Economic growth and stability with public pay-as-you-go pensions and private intra-family old-age insurance

This paper compares the steady-state and dynamic outcomes of two historical alternatives as a means of old-age insurance, namely, voluntary intra-family transfers from young to old members versus pay-as-you-go public pensions, in a general equilibrium overlapping generations model with children as a desirable good. We show that the shift from a private system of old-age support to public pensions increases the gross domestic product (GDP) per worker. Moreover, although in both cases the steady-state stock of capital, under myopic expectations, may be (globally) unstable depending on the size of the inter-generational transfer, we show that the existence of public pensions rather than private intra-family gifts considerably reduces the possibility of cyclical instability.     

Political,Institutional, and Economic Factors Underlying Deficit Volatility

It is well known that fiscal policy can counter‐cyclically smooth out the effect of unexpected shocks and public deficit volatility may reflect the (optimal) policy response to them. However, the welfare losses associated to fiscal instability are also an important challenge for many countries, as it typically implies an inefficient allocation of resources, higher sovereign risk premium and an inadequate provision of public services. In this paper, we empirically analyze the political, institutional, and economic sources of public deficit volatility. Using the system‐generalized method‐of‐moments (GMM) estimator for linear dynamic panel data models and a sample of 125 countries analyzed from 1980 to 2006, we show that higher public deficit volatility is typically associated with higher levels of political instability and less democracy. In addition, public deficit volatility tends to be magnified for small countries, in the outcome of hyper‐inflation episodes and for countries with a high degree of openness.     

Policy matters. The long run effects of aggregate demand and mark-up shocks on the Italian unemployment rate

This paper estimates a VAR including labor productivity, real wage and unemployment rate, to identify the dynamic effects of technology, demand, and mark-up shocks, respectively, on the Italian labor market. Identification is achieved by imposing recursive restrictions on the matrix of long run multipliers. Our results show that both mark up and aggregate demand shocks permanently reduce the unemployment rate. Finally, technology shocks do not significantly affect the unemployment rate in the long run. These findings convey important policy implications: expansionary aggregate demand and deregulation policies reducing the mark up permanently decrease the Italian unemployment rate.Jel classification: C32, E32, J29This paper has been produced as part of a CEPR Research Network on New Approaches to the Study of Economic Fluctuations. We would like to thank Marcello DAmato, Mario Forni, Marco Lippi and Antonio Ribba for useful comments. We are also grateful to Bernd Sussmuth for pointing out to us several significant improvements to the paper.First version received: November 2001/Final version received: October 2002     

The monopolist's optimal R&D portfolio

The monopolist's incentives towards product and process innovationsare evaluated against the social optimum. The main findingsare that (i) the incentive to invest in cost-reducing R&Dis inversely related to the number of varieties being suppliedat equilibrium, under both regimes; (ii) distortions obtainunder monopoly, w.r.t. both the number of varieties and thetechnology. With substitutes, the monopolist's product rangeis smaller than under social planning, while with complementsthe product range is the same under both regimes. For any givennumber of goods, the monopolist operates at a higher marginalcost than the planner does.     

Suffer the little children: Measuring the effects of parenthood on well-being worldwide

This paper investigates the relationship between parenthood and well-being in a large sample of individuals from 94 countries worldwide. We find that having children is negatively related to well-being. Conditioning on economic and socio-demographic characteristics can only partially help to explain this finding. We show that the negative effect of parenthood on well-being is explained by a large adverse impact on financial satisfaction, that dominates the positive impact on non-financial satisfaction. The results are robust to the use of alternative empirical specifications and to the inclusion of the reported ideal number of children as a proxy variable to account for the endogeneity of parenthood decisions.     

On the Regulation of a Vertically Differentiated Market

The aim of this paper is to investigate a vertically differentiated market served either by a multiproduct monopolist or by duopolists, in which a public authority aiming at increasing the welfare level can choose among two instruments, namely, quality taxation/subsidisation, and minimum quality standard. In the monopoly case they are equivalent as to the social welfare level, in that both allow the regulator to achieve the second best level of social welfare he would attain if he were to set qualities under the monopoly pricing rule, while they are not equivalent in terms of the distribution of surplus. In the duopoly regime, we show that there exists a taxation/subsidisation scheme inducing firms to produce the socially optimal qualites.     

Determining the optimal dimension of a work-in-process storage area

We study the problem of determining the optimal dimension of a work-in-process storage area in a two-line production system with delays and breakdowns. We propose a stochastic model and prove theoretical results that allow us to implement an exact algorithm for the solution of the model. We optimally solve a real instance and carry out a sensitivity analysis to evaluate if the optimal solution is stable when the initial data are perturbed.     

Habits,Complementarities and Heterogeneity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model*

In this paper we test the existence of forward‐looking behaviour in a multivariate model for alcohol and tobacco consumption. The theoretical framework, based on a dynamic adjustment cost model with forward‐looking behaviour, is enhanced to include the intertemporal interactions between the two goods. The analysis of the within‐period preferences completes the intertemporal model, allowing to evaluate the static substitutability/complementarity relationships. The empirical strategy consists in a two‐step estimation procedure. In a first stage, we obtain the parameters of the demand system, while in a second stage Euler equations are estimated. Results, based on a cohort data set constructed from a series of cross‐sections of the Italian Household Budget Survey, reveal a significant complementarity relationship between alcohol and tobacco. Estimation of the Euler equations does not lead to rejection of the hypothesis of intertemporal dependence, providing evidence for a forward‐looking behaviour in alcohol and tobacco consumption. Moreover, we find significant intertemporal interactions that support the adjustment cost setting in a multivariate model with rational expectations.     

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Inflation Adjustment and Labour Market Structures: Evidence from a Multi‐country Study*

The impact of labour market structures on the response of inflation to macroeconomic shocks is analysed empirically. Results based on a 20‐country panel show that if labour market coordination is high, the effect on inflation of movements in unemployment, import prices, tax rates and productivity is dampened, both on impact and dynamically. In contrast, monopoly power in labour supply, measured by the percentage unionisation of the workforce, appears to amplify the response of inflation to its reduced‐form determinants. These findings are attributed to the behaviour of wages following movements in demand‐ and supply‐side conditions.