areas of national forest protection we also investigate spatial patterns in individual specific wtp scores and in latent class membership probabilities finding that preferences are indeed spatially clustered we argue that this clustering should be taken into account in forest management and policy making

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

debt and deficit fluctuations and the structure of bond markets we analyse the implications of optimal taxation for the stochastic behaviour of debt we show that when a government pursues an optimal fiscal policy under complete markets the value of debt has the same or less persistence than other variables in the economy and it declines in response to shocks that cause the deficit to increase by contrast under incomplete markets debt shows more persistence than other variables and it increases in response to shocks that cause a higher deficit data for us government debt reveals diametrically opposite results from those of complete markets and is much more supportive of bond market incompleteness

rational choice under an imperfect ability to choose we consider an individual who lacks the information processing capacity required for a direct comparison of all feasible allocations instead of finding at once a best allocation the individual myopically adjusts his current allocation toward higher utility the individual makes adjustment errors inversely proportional to his ability to choose we compare the stationary state of this process with the standard model we see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from our more general one as the special case corresponding to perfect ability jel d 11

optimal redistributive capital taxation in a neoclassical growth model abstract this paper provides a counterexample to the simplest version of the redistribution models considered by judd 1985 in which the government chooses an optimal distortionary tax on capitalists to finance a lump sum payment to workers i show that the steady state optimal tax on capital income is generally non zero when the capitalists utility is logarithmic and the government faces a balanced budget constraint with log utility agents optimal decisions depend solely on the current rate of return not any future rates of return or tax rates this feature of the economy effectively deprives the government of a useful policy instrument because promises about future tax rates can no longer influence current allocations when combined with a lack of other suitable policy instruments such as government bonds the result is an inability to decentralize the allocations that are consistent with a zero limiting capital tax i show that the standard approach to solving the dynamic optimal tax problem yields the wrong answer in this knife edge case because it fails to properly enforce the constraints associated with the competitive equilibrium specifically the standard approach lets in an additional policy instrument through the back door