Labour Costs and the Size of Government

Given inelastic demand for labour‐intensive public services, the size of government depends positively on labour costs. OECD data exhibit a strong statistical association between government size and the business‐sector labour share of income. When the labour share is instrumented with measures of technological change, institutional variation and predetermined data it continues to positively impact government size. In contrast, transfer spending is unaffected by the labour share. The evidence is consistent with the idea that the recent decline in the labour share has contributed to the slowdown in the growth of government witnessed in much of the post‐war era.     

Public and private sector jobs,unreported income and consumption gap in India: Evidence from micro-data

This paper documents the wage and consumption gap between private and public sector employees in India. We empirically investigate the wage gap as well as difference in consumption expenditure using household survey from the 2004-05 National Sample Survey of India. Our results show that despite a lower level of public sector income in some of the income quantiles, the consumption of durable goods is not different between these two groups, statistically. After checking for competing explanations, we conclude that the absence of statistically significant consumption gap could be an outcome of ‘unreported’ income earned by public sector workers in India.     

Do Unions Affect Labor's Share of Income: Evidence Using Panel Data

There have been a number of studies analyzing the impact of unions on labor's share of income. Most have relied on either time series or cross‐section data. The purpose of this paper is to determine the impact of unions on labor's share of income in the U.S. This study adds to the understanding of this topic by developing an analytical model of imperfect competition and estimating the model using panel data for the manufacturing sector. This study finds that unions have a positive impact on labor's share of income. Specifically, this paper finds that labor's share declined 17.9 percent between 1997 and 2006 whereas, if unionization density had remained at its 1997 level, labor's share would have declined only 13.9 percent. Thus, the decline in unionization explains about 29 percent of the decline in labor's share of income. This paper is important for three reasons. First, this paper sheds light on whether social and institutional forces play an important role in determining the distribution of income between labor and capital. Second, it helps to explain recent increases in wage inequality. Third, it has implications for understanding the potential impact of legislation, such as the Employee Free Choice Act, that would make it easier for workers in the U.S. to unionize.     

The Changing Structure of the UK Economy: Implications for the Current Account

In common with other developed countries, the UK has seen the relative importance of the service sector grow, accounting for an ever greater share of employment and output — a trend that has accelerated over recent decades. At the same time, globalisation means that international trade is of increasing importance as a share of UK expenditure. With the traded goods sector dwindling in importance, what are the implications for the current account? This paper examines the changing structure of the UK economy and prospects for the current account. Although the current account is expected to remain in deficit for the foreseeable future, the size of the deficit is likely to remain manageable as growing surpluses from trade in services and investment income offset a widening goods deficit.     

Capitalization,population movement,and the local public sector: a probabilistic analysis

Using data collected from household interviews in a 1965 San Francisco Bay Area Transportation Study, a probabilistic model is developed to explain the relationship between population movement and the capitalization of changes in the public sector in the price of housing. This model is constructed to compare 2 competing explanations for the flight of higher income households to the suburbs: 1) the accessibility model and 2) the flight from blight model. The accessibility model explains the decay of cities as a natural outgrowth of decreasing transportation costs, whereas the flight from blight model suggests that the wealthy leave the central city for the suburbs because of urban decay. An analysis of the San Francisco data demonstrates that high income households are more sensitive than the rest of the population to changes in the median income of the neighborhood and in expenditures and general government and education, but less sensitive to changes in property tax rate and expenditures on public safety, parks, and recreation. It is unlikely that undesirable changes in the public sector will result in a mass exodus of higher income households; capitalization in the price of housing appears sufficient to prevent this. The 2 models combined help explain the flight from the central cities, while the combined variables increase the logit estimation's prediction of bids for housing.     

Spatial differentiation,divisible consumption and the pro-competitive effect of income

We analyze a spatial differentiation model with divisible consumption under one-stop shopping. Each consumer who visits only one store, chooses the quantities of the goods which maximize his/her utility function under the budget constraint (namely consumption expenditures must equal income minus transportation costs), choosing the store which provides him/her with the largest indirect utility. We derive the equilibrium price when the firms are located at the two extremities of Hotelling’s linear city and show that income increases have a pro-competitive effect.     

Do services hold the key to an improved UK trade performance?

The UK has established a central role in the global market for trade in services, ranking second to the US in terms of its share of global exports. Our modelling finds that the key factor behind the UK's success is that its exports are focused on the markets where demand has been growing quickest. This represents a notable contrast with research on UK goods exports, which has found that the geographical focus of goods exports has been the main reason for the UK's persistent underperformance. The global financial crisis caused significant damage to the UK's export performance, particularly to the key financial sector which accounts for a quarter of UK services exports and almost two‐fifths of the UK's surplus on services trade. However, the UK's export performance is on the mend and we expect it to retain its position as a key global player in the market for services over the coming five years.     

The Revenue Adequacy of Site Value Taxation in a Ricardian System of Economic Growth

A bstract . The federal administration has sought to reduce the growth of federal expenditures by shifting some government costs to state and local governments. An increased expenditure burden for the latter governments would require increased tax rates for existing types of taxes that have adverse impacts on economic incentives. Land taxes are considered as a source of revenue because of their efficiency aspects. Unfortunately this idea is all too often dismissed because of alleged revenue inadequacy. Thus an analysis is called for of the revenue adequacy of site value taxation in a Ricardian model of economic growth. The model allows analysis of revenue adequacy over time in an economic growth context that is suited for the long range tax-expenditure planning horizon with which local governments are faced. When revenue needs are primarily dependent upon the population size, and the fisc is initially operating at a deficit, for a land tax to permit attainment of balance, per capita rents must be increasing over time. Also when the economy's public service demand is primarily dependent upon income, deficits will not occur if rental share exceeds the share of income devoted to public output. Not all income goes to fiscal output, so rent eventually exceeds expenditures.     

The system of towns with spatial public goods

In this paper, we introduce a model of ‘spatial public goods’, whose provision costs depend on the size of the benefit area. It is assumed that there are many developers providing spatial public goods in their towns. Each developer chooses the area size of his/her town and the quality of its spatial public good so as to maximize profit, taking the market price system as given. Each consumer chooses the level of the public good, and hence the town that supplies it, so as to maximize his/her utility. We show that the competitive equilibrium allocation of this economy is efficient.     

Racial Fractionalization and School Performance

The literature on racial “peer effects” suggests that diversity improves at least some students' school performance. However, a literature in economic development posits that diversity may negatively affect school performance by undermining the efficient provision of education. This article empirically tests this claim, which we call the “public goods channel,” by examining the relationship between racial diversity and student performance in Ohio's school districts. We find that moving from a completely homogenous school district to one in which two racial groups have equal population shares is associated with a 7–17.5 percentage point decline in the passage rate on the state math exam, holding per pupil spending across districts constant. These results suggest that racial diversity is negatively associated with school performance but that the public goods channel is not responsible for this relationship.     

Brochure fundraising

A fundraising brochure is regarded by many charities as a major source of income. This is associated usually with the charity's major fundraising event in its annual calendar. What many charities do not do is plan their brochure campaign to eliminate wasted effort and costs while maximising revenue received. This paper examines brochure fundraising techniques, drawing on personal and anecdotal experiences of fundraisers working in the nonprofit and voluntary sector.     

A quantitative analysis of China's structural transformation

The structural transformation of China - or the reallocation of resources from the agricultural sector to the nonagricultural sector - between 1978 and 2003 was truly remarkable. We develop a two-sector neoclassical growth model to quantitatively assess the driving forces of China's recent structural transformation. In addition to the forces currently emphasized in the literature-sectoral productivity growth—we show that China's transformation was accelerated significantly by the gradual reduction in the relative size of the Chinese government. We find that the reduction in the size of the Chinese government accounted - by itself - for 15% of the reduction in the agricultural share of employment. Two mechanisms explain this: (i) in our model the lower tax rate associated with reduced intervention encouraged the accumulation of physical capital, which is produced in the nonagricultural sector; (ii) lower inefficiencies induced incomes to rise and, given our preferences, resulted in a disproportionate increase in the demand for the nonagricultural good.     

Do Managers Trade on Public or Private Information? Evidence from Fundamental Valuations

Using accounting-based (residual income) valuations, this study examines the extent to which abnormal returns after insider share trades are explained by private information versus mispricing of public information. For a sample of insider trades in the Netherlands (1999–2008), I find that managers' share purchase decisions are associated with positive future abnormal returns as well as equity undervaluation. Even though undervaluation results in predictable price increases, positive abnormal returns following purchases persist after controlling for fundamental valuations. Thus, this study provides evidence on the sources of managers' personal trading gains and suggests that positive abnormal returns after insider share purchases reflect both private information and managers' responses to market mispricing of public information.     

How Does Childbirth Alter Intrahousehold Resource Allocation? Evidence from Japan*

Exploiting unique panel data that include direct measurements of resource allocation within households, we investigated the impact of childbirth on intrahousehold allocation for married Japanese couples. Based on a collective model of the household, we developed reduced‐form and structural‐form estimation equations that allow us to focus on private goods to track the changes in intrahousehold resource allocation. We found one additional child is associated with a reduction in the wife's private expenditure share by at least two percentage points. This may be because she substitutes more say in decisions on the children for her own private expenditure share.     

Agricultural Trade Liberalization in a Computable General Equilibrium Framework for the Philippines

A bi-regional and multi-market computable general equilibrium model that focuses on the agricultural sector of the Philippines' economy in 1987 is constructed. This paper presents the basic structure of the model and carries out some cost-benefit analyses to assess the impact of alternative trade reform policies on the economy. It is found that various liberalization policies can produce large benefits, but any single policy implemented separately may incur intolerable costs. However, a combination of trade liberalization and currency devaluation, coupled with target income support and income tax reform, can achieve balanced results that are beneficial to the economy without worsening income distribution and food consumption of the poor.     

Valuing intangible assets with a nested logit market share model

This paper develops an econometric method for valuing intangible assets using nested logit market share assumptions. Specifically, a method is developed to measure the value to a license holder of owning a branded consumer product. While it is well known that brands confer values to their owners, existing methods for establishing a brand's value via comparable, profit, or income methods are often fraught with imprecision or are frequently based on untested assumptions. An economic approach to brand valuation is developed in which the demand for branded goods is estimated and compared to the demand for comparable unbranded goods including both private label and generic commodities. The economic analysis relies on oligopoly pricing models and certain assumptions regarding the opportunity use of the brand holder's fixed investment. This paper extends the multinomial logit structure of preferences assumed in Dubin [1998a. The Demand for Branded and Unbranded Products—An Econometric Method for Valuing Intangible Assets. Studies in Consumer Demand—Econometric Methods Applied to Market Data. Kluwer Academic Publishers, Massachusetts, Boston, pp. 77–127] and derives trademark valuation fractions with a nested logit market share model. The market share demand model in Dubin [1998a. The Demand for Branded and Unbranded Products—An Econometric method for Valuing Intangible Assets. Studies in Consumer Demand—Econometric Methods Applied to Market Data. Kluwer Academic Publishers, Massachusetts, Boston, pp. 77–127] is re-estimated under nested logit assumptions and results for the trademark fraction are compared.     

Government Budgets and Public Services: Some Criteria for Determining the Sources and Levels of Public Goods, including Transport Services

Instances of non-optimal consumption of public goods and services can easily arise if individual demand curves are not identical. It does not follow, however, that the best solution to the problem of too little consumption is an increase in government expenditure. Special user charges and voluntary contributions of time, goods, and money on the part of persons that value public goods more highly than the general population have long been important ways of supplementing government spending for social goods. The work trip appears to be a good example of a service area where existing cost structures and pricing methods may be biased against the voluntary associations which are needed to make the United States less dependent on foreign oil. This bias could be corrected by using an income-tax-surcharge to help finance the fixed costs associated with mass transit and other types of work trip pooling arrangements.     

PRIVATIZATION OF PUBLIC SECTOR ENTERPRISES IN PAKISTAN: PROSPECTS FOR REDUCING REGIONAL IMBALANCES*

This paper tests the somewhat counterintuitive hypothesis that public firms are more efficient than their private sector counterparts. A factor analysis (9 industrial groups/34 industries) indicated that for all Pakistani provinces, public enterprises contributed relatively more value added which supports the findings of Naqvi and Kamal. The paper also concludes that a policy to reduce Pakistan's regional income disparities by privatizing public enterprises would likely be ineffective.     

Productivity insurance: The role of unemployment benefits in a multi-sector model

We construct a multi-sector search and matching model where the unemployed receives idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits – productivity insurance while unemployed. For plausible parameterizations unemployment benefits increase per-worker productivity. In addition, the welfare-maximizing benefit level decreases as moving costs increase.