Improving the Equity-Efficiency Trade-Off: Mandatory Savings Accounts for Social Insurance

In the modern welfare state a substantial part of an individual's tax bill is transferred back to the same individual taxpayer in the form of social transfers. This provides a rationale for financing part of social insurance through mandatory savings accounts. We analyze the behavioral and welfare effects of compulsory savings accounts in an intertemporal model with uncertainty, involuntary unemployment, endogenous retirement decisions, credit constraints, and heterogeneous agents. We show that the introduction of (early) retirement and unemployment accounts generates a Pareto improvement by enabling the government to provide lifetime income insurance and liquidity insurance in a more efficient manner.     

Flexible pension take-up in social security

This paper studies the redistribution and welfare effects of increasing the flexibility of individual pension take-up. We use an overlapping-generations model with Beveridgean pay-as-you-go pensions and heterogeneous individuals who differ in ability and lifespan. We find that introducing flexible pension take-up can induce a Pareto improvement when the initial pension scheme contains within-cohort redistribution and induces early retirement. Such a Pareto improving reform entails the application of uniform actuarial adjustment of pension entitlements based on average lifespan. Introducing actuarial non-neutrality that stimulates later retirement further improves such a flexibility reform.     

基于行业差异的企业年金最优个人缴费率研究

借助于两期叠代模型,构建个人效用函数以及政府社会福利函数,测算满足个人生命周期效用最大化和社会福利最大化的最优企业年金个人缴费率.研究表明:全社会最优的年金个人缴费率为6.40％,当前费率水平还有较大提升空间;按各行业最优缴费率征缴年金费用,可以提高年金制度的养老保障程度;把过剩的年金缴费能力转移给个人账户,可以实现帕累托优化效果;给予年金个人缴费5％的税收优惠,可以鼓励和加快年金制度发展.     

Borrowing to Finance Public Investment? The ‘Golden Rule of Public Finance’ Reconsidered in an Endogenous Growth Setting*

In this paper, we look for long‐run and short‐run effects of fiscal deficits on economic growth and welfare in a standard endogenous growth model. We show that, under very general hypotheses, the ‘golden rule of public finance’, which allows a government to run public‐investment‐oriented fiscal deficits, leads to a lower balanced‐growth path in the long run, and eventually in the short run, compared with balanced‐budget rules. Welfare effects are more difficult to assess, and depend on the form of the utility function. Our model shows that debt rules such as the golden rule may improve (if the consumption elasticity of substitution is ‘low’) or weaken (if the consumption elasticity of substitution is ‘high’) intertemporal welfare. Consequently, a balanced‐budget rule does not necessarily dominate debt rules from the point of view of welfare, while it does from the point of view of long‐run economic growth.     

Fiscal policy reforms and dynamic Laffer effects

This paper looks at the conditions under which a dynamic Laffer effect occurs. Using a basic model, we explain and reconcile selected findings in the literature. We numerically show that a lower tax rate on capital income is the best candidate for obtaining a dynamic Laffer effect—here defined as an improvement in the long-run budget balance of the government. Moreover, ignoring the stock of initial debt and changes in labor supply lead to an overestimation and underestimation of the effect, respectively. Finally, we show that when lower taxes on factor income are financed by higher taxes on consumption, there exists a wide array of combinations for which there is an improvement in both the long-run government budget balance and lifetime welfare. These combinations, however, differ in their implications for labor supply and immediate welfare effects.     

Optimal Financial Crises

Empirical evidence suggests that banking panics are related to the business cycle and are not simply the result of "sunspots." Panics occur when depositors perceive that the returns on bank assets are going to be unusually low. We develop a simple model of this. In this setting, bank runs can be first-best efficient: they allow efficient risk sharing between early and late withdrawing depositors and they allow banks to hold efficient portfolios. However, if costly runs or markets for risky assets are introduced, central bank intervention of the right kind can lead to a Pareto improvement in welfare.     

我国城镇居民收入分配的变动趋势:基于社会福利比较的视角

经济学研究的出发点是社会福利的最大化.通过不断放松社会福利函数的约束条件,依次应用洛伦茨优势比较、广义洛伦茨优势比较、均值一方差优势比较和社会福利指数比较等社会福利比较准则,对1985～2004年期间我国城镇居民收入分配变动状况进行比较和排列,研究结果表明:除在1987～1989年期间城镇居民收入分配状况存在轻微社会福利恶化外,居民收入分配的社会福利水平一直呈逐年上升趋势,且在大多数年份中社会福利存在帕累托改善,社会福利改善的成因是实际收入的增长足以补偿收入不平等的扩大.     

Political budget cycles in new versus established democracies

Like other recent studies, we find a political deficit cycle in a large cross-section of countries, but show that this result is driven by the experience of “new democracies”. The political budget cycle in new democracies accounts for the finding of a budget cycle in larger samples that include these countries and disappears when they are removed from the larger sample. The political deficit cycle in new democracies accounts for findings in both developed and less developed economies, for the stronger cycle in weaker democracies, and for differences in the political cycle across governmental and electoral systems. Our findings may reconcile two contradictory views of pre-electoral manipulation, one that it is a useful instrument to gain voter support and a widespread empirical phenomenon, the other that voters punish rather than reward fiscal manipulation.     

Optimality of the Disclosure of Private Information in a Production-Exchange Economy

This study provides an analysis of the effects on individual welfare of information revelation in a production-exchange economy. It is shown that the total effect of information revelation on an agent's utility level may be decomposed into three elements: a price effect, a shareholding effect, and a production effect. Through this decomposition, it is demonstrated that, although a Pareto improvement need not result from information revelation, there are perspectives from which the release can be considered beneficial.     

Is a Tax Cut on Cultural Goods Consumption Actually Desirable? A Microsimulation Analysis applied to Spain*

Proposals for tax cuts on cultural goods represent an ongoing debate in cultural policy. The main aim of this paper is to shed some light on this debate using microsimulation tools. First, we have estimated an Almost Ideal Demand System for 19 different groups of goods, including cultural goods. Expenditure and price elasticities have been obtained from this model. Using this information, three alternative cuts in the VAT rate on cultural goods have been microsimulated and evaluated in terms of revenue and welfare. These types of fiscal reforms will lead to welfare and efficiency gains that can be described as regressive.     

The effort and risk-taking effects of budget-based contracts

We investigate how the budget levels embedded in budget-based contracts affect individual effort and risk-taking. We show that, from a wealth maximization perspective, a tradeoff exists between motivating effort and encouraging risk-taking. We illustrate an inverted-U relation between budget levels and effort. Budget levels and effort are positively correlated until budgets become very difficult, at which point individuals “give up.” We illustrate an opposing, U-shaped, relation between budget levels and risk-taking. Low budgets provide the flexibility to take greater risks, whereas high budgets induce individuals to “play it safe” to ensure budget attainment. Risky projects provide the greatest probability of reaching very high (stretch) budgets. We conduct a laboratory experiment to empirically test this economic proposition vis-à-vis extant psychology research. Consistent with security-potential/aspiration theory, we find that individuals are willing to sacrifice expected wealth to either meet the budget or increase their potential payoffs. Our results suggest that the effort-risk tradeoff is mitigated at low budget levels, thereby increasing firm welfare, but is exacerbated at high budget levels, reducing firm welfare. Collectively, our results highlight the importance of understanding how managerial accounting practices such as budgets affect the various determinants of performance and not just performance per se. Our results also help reconcile conflicting evidence regarding where budget difficulty levels should be set.     

Some Equity and Efficiency Considerations of International Tax Competition

The paper uses a dynamic 2-country equilibrium model with imperfections in the labour market calibrated for the US and EU economy to investigate dynamic efficiency and equity aspects of international tax competition. We focus on tax policy where governments can only decide on the levels of corporate and labour taxes, given a constant share of government consumption and transfers in GDP and a constant VAT rate. We find that the welfare effect of a tax shift from capital to labour depends heavily on the distortionary nature of labour taxes. In contrast to existing results we find substantial positive international spillover effects of corporate tax reduction in one country, with long term gains outweighing short term losses. Results are very different, however, if one goes beyond the representative agent framework. According to our results, a tax switch is most likely not Pareto improving since net wages tend to decline in both regions even in the long run.     

Private retirement savings and mandatory annuitization

The present paper studies the growth, welfare, and efficiency consequences of tax-favored retirement accounts in a general equilibrium overlapping generations model with idiosyncratic lifespan and labor income uncertainty. We focus on the implicit differential taxation of savings motives and the mandatory annuitization of withdrawals after retirement. The simulations performed for the German economy indicate that the differential taxation of savings motives has only modest efficiency effects but especially low-income households benefit. On the other hand, mandatory annuitization improves overall economic efficiency significantly by about 0.4% of aggregate resources, but future generations are hurt due to intergenerational income effects from reduced accidental bequest.     

On the optimal progressivity of the income tax code

This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions.Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17.2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1.7% higher consumption in each state of the world. An explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates that a majority of the population currently alive (roughly 62%) would experience welfare gains, suggesting that such fundamental income tax reform is not only desirable, but may also be politically feasible.     

Corporate Tax Consolidation and Enhanced Cooperation in the European Union*

We assess the economic impact of introducing consolidation with formula apportionment in the European Union and consider alternative enhanced cooperation agreements. We find that the consolidation is likely to yield a small aggregate welfare gain in Europe. However, not all countries benefit. A coalition of winning countries reduces the welfare gain and may induce a process of adverse selection which destroys the possibility of cooperation. We find that a coalition of similar countries (in terms of the size of their multinational sector) is more feasible in achieving agreement and is actually preferred by those countries over a Europe‐wide reform.     

An optimal rule for patent damages under sequential innovation

We analyze the optimal design of damages for patent infringement when a follow‐on innovator may infringe the patent of an initial innovator. We consider damage rules that are linear combinations of the popular “lost profit” (LP) and “unjust enrichment” (UE) rules, coupled with a lump‐sum transfer between innovators. Such linear rules can sometimes induce the socially optimal levels of sequential innovation and the optimal allocation of industry output. The optimal linear rule achieves the highest welfare among all rules that ensure a balanced budget for the industry, and often secures substantially more welfare than either the LP rule or the UE rule.     

强制保险能否提高保险市场效率分析

本文以社会福利为衡量保险市场效率的标准,分析了实施强制保险是否有助于保险市场效率的提高。文章首先证明了在信息不对称的保险市场中存在着市场失灵现象;然后通过比较实施强制保险前后社会福利的差异,得出结论:实施强制保险有助于社会福利的改善,从而可以提高保险市场效率。     

Stress testing the EU fiscal framework

This study evaluates the efficiency of the cyclically-adjusted budget balance (CABB) as the central gauge in the reinforced European fiscal framework for evaluating fiscal discipline. We do this by means of a simulation experiment. We use an estimated DSGE model to simulate all the macroeconomic data needed to assess the CABB according to the official EC methodology. Additionally, the model contains an expenditure fiscal rule that accounts for non-automatic variation in the budget, which allows us to observe the true discretionary measures of fiscal policy. Our results indicate that the EC methodology frequently fails to identify the true fiscal policy stance and also frequently fails to correctly signal potential violations of the SGP limit on structural deficit. In the latter case triggering corrective fiscal contractions to comply with the SGP results in increased macroeconomic instability. In addition, we show that allowing for a bigger role for stability-oriented discretionary policy and thus relaxing the SGP limit on structural deficit could enhance the stabilization efficiency of fiscal policy without reducing the degree of compliance with the Maastricht Treaty. These conclusions apply to small countries in a monetary union as well as large countries with independent monetary policy.     

The Cost of Nominal Rigidity in NNS Models

We present a model with Calvo wage and price setting, capital formation, and estimated rules for government spending and monetary policy. Our model captures many aspects of U.S. data, including the volatility that has been observed in various efficiency gaps. We estimate the cost of nominal rigidity—welfare under flexible wages and prices minus welfare with nominal rigidities—to be as much as 3% of consumption each period. Since there are interest rate rules that virtually eliminate this cost, our model suggests that—contrary to Lucas's (2003) assertion—there is considerable room for improvement in demand management policy.     

Comparing in‐work benefits and the reward to work for families with children in the US and the UK

The income transfer systems for low‐income families in the US and the UK try both to reduce poverty and to encourage work. In‐work benefits are a key part of both countries' strategies through the earned income tax credit and the working families' tax credit (and predecessors) respectively. But tax credits are only one part of the whole tax and welfare system. In‐work benefits, taxes and welfare benefits combine in both countries to provide good financial incentives for lone parents to do minimum‐wage work, but poorer incentives to increase earnings further. But direct comparisons of budget constraints hide important points of detail. First, not enough is known about what determines take‐up of in‐work benefits. Second, the considerable differences in assessment and payment mechanisms and frequency between EITC and WFTC mean that low‐income families in the US and the UK may respond very differently to apparently similar financial incentives.