families and social security abstract the present paper quantifies the importance of family insurance for the analysis of social security we therefore augment the standard overlapping generations model with idiosyncratic labor productivity and longevity risk in that we account for gender and marital status we simulate the abolition of pay as you go pension payments calculate the resulting intergenerational welfare changes and isolate aggregate efficiency effects for singles and families by means of compensating transfers we find that abolishing social security creates significant efficiency losses which are substantially higher for singles compared to married couples a decomposition of the efficiency loss reveals that this difference can be almost exclusively attributed to the insurance role of the family with respect to longevity risk neglecting differences in family structure when studying the privatization of social security one overestimates the long run change in the capital stock by about 40 percent the decline in labor supply by about 30 percent and the aggregate efficiency loss by even 36 percent given rising divorce rates and less stable marriages in almost all western societies our results also indicate that social security should not be reduced but strengthened in the future

explaining the deteriorating entry earnings of canada s immigrant cohorts 1966 2000 abstract using the 1981 1986 1991 1996 and 2001 canadian censuses we explore causes of the deterioration in entry earnings of successive cohorts of immigrant men and women roughly one third of the deterioration is explained by compositional shifts in language ability and region of birth we find no evidence of a decline in the returns to foreign education for either immigrant men or immigrant women but a definite deterioration in the returns to foreign labour market experience most strongly among men from non traditional source countries we can explain roughly two thirds of the male and one half of the female deterioration without any reference to entry labour market conditions when we also account for entry conditions our results suggest canada s immigrants of the late 1990s would otherwise have enjoyed entry earnings equal to or higher than their counterparts of the 1960s

home production and social security reform this paper incorporates home production into a dynamic general equilibrium model of overlapping generations with endogenous retirement to study social se curity reforms as such the model dierentiates both consumption goods and labor eort according to their respective roles in home production and market activities using a calibrated model we nd that eliminating the current pay as you go social security system has important implications for both labor supply and consumption decisions and that these decisions are in uenced by the presence of a home production technology comparing our benchmark economy to one with dierentiated goods but no home production we nd that eliminating social security bene ts generates larger welfare gains in the presence of home produc tion this result is due to the self insurance aspects generated by the presence of home production comparing our economy to a one good economy without home production we show that the welfare gains of eliminating social security are magni ed even further these policy analyses suggest the importance of mod eling home production and distinguishing between both time use and consumption goods depending on whether they are involved in market or home production

extended benefits and the duration of ui spells evidence from the new jersey extended benefit program abstract this paper examines the impact on the duration of unemployment insurance receipt of a politically motivated program that offered 13 weeks of extended benefits for 6 months in 1996 using state level data and individual administrative records from before during and after the program we find that it raised the fraction of claimants who exhausted their regular benefits by 1 3 percentage points had the program run long enough to affect claimants from the first day of their spell the fraction exhausting would have risen by 7 percentage points and the average recipient would have collected regular benefits for one extra week

taxing capital not a bad idea after all we quantitatively characterize the optimal capital and labor income tax in an overlapping generations model with idiosyncratic uninsurable income shocks and permanent productivity difierences of households the optimal capital income tax rate is signiflcantly positive at 36 percent the optimal progressive labor income tax is roughly a at tax of 23 percent with a deduction of 7 200 relative to average household income of 42 000 the high optimal capital income tax is mainly driven by the life cycle structure of the model whereas the optimal progressivity of the labor income tax is attributable to the insurance and redistribution role of the tax system jel e62 h21 h24

social security life insurance and annuities for families abstract in this paper we ask whether an aspect of social security namely its role as a provider of insurance against uncertain life spans is welfare enhancing to this end we use an olg model where agents have a bequest motive and differ in sex and marital status and where families are formed and destroyed and their characteristics evolve exogenously according to u s demographic patterns of marriage divorce fertility and mortality we compare the implications of social security under a variety of market structures that differ in the extent to which life insurance and annuities are available we find that social security is a bad idea in economies where the private sector provides annuities and life insurance it is a bad idea for the standard reason that it distorts the intertemporal margin by lowering the capital stock in the absence of such securities social security is still a very bad idea only marginally less so compared with economies with annuities and life insurance we also explore these issues in a world where people live longer and we find no differences in our answers as a by product of our analysis we find that the existence of life insurance opportunities for people is important in welfare terms while that of annuities is not

expenditures and receipts testing for causality in state and local government finances the results of our tests indicate similarities between the expenditure tax receipt relations of state governments to those previously reported for the federal government in manage and marlow 1986 the results reported here indicate support for the hypothesis that tax receipts cause expenditures at the state level of government for tests utilizing symmetric lag structures ranging from three to five years state expenditures appear to follow state tax receipts for the shortest lag length 2 2 the determination of bidirectional causality does not make us reject the hypothesis that higher spending levels result from higher revenue levels rather the causality appears to be in both directions for the shortest lag length

does public insurance crowd out private insurance the cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured or will crowd out existing private insurance coverage we estimate the extent of crowd out arising from the expansions of medicaid to pregnant women and children over the 1987 1992 period we estimate that approximately 50 percent of the increase in medicaid coverage was associated with a reduction in private insurance coverage this occurred largely because employees took up employer based insurance less frequently there is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents

should pensions be progressive abstract the present paper quantitatively characterizes the consequences of rising pension progressivity in an overlapping generations model with idiosyncratic income disability and longevity risk as well as endogenous labor supply at the intensive and extensive margin focusing on the german pension system which is purely earnings related we increase the degree of progressivity and compute the optimal mix between flat and earnings related pensions we find that a flat rate pension share of roughly 30 maximizes aggregate economic efficiency since improved insurance provision dominates higher labor supply distortions disability risk significantly increases the optimal progressivity level while endogenous retirement has important macroeconomic implications since our results are robust for a wide range of parameter specifications they indicate that at least in germany a move towards more redistribution within the pension system is efficient

differential mortality and the progressivity of social security abstract there is a well established negative correlation between earnings and mortality risk using a calibrated general equilibrium macroeconomic model this paper examines how this correlation interacts with the welfare implications of social security s benefit earnings rule my primary findings suggest that the welfare ranking of alternative benefit earnings rules is somewhat sensitive to differential mortality due to their relatively high mortality risk households with unfavorable earnings histories heavily discount the expected utility from old age consumption and therefore do not put much weight on better work retirement consumption smoothing because of this reason social security s benefit earnings rule warrants less redistribution in the presence of differential mortality compared to when mortality risk is uncorrelated to earnings i find that this result continues to hold when household level labor supply distortions are ignored and also when an alternative maximin welfare criterion is considered but not when accidental bequests from the deceased are redistributed to the survivors

sources of lifetime inequality is lifetime inequality mainly due to differences across people established early in life or to differences in luck experienced over the working lifetime we answer this question within a model that features idiosyncratic shocks to human capital estimated directly from data as well as heterogeneity in ability to learn initial human capital and initial wealth we find that as of age 23 differences in initial conditions account for more of the variation in lifetime earnings lifetime wealth and lifetime utility than do differences in shocks received over the working lifetime jel d31 d91 j24 j31 to what degree is lifetime inequality due to differences across people established early in life as opposed to differences in luck experienced over the working lifetime among the individual differences established early in life which ones are the most important a convincing answer to these questions is of fundamental importance first and most simply an answer serves to contrast the potential importance of the myriad policies directed at modifying or at providing insurance for initial conditions e g public education against those directed at shocks over the working lifetime e g unemployment insurance second a discussion of lifetime inequality cannot go too far before discussing which specific type of initial condition is the most critical for determining how one fares in life third a useful framework for answering these questions should also be central in the analysis of a wide range of policies considered in macroeconomics public finance and labor economics we view lifetime inequality through the lens of a risky human capital model agents differ in terms of three initial conditions initial human capital learning ability and financial wealth initial human capital can be viewed as controlling the intercept of an agent s mean earnings profile whereas learning ability acts to rotate

the life cycle and the business cycle of wage risk cross country comparisons abstract we provide evidence on life cycle and business cycle fluctuations in the dispersion of household level wage innovations comparing the us the uk and germany first we find that household characteristics explain about 25 of the dispersion in wages within an age group in all three countries second the cross sectional variance of wages is almost linearly increasing in household age in all three countries but with increments being smaller in the european data third wage risk is procyclical in germany while it is countercyclical in the us and acyclical in the uk

job search and unemployment insurance new evidence from time use data article i nfo this paper provides new evidence on job search intensity of the unemployed in the u s modeling job search intensity as time allocated to job search activities the major findings are 1 the average u s unemployed worker devotes about 41 min to job search on weekdays which is substantially more than their european counterparts 2 workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker 3 across the 50 states and d c job search is inversely related to the generosity of unemployment benefits with an elasticity between 1 6 and 2 2 4 job search intensity for those eligible for unemployment insurance ui increases prior to benefit exhaustion and 5 time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for ui

mitigating america s demographic dilemma by pre funding social security abstract financing social security benefits at current levels implies significant increases in payroll taxes within the next 20 years under current us demographic developments using a general equilibrium overlapping generations model with realistic patterns of fertility and lifespan extension this study shows that future generations would be harmed during the demographic transition due to rising payroll taxes which crowd out savings and slow real wage growth below the rate of technological progress a faster rate of technological progress would mitigate only some of the payroll tax increase and its economic consequences but could not overcome them addressing the financing problem by reducing social security benefits as needed or by raising the eligibility age for benefits imposes major welfare losses on current or near term retirees by contrast a pre funding of social security financed with consumption taxes more evenly spreads the welfare losses across generations and it helps future generations especially the poor by stimulating capital formation

the institutional and political factors which influence taxation the ability of politicians to concentrate the benefits of spending while dispersing the costs of taxation makes taxation attractive distributive politics but the degree to which it is attractive varies widely among the states the objective of the research was to develop a fully specified model of per capita tax revenues of state governments not state plus local and thereby identify the political and institutional factors which cause the attractiveness of taxation to vary the resulting model includes 17 significant explanatory variables which together account for all but 10 of the variation in per capita tax revenue thirteen of the significant variables are institutional or political factors thus providing decisionmakers specific options for influencing the future size of government

the family as an incomplete annuities market families can self insure against uncertain dates of death through implicit or explicit agreements with respect to consumption and interfamily transfers interfamily transfers need have nothing to do with altruistic feelings they may simply reflect risk sharing behavior of completely selfish family members although family annuity markets are incomplete even small families can substitute by more than 70 percent for perfect market annuities given adverse selection and transaction costs family risk pooling may be preferred to public market annuities in the absence of public annuities these risk sharing arrangements provide powerful incentives for marriage and family formation

the relationship between on budget and off budget government abstract this paper studies the hypothesis that controls on on budget government spending leads to greater off budget activity existence of a substitution effect suggests that our ability to control and measure the size of government is more difficult than previously thought

technological change occupational tasks and declining immigrant outcomes implications for earnings and income inequality in canada the earnings and occupational task requirements of immigrants to canada are analyzed the growing education levels of immigrants in the 1990s have not led to a large improvement in earnings as one might expect if growing computerization and the resulting technological change was leading to a rising return to non routine cognitive skills and a greater wage return to university education controlling for education we find a pronounced cross arrival cohort decline in earnings that coincided with cross cohort declines in cognitive occupational task requirements and cross cohort increases in manual occupational task requirements the immigrant earnings outcomes had only a small effect on overall canadian earnings inequality resume changement technique t ches occupationnelles et resultats declinants pour les immigrants implications pour l inegalite des gains et des revenus au canada les auteurs analysent les gains et les prerequis des t ches occupationnelles des immigrants les niveaux d education croissants des immigrants dans les annees 1990 n ont pas entraine une grande amelioration dans les gains comme on aurait pu s y attendre si l informatisation accrue et les changements techniques qui s ensuivent ont entraine un rendement croissant sur des habiletes cognitives non routinieres et un rendement salarial plus grand sur l education universitaire normalisant pour le niveau d education on decouvre un declin entre cohortes dans les gains qui coincide avec un declin dans ce que reclament les t ches en termes d habiletes cognitives et un accroissement de ce que reclament les occupations manuelles l effet de ces changements sur les gains des immigrants n a eu qu un faible impact sur l inegalite des gains au canada

two views of inequality over the life cycle data on the life cycle profiles of inequality in wages earnings hours worked and consumption contain precious information for answering questions about the ability of households to insure labor market risk and about the sources of this risk this paper demonstrates that the choice of whether to control for cohort effects or for time effects has a drastic impact on the estimated age profiles for inequality and thus on the answers to those questions it also shows that time effects are required to account of the observed trends in inequality in 30 years of u s data whereas there is no evidence that cohort effects have been important jel c13 d31 d91 j22 j31

taxes and marriage a two sided search analysis this article analyzes the effects of differential tax treatment of married and single individuals in the united states on marriage formation and composition divorce and labor supply we develop a marriage market model with search frictions and heterogeneous agents that is sufficiently rich to capture key elements of the problem under consideration we then calibrate the model and use it to evaluate the quantitative effects of several tax reforms aimed at making the tax law neutral with respect to marital status we find that these reforms i systematically increase the labor supply of married females with changes ranging from 0 3 to 10 1 percent ii have substantial effects on the correlation of spouses incomes which changes from 0 2 to values between 0 185 and 0 334 iii can lead to either an increase or decrease in the fraction of people married with changes that range from 0 6 to 2 4 percent

the political process and the use of debt financing by state governments empirical evidence offered in this study suggests that decisions by state government officials to effect debt financed spending depend in part on the state s gubernatorial election cycle more specifically the results reveal relative increases in state debt issues in anticipation of elections and furthermore they reveal that such increases are more significant for states characterized by high interparty political competition while theoretical limitations preclude a definitive explanation for these results the evidence is consistent with a view of state political markets where incumbent parties manipulate public policy so as to enhance the probability of success in pending elections this insight is significant in that it suggests a relationship between public policy decisions and election cycles in a context heretofore unexplored

does unemployment insurance crowd out spousal labor supply previous research on unemployment insurance ui has emphasized the program s effect on individual search behavior this state contingent income may also reduce the labor supply of family members during the unemployment spell we investigate this question within the context of wives labor supply responses to their husbands unemployment spells we find strong crowdout of this form of family self insurance our estimates imply that for each dollar of ui receipt wives earn up to 73 cents less the reduction in spousal hours of work is over 40 as large as previous estimates of the effect of ui on search time of husbands

an introduction to the economics of immigration in oecd countries the share of the foreign born in oecd countries is increasing and this article summarizes economics research on the effects of immigration in those nations four broad topics are addressed labor market issues fiscal questions the political economy of immigration and productivity international trade extreme concerns about deleterious labour market and fiscal impacts following from new immigrants are not found to be warranted however it is also clear that government policies and practices regarding the selection and integration of new migrants affect labour market fiscal and social cultural outcomes policies that are well informed well crafted and well executed beneficially improve population welfare

off budget activities of local government comment bennett and dilorenzo have provided evidence that limitations on taxes and spending induce a proliferation of special purpose local government they conclude that the effects on spending were less than originally supposed whatever the effects on total spending a very important effect on the limitations is an induced change in the fiscal constitution of local government using a public choice approach this institutional change was found to have certain desirable features

taxing capital along the transition not a bad idea after all this paper quantitatively characterizes optimal tax systems in a model of overlapping generations when transitional cohorts are explicitly taken into account we use the recent study of conesa et al 2009 as an example but extend it by transitional dynamics we furthermore develop a general and coherent way of aggregating welfare effects of different individuals and cohorts in the short and long run our welfare measure includes the case of a utilitarian social welfare function yet is not limited to this perspective we show that the optimality of a high capital income tax rate along the transition crucially depends on the assumption of a utilitarian social welfare function this objective of the policy maker comprises implicit redistributive objectives across and within cohorts based on pure economic efficiency and insurance effects however we find a zero capital income tax rate and a less progressive labor income tax schedule to be optimal such a tax system receives political support from initial cohorts a high capital income tax regime on the other hand doesn t

the performance of immigrants in the canadian labor market in this article we examine the economic assimilation of immigrants to canada we provide new evidence on immigrants who arrived in the 1970s and document an increase in the dispersion of labor market outcomes across immigrants of different vintages over time our results confirm u s evidence of permanent differences across immigrant cohorts what distinguishes the canadian experience is small or negative rates of assimilation for most cohorts over the sample period finally we test the overidentification of the assimilation process specified in previous studies and fail to reject the usual cohort fixed effect specification

international business cycles financial markets and household production abstract this paper investigates the properties of an international real business cycle model with household production we show that a model with disturbances to both market and household technologies reproduces the main regularities of the data and improves existing models in matching international consumption investment and output correlations without irrealistic assumptions on the structure of international financial markets sensitivity analysis shows the robustness of the results to alternative specifications of the stochastic processes for the disturbances and to variations of unmeasured parameters within a reasonable range

social security and individual welfare precautionary saving borrowing constraints and the payroll tax this paper examines the impact of social security on national saving and individual welfare in the presence of realistic capital market imperfections market failure in the private provision of annuities and restrictions on borrowing against anticipated future wages the introduction of social security increases lifetime welfare and reduces national saving if borrowing restrictions are absent however the increase in individual welfare is reduced and in some cases eliminated when borrowing constraints are taken into consideration the substantial difference suggests the importance of reexamining the proportional payroll tax finance of social security copyright 1987 by american economic association

engines of liberation electricity was born at the dawn of the last century households were inundated with a flood of new consumer durables what was the impact of this consumer durable goods revolution it is argued here that the consumer goods revolution was conducive to liberating women from the home to analyse this hypothesis a beckerian model of household production is developed households must decide whether or not to adopt the new technologies and whether a married woman should work can such a model help to explain the rise in married female labour force participation that occurred in the last century yes the housewife of the future will be neither a slave to servants nor herself a drudge she will give less attention to the home because the home will need less she will be rather a domestic engineer than a domestic labourer with the greatest of all handmaidens electricity at her service this and other mechanical forces will so revolutionize the woman s world that a large portion of the aggregate of woman s energy will be conserved for use in broader more constructive fields thomas alva edison as interviewed in good housekeeping magazine lv no 4 october 1912 p 436

homework in development economics household production and the wealth of nations we introduce home production into the neoclassical growth model and examine its consequences for development economics in particular we study the extent to which one can account for international income differences with differences in policies that distort capital accumulation in models with home production such policies not only reduce capital accumulation but also change the mix of market and nonmarket activity hence these models can generate larger differences in output than standard models for a given policy differential we also show how the welfare implications change when we incorporate home production

more on marriage fertility and the distribution of income according to pareto 1896 the distribution of income depends on the nature of the people comprising a society on the organization of the latter and also in part on chance in the model developed here the nature of the people is captured by attitudes toward marriage divorce fertility and children singles search for mates in a marriage market married agents bargain about work and the quantity and quality of children they can divorce social policies such as child support requirements reflect the organization of the society finally chance is modeled by randomness in income marriage opportunities and marital bliss

immigrants and human capital investment why do immigrants invest more in human capital than the native born and how do investment patterns vary by type of immigrant summarizing our previous research we approach this question theoretically and empirically excerpt

how important is intra household risk sharing for savings and labor supply abstract while it is recognized that the family is a risk sharing institution little is known about the quantitative effects of this source of insurance on savings and labor supply in this paper we present a model where workers females and males are subject to idiosyncratic employment risk and where capital markets are incomplete a household is formed by a female and a male who decide on consumption savings and labor supplies in a calibrated version of our model we find that intra household risk sharing has its largest impact among wealth poor households while the wealth rich use mainly savings to smooth consumption across unemployment spells wealth poor households rely on spousal labor supply for instance for low wealth households average hours worked by wives of unemployed husbands are 8 higher than those worked by wives of employed husbands this response in wives hours makes up 9 of lost family income we also study consumption losses upon an unemployment spell precautionary savings and the crowding out effects of the public unemployment insurance program on the extent of risk sharing within the household

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

population aging social security and fiscal limits abstract we use an overlapping generations olg life cycle model with distortionary taxation on labor and capital to derive a threshold dependency ratio i e a point in the cross section distribution of the population beyond which tax revenues can no longer sustain the planned level of transfers to retirees we quantify the level of the threshold the distance of the economy from the threshold and the probability of reaching the threshold at some point in the future the model is calibrated on the united states and fourteen european countries which have dependency ratios among the highest in the world we examine the effects on the threshold and welfare of a number of policies often advocated to improve the sustainability of pension systems new tax data on dynamic laffer effects are provided

the impact of host country schooling on earnings a study of male immigrants in the united states immigrants in the united states who acquire u s schooling earn higher wages than other immigrants using data from the u s censuses and the national longitudinal survey of youth we show that this wage advantage results from both greater educational attainment and higher returns to education the higher returns are not the consequence of ability bias or greater english proficiency of those who acquire u s schooling returns to years of non u s education are higher for immigrants who complete their schooling in the united states consistent with the view that u s schooling upgrades or certifies education received in the source country for those without u s schooling returns are higher for immigrants from highly developed countries and countries for which english is an official language

why does consumption fall at retirement evidence from germany abstract analyzing the consumption behavior over retirement in germany this paper finds a negative correlation between income replacement and the increase in home production related activities this might reconcile the observed drop in consumption at retirement with the predictions of the standard life cycle model however since individuals with fairly stable income over retirement also increase home production this increase cannot be entirely attributed to a substitution effect

assimilation changes in cohort quality and the earnings of immigrants this paper reexamines the empirical basis for two facts that seem to be found in most cross section studies of immigrant earnings 1 the earnings of immigrants grow rapidly as they assimilate into the united states and 2 this rapid growth leads to many immigrants overtaking the earnings of the natives within 10 15 years after immigration using the 1970 and 1980 u s censuses this paper studies the earnings growth experienced by specific immigrant cohorts during the period 1970 80 it is found that within cohort growth is significantly smaller than the growth predicted by cross section regressions for most immigrant groups this differential is consistent with the hypothesis that there has been a secular decline in the quality of immigrants admitted to the united states

a quantitative analysis of unemployment benefit extensions abstract extensions of unemployment insurance ui benefits have been implemented in response to the great recession this paper measures the effect of these extensions on the unemployment rate using a calibrated structural model featuring job search and consumption saving decisions skill depreciation and ui eligibility the ongoing ui benefit extensions are found to have raised the unemployment rate by 1 4 percentage points which is about 30 of the observed increase since 2007 moreover the contribution of the ui benefit extensions to the elevated unemployment rate increased during 2009 2011 while the number of vacancies recovered the successive extensions kept search intensity down

comparing labor supply elasticities in europe and the united states new results we suggest the first large scale international comparison of labor supply elasticities for 17 european countries and the united states using a harmonized empirical approach we find that own wage elasticities are relatively small and more uniform across countries than previously considered nonetheless such differences do exist and are found not to arise from different tax benefit systems wage hour levels or demographic compositions across countries suggesting genuine differences in work preferences across countries furthermore three other findings are consistent across countries the extensive margin dominates the intensive margin for singles this leads to larger responses in low income groups and income elasticities are extremely small

does social security privatization produce efficiency gains while privatizing social security can improve labor supply incentives it can also reduce risk sharing we analyze a 50 privatization using an overlapping generations model where heterogeneous agents with elastic labor supply face idiosyncratic earnings shocks and longevity uncertainty when wage shocks are insurable privatization produces about 18 100 of extra resources for each future household after all transitional losses have been compensated for with lump sum taxes when wages are not insurable privatization reduces efficiency by about 2 400 per future household we check the robustness of these results to different model specifications as well as policy reforms and arrive at several surprising conclusions first privatization performs better in a closed economy where interest rates decline with capital accumulation than in an open economy second privatization also performs better when an actuarially fair private annuity market does not exist third government matching of private contributions on a progressive basis is not very effective at restoring efficiency and can actually cause harm

consumption smoothing in island economies can public insurance reduce welfare abstract in this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment we show that this type of insurance can improve the wellbeing of private situations but it can also deteriorate it we also describe how different characteristics of the environment affect the role of public insurance using data on the mexican progresa program we document the impact that some government programs have in crowding out private transfers

retirement pensions and ageing we study the effects of demographic shocks and changes in the pension system on the macroeconomic performance of an advanced small open economy facing a given world interest rate we construct an overlapping generations model which includes a realistic description of the mortality process individual agents choose their optimal retirement age taking into account the time and age profiles of wages taxes and the public pension system the early retirement provision in most pension systems acts as a trap inducing most workers to retire well before the normal retirement age simulations show that pension reform must be drastic for it to have any effects on the retirement behaviour of workers

labor supply elasticity and social security reform abstract previous literature on social security reform has used a variety of period utility functions and calibrated values for the intertemporal elasticity of substitution ies in labor in this paper we show that the effects of social security reforms on aggregate labor supply are invariant to plausible values of the ies but the effect of such reforms on the profile of hours over the life cycle is highly sensitive to the ies we first establish these results analytically in a simple partial equilibrium setting and then demonstrate their robustness in a general equilibrium model calibrated to match key u s macroeconomic indicators we find that the aggregate effects are similar regardless of the wide range of the values of ies used in calibrated economies however social security reform leads to a large reallocation of hours worked over the life cycle from early years to later working years and the size of this reallocation significantly increases with the ies

tax policy and human capital formation missing from recent discussions of tax reform is any systematic analysis of the effects of various tax proposals on skill formation this gap in the literature in empirical public finance is due to the absence of any empirically based general equilibrium models with both human capital formation and physical capital formation that are consistent with observations on modern labor markets this paper is a progress report on our ongoing research on formulating and estimating dynamic general equilibrium models with endogenous heterogeneous human capital accumulation our model explains many features of rising wage inequality in the u s economy james heckman lance lochner and christopher taber 1998 in this paper we use our model to study the impacts on skill formation of proposals to switch from progressive taxes to flat income and consumption taxes for the sake of brevity we focus on steady states in this paper although we study both transitions and steady states in our research this abstract was borrowed from another version of this item

economic aspects of optimal disability benefits this paper analyzes optimal disability and retirement or welfare benefits with imperfect disability evaluation with some able workers judged disabled and some disabled workers judged able thus the levels of both disability and retirement benefits affect labor supply with anyone not working eligible for retirement benefits we analyze the optimal structure of benefits for a given disability screening mechanism and briefly consider the problem of optimal evaluations of disability evidence in the united states there is an overlap in eligibility for disability and retirement portions of social security more generally welfare is sometimes available to people denied disability benefits

redistribution of individual pension wealth to survivor pensions evidence from a stated preferences analysis abstract pension schemes in the netherlands allow workers to redistribute their own pension wealth to increase the survivor pension of their partner however due to lacking communication and knowledge of survivor pensions among workers and also due to the lack of transparent products and choice architecture redistribution remains limited this paper uses a stated preferences experiment that is explicitly designed for workers with a partner in the age group of 55 to 65 years to elicit their pension redistribution preferences we find that on average the preferred pension wealth redistribution amounts to 50 35 of all individuals have such a preference 33 of all individuals would prefer less redistribution and 32 percent prefers to redistribute more pension income to the partner upon one s death we further show that total family income during working life does not affect the redistribution to survivor pensions however the distribution of the contribution to total family income before retirement across partners as well as the survival likelihood of the partner and the number of years the partner is expected to survive have a significant causal impact on the preferred pension redistribution decision the preference for redistribution to survivor pensions also depends significantly on personal characteristics preferences and social attitude males have a significantly stronger preference for redistribution compared to females moreover forward looking more risk averse and more altruistic individuals have a stronger preference to redistribute part of their pension wealth to a survivor pension finally in particular when employees have the perception that their partner is more forward looking they are willing to invest more in a survivor pension

aching to retire the rise in the full retirement age and its impact on the social security disability rolls abstract the social security amendments of 1983 reduced the generosity of social security retired worker benefits in the u s by increasing the program s full retirement age from 65 to 67 and increasing the penalty for claiming benefits at the early retirement age of 62 these changes were phased in gradually so that individuals born in or before 1937 were unaffected and those born in 1960 or later were fully affected no corresponding changes were made to the program s disabled worker benefits and thus the relative generosity of social security disability insurance ssdi benefits increased in this paper we investigate the effect of the amendments on ssdi enrollment by exploiting variation across birth cohorts in the policy induced reduction in the present value of retired worker benefits our findings indicate that the amendments significantly increased ssdi enrollment since 1983 with an additional 0 6 of men and 0 9 of women between the ages of 45 and 64 receiving ssdi benefits in 2005 as a result of the changes our results further indicate that these effects will continue to increase during the next two decades as those fully exposed to the reduction in retirement benefit generosity reach their fifties and early sixties

the determinants of off budget activity of state and local governments the primary finding of this paper is that the off budget activity of the public sector is significantly and positively related to on budget activity by state and local governments we suggest the following policy implications one there appears to be evidence that the composition of total government activity is related to the relative costs of the alternative avenues of providing governmental activity future research into determining the nature of the relative cost differences may be one useful means of understanding both the composition of government activity as well as its total size two our ability to measure the true size of public sector participation in the economy must go well beyond our attempt here while we have presented information on one of the important hidden elements of public sector participation we are still a long way from effectively incorporating similar data on legislation regulations and so forth into our empirical tests further research into these issues is clearly warranted

off budget activities of local government the bane of the tax revolt this paper has demonstrated that the tax revolt of the 1970s has not been as successful in reducing the level of state and local government expenditure as preliminary empirical findings indicate and that the rate of increase in state and local public spending is likely to be far greater than previously believed the evidence presented here shows clearly that constitutional and statutory limitations on the taxing and spending powers of local governments have led to a massive amount of off budget spending and borrowing the debt issued by off budget enterprises is larger and growing at a much faster rate than the voter approved debt issued by state and local governments and has been since 1975 thus even though statistics on property taxation and expenditure may indicate a slow down in the growth of local taxation the true cost of local government may continue to increase at previous rates although this is an empirical question which we are not yet able to address off budget enterprises are heavily subsidized by local state and federal governments these subsidies represent a hidden tax liability to present and future generations of taxpayers in addition the debt and expenditures of obes contribute substantially to the crowding out of private spending and investment

families as shocks in this paper we show the quantitative importance of the process that determines changes in family composition to determine the main macroeconomic magnitudes we do so by modelling family type as a stochastic process that affects households in a way similar to shocks to earnings agents respond to these process by optimally choosing savings we show that the size of savings differs dramatically depending on the details of the stochastic process the model is quantitative its fundamental parameters are estimated using u s data

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

consumption and risk sharing over the life cycle a striking feature of u s data on income and consumption is that inequality increases with age this paper asks if individual specific earnings risk can provide a coherent explanation we find that it can we construct an overlapping generations general equilibrium model in which households face uninsurable earnings shocks over the course of their lifetimes earnings inequality is exogenous and is calibrated to match data from the u s panel study on income dynamics consumption inequality is endogenous and matches well data from the u s consumer expenditure survey the total risk households face is decomposed into that realized before entering the labor market and that realized throughout the working years in welfare terms the latter is found to be more important than the former

unemployment market work and household production time diary data from four countries suggest that differences in market time between the unemployed and employed represent additional leisure not increased household production in areas where unemployment is cyclically high however reduced market work is offset by additional home production

the earnings of immigrant men in canada job tenure cohort and macroeconomic conditions using eleven cross sectional surveys spanning 1981 92 the authors compare the earnings of immigrant and native born men in canada apparently recent immigrant cohorts have suffered no decline in earnings job tenure is found to be a strongly significant determinant of earnings previous estimates of immigrant earnings differentials which have not incorporated job tenure information may partly reflect differences in tenure between immigrants and the native born when the sample is restricted to pairs of surveys that are close to the census survey years the estimates of cohort effects are sensitive to the choice of survey years one possible explanation for that sensitivity is suggested by the finding that macroeconomic conditions are a statistically significant determinant of the rate of assimilation of recent immigrants

the politics and economics of the new city debt his paper contrasts nonguaranteed city debt with taxation and general obligation debt drawing upon bureau of the census advisory commission on intergovernmental relations acir and municipal year book data the analysis shows that both per capita tax revenue and outstanding general obligation debt are best explained by background factors such as total population functional scope and region while fiscal strain plays a secondary role political structures in the shape of legal constraints on taxation and debt and of form of government do not account for patterns of these traditional revenue sources by contrast nonguaranteed debt is best explained by a model in which fiscal strain has a paramount role but with both legal constraints on taxing and regional differentiation contributing significantly to the explanation at least for data collected prior to 1978 the findings suggest a two tiered model of the revenue side of fiscal decision making with historical accommodations to powerful economic and demographic factors dominating taxing and general obligation debt while nonguaranteed debt serves as a flexible instrument of shorter term strategy

risk sharing and efficiency implications of progressive pension arrangements the present paper aims to quantify the welfare effects of progressive pension arrangements in germany starting from a purely contribution related benefit system we introduce basic allowances for contributions and a flat benefit fraction since our overlapping generations model takes into account variable labor supply borrowing constraints as well as stochastic income risk we can compare the labor supply the liquidity and the insurance effects of the policy reform our simulations indicate that for a realistic parameter combination an increase in pension progressivity would yield an aggregate efficiency gain of more than 2 percent of resources however such a reform would not be implemented because it would not find political support of the currently living generations

social security and two earner households in the past decades elimination of the pay as you go system in u s has been extensively discussed and studied such an elimination would also eliminate the intra cohort redistribution done by the following policies of social security due to spousal and survivor s beneflt provisions the system redistributes mostly to single earner married households not necessarily progressive retirement beneflts are a concave function of past mean earnings hence the system redistributes from high earners to low earners finally the existence of a cap on social security taxable earnings makes the system regressive this is the flrst paper that quantifles redistributive labor supply and welfare implications of these policies using a general equilibrium life cycle model agents start out as permanently married or single and with education levels and wage proflles where the latter depend both on education and gender the household is the decision maker and decides on the labor supply of its member s and saving the aggregate production function has as inputs capital and labor aggregated by e ciency elimination of these policies results in a 6 1 increase in married female labor force participation rate the middle income single earner married households experience the largest welfare losses whereas the high income two earner households together with high income single households experience the largest welfare gains

does unemployment insurance crowd out home production abstract in this paper we study the interaction between self insurance and public insurance in particular we provide evidence on a negative correlation between unemployment insurance benefits and home production using the american time use survey atus and the state level unemployment insurance data of the u s the empirical results suggest that moving to a two times more generous state would decrease time spent on home production about 22 for the unemployed then we pursue a quantitative assessment of this empirical finding using a dynamic competitive equilibrium model in which households do home production as well as market production the model is able to generate the empirical facts regarding the unemployment benefits and home production the fact that unemployment insurance benefits crowd out home production is interpreted as a substitution between the two insurance mechanisms against loss of earnings during unemployment spells

female labor supply as insurance against idiosyncratic risk in this paper we explore the role of female labor supply as an insurance mechanism against idiosyncratic earnings risk within the family we use a life cycle model in which a unitary family makes consumption saving and labor supply decisions additional uncertainty increases female participation rates this effect on participation is greatest when the ability to borrow and hence to smooth consumption is limited we calculate the welfare cost of increases in uncertainty and show that the welfare cost is greater when households are unable to adjust female labor supply jel j22 d91

the influence of special district government on public spending and debt growth in special district governments is examined as a reason behind public sector expansion in the united states a theoretical model is developed of the optimal mix of government suppliers which predicts how special district governments affect the overall provision of government policies the hypothesis that expansion of special district governments leads to expansion of the public sector is expirically examined over two time periods

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction