Human Capital Formation and General Equilibrium Treatment Effects: A Study of Tax and Tuition Policy

Policies to promote human capital formation have been advocated as a remedy for reducing the economy-wide problem of rising wage inequality. These policies are national in character and are designed to substantially alter the proportion of the work-force that is skilled. Yet the methods used to evaluate these policies are partial equilibrium in nature and do not take account of the consequences of the changes in skill prices that are produced by the policies. This paper summarises our research on general equilibrium evaluation of tuition and tax policies. We compare estimates of policy impact from our approach with those obtained from conventional partial equilibrium ‘treatment effect’ approaches to policy evaluation, and find substantial differences. Conventional partial equilibrium approaches present an overly optimistic view of what tax and tuition policy can achieve because they ignore the change in human capital investment levels induced by the change in prices due to the policy. In addition, conventional partial equilibrium approaches fail to provide an accurate assessment of the welfare consequences of these policies.     

An Estimation of the Intergenerational Income Elasticity of China

Abstract:

Using 1989–2006 waves of the China Health and Nutrition Survey data, we estimate the intergenerational income elasticity (IIE) of China. We find that the lower bound of the IIE is 0.491 using the son’s latest observed income and his father’s income averaged over three periods. We use the father’s number of years of education as an instrumental variable for his permanent income to derive the upper bound of the IIE, which is 0.556. We find that the intergenerational income mobility of rural China is higher than that in urban areas.     

Getting the Smaller Picture: Small‐Area Analysis of Public Expenditure Incidence and Deprivation in Three English Cities

This paper examines public expenditure incidence at small‐area level in cities. The motivations for such research are briefly reviewed. The article reports on an attempt at measuring public expenditure across the majority of programmes down to the level of Census wards and the actual results obtained for three urban local authorities in England. The relationship between spending, income and deprivation is examined overall and for particular spending programmes, using a number of approaches including regression‐based expenditure models. The conclusions suggest that spending is indeed targetted on poorer areas but raise questions about both the strength of this relationship and how best to measure deprivation and the need to spend.     

Understanding the Distributional Impact of Long‐Run Inflation

The impact of fully anticipated inflation is systematically studied in heterogeneous agent economies with an endogenous labor supply and portfolio choices. In stationary equilibrium, inflation nonlinearly alters the endogenous distributions of income, wealth, and consumption. Small departures from zero inflation have the strongest impact. Three features determine how inflation impacts distributions and welfare: financial structure, shock persistence, and labor supply elasticity. When agents can self‐insure only with money, inflation reduces wealth inequality but may raise consumption inequality. Otherwise, inflation reduces consumption inequality but may raise wealth inequality. Given persistent shocks and an inelastic labor supply, inflation may raise average welfare. The results hold when the model is extended to account for capital formation.     

Medicaid and long‐term care: The effects of penalizing strategic asset transfers

Medicaid provides a critical source of insurance for long‐term care, and individuals may strategically offload assets (typically to children) to meet the means‐tested eligibility requirement. In this article, we quantify the extent of such behavior using variation in the penalty for improper parent‐to‐child transfers induced by the Deficit Reduction Act of 2005. We estimate difference‐in‐differences models based on the hypothesis that only individuals with high levels of nursing home risk (high risk) will alter transfers because of the Act. We find that over a 2‐year horizon, high‐risk individuals reduced transfers to children on the extensive margin by 11 percent and that the average total amount of transfers decreased by $4,860. The results hold only for coupled respondents. We also conduct a triple‐differences analysis to examine heterogeneity with financial literacy and find that even those with a low level of financial literacy responded to the penalty.     

Entrepreneurship,College, and Credit: The Golden Triangle

We develop a model to evaluate the aggregate impact of college finance in an environment with entrepreneurship. The calibrated model captures the stylized fact that entrepreneurs with college are more common and more profitable in the United States. The calibration indicates this is mainly because higher labor earnings allow college‐educated agents to ameliorate credit constraints if and when they eventually become entrepreneurs. Changes in financing constraints on entrepreneurs can thus affect college attendance, and changes in financing constraints on college can affect entrepreneurship rates as well.     

Who Will Pay for Long‐Term Care in the UK? Projections Linking Macro‐ and Micro‐Simulation Models

The long‐term care funding system continues to attract much debate in the UK. We produce projections of state and private long‐term care expenditure and analyse the distributional impact of state‐financed care, through innovative linking of macro‐ and micro‐simulation models. Variant assumptions about life expectancy, dependency and care costs are examined and the impact of universal state‐financed (‘free’) personal care, based on need but not ability to pay, is investigated. We find that future long‐term care expenditure is subject to considerable uncertainty and is particularly sensitive to assumed future trends in real input costs. On a central set of assumptions, free personal care would, by 2051, increase public spending on long‐term care from 1.1 per cent of GDP to 1.3 per cent, or more if it generated an increase in demand. Among the care‐home population aged 85 or over, the immediate beneficiaries of free personal care would be those with relatively high incomes.     

On the Persistence of Cross‐Country Inequality Measures

We examine inequality persistence in a multicountry unbalanced panel using a battery of stationarity and long‐run memory tests. Inequality is measured by the Gini indices of income inequality. Results suggest that we cannot reject a unit root in inequality measures. This applies to both gross and net indices: thus while redistributive measures have reduced the level of inequality, they have not sufficiently modified its apparent unit root. A more likely conclusion is that inequality measures are exceptionally persistent if not strictly a unit root. We also introduce a new panel stationarity test useful for series subject to unknown structural breaks.     

Tax‐Aided Financial Services Companies and the Cost of Capital

Over the past two decades, the governments of several European countries have implemented special tax devices to attract the finance centres of multinational companies. This paper determines how the cost of capital for investments made by multinationals is affected by the tax regimes, bringing into play the Irish financial services company, the Belgian co‐ordination centre, the Dutch finance company and the Luxemburg company coupled with a Swiss finance branch. It gives evidence that intermediation of a tax‐aided services company in the financing scheme of a foreign subsidiary provides an important tax saving. However, the home and source countries' tax regimes influence the hierarchy of the less heavily taxed treasury and finance centres. The methodology relies on the marginal effective tax rates theory and consists of an extension of Alworth's (1988) model to include treasury centres.     

Credit Scoring and the Availability of Small Business Credit in Low‐ and Moderate‐Income Areas

This paper estimates that credit scoring is associated with about a $3,900 increase in small business lending per sample banking organization, per low‐ and moderate‐income (LMI) area served, and this effect is roughly equivalent to that estimated for higher‐income areas. For our sample, this corresponds to a $536 million increase in small business credit in LMI areas in 1997 than otherwise would have been the case. This effect appears to be driven by increased out‐of‐market lending by banking organizations, as in‐market lending generally declines. Overall, it does not appear that credit scoring has a disparate impact on LMI areas.     

The impact of cumulative pressure on accounting students’ propensity to commit plagiarism: an experimental approach

Adopting aspects of Jones, T.M., 1991, Academy of Management Review 16 , 366–395 issue‐contingent model of ethical decision‐making to guide our choice of variables, we investigate perceptions of factors that affect student plagiarism. In an experimental setting, time pressure and assessment weighting are manipulated between‐subjects, whilst the severity of plagiarism is examined within‐subjects. Our findings confirm that time pressure and assessment weighting are positively related to perceptions of the likelihood of plagiarism and that plagiarism is perceived as more likely for less severe acts. Further, the likelihood of plagiarism increases as the cumulative pressure of both time deadline and assessment weighting increases.     

Wisdom of Crowds: Cross‐Sectional Variation in the Informativeness of Third‐Party‐Generated Product Information on Twitter

This paper examines whether third‐party‐generated product information on Twitter, once aggregated at the firm level, is predictive of firm‐level sales, and if so, what factors determine the cross‐sectional variation in the predictive power. First, the predictive power of Twitter comments increases with the extent to which they fairly represent the broad customer response to products and brands. The predictive power is greater for firms whose major customers are consumers rather than businesses. Second, the word‐of‐mouth effect of Twitter comments is greater when advertising is limited. Third, a detailed analysis of the identity of the tweet handles provides the additional insights that the predictive power of the volume of Twitter comments is dominated by “the wisdom of crowds,” whereas the predictive power of the valence of Twitter comments is largely attributable to expert comments. Furthermore, Twitter comments not only reflect upcoming sales, but also capture an unexpected component of sales growth.     

The Over‐the‐Counter Theory of the Fed Funds Market: A Primer

We present a dynamic over‐the‐counter model of the fed funds market and use it to study the determination of the fed funds rate, the volume of loans traded, and the intraday evolution of the distribution of reserve balances across banks. We also investigate the implications of changes in the market structure, as well as the effects of central bank policy instruments such as open market operations, the discount window lending rate, and the interest rate on bank reserves.     

基于CPI与PPI差值的资产配置效果评估：2005-2010

本文在众多的宏观经济指标中合成出反映企业利润变化的关键指标CPI-PPI,分析该指标与股票市场、债券市场波动的相关性,并根据这一指标的变化模拟资产配置的动态调整过程,检验使用该指标进行资产配置的有效性。     

No System Is Perfect: Understanding How Registration‐Based Editorial Processes Affect Reproducibility and Investment in Research Quality

The papers in this volume were published through a Registration‐based Editorial Process (REP). Authors submitted proposals to gather and analyze data; successful proposals were guaranteed publication as long as the authors lived up to their commitments, regardless of whether results supported their predictions. To understand how REP differs from the Traditional Editorial Process (TEP), we analyze the papers themselves; conference comments; a survey of conference authors, reviewers, and attendees; and a survey of authors who have successfully published under TEP. We find that REP increases up‐front investment in planning, data gathering, and analysis, but reduces follow‐up investment after results are known. This shift in investment makes individual results more reproducible, but leaves articles less thorough and refined. REP could be improved by encouraging selected forms of follow‐up investment that survey respondents believe are usually used under TEP to make papers more informative, focused, and accurate at little risk of overstatement.     

The Role of the Personal Tax System in Old‐Age Support: A Survey of 15 Countries

This paper examines the tax treatment of pensioners in 15 industrialised countries. Using a standard methodology, it calculates the average and marginal tax rates of older people and compares them with those of people of working age. These are then combined with a model of pension entitlements in different countries. This shows that tax differentials play an important role in old‐age support. We discuss the appropriate way for the tax system to support pensioners and the implications for the tax treatment of private pensions.     

e‐Government in the Irish Revenue: The Revenue On‐Line Service (ROS): A Success Story?

The Revenue Online Service (ROS) is one of the first e‐government initiatives introduced in Ireland. The primary purpose of this paper is to examine this reform initiative in the Irish Revenue, assess it through the lens of the New Public Management (NPM) and e‐government literatures and to critically assess whether its implementation can be deemed ‘a success story’. Many of the components of NPM were evident in the introduction of ROS which facilitated its implementation: decentralisation, the use of private sector styles of management, an emphasis on performance measurement and a search for efficiencies. ROS has, inter alia, transformed both access to taxation information for taxpayers and their agents, and the system of tax payment and filing in Ireland. Assessing its implementation in terms of the objectives of an e‐government initiative, ROS is ‘a success story’, and the Irish Revenue organisation has clearly benefited from its introduction in many ways. Indeed, there is evidence to suggest that tax/accounting practitioners are also beneficiaries of this e‐government initiative. However, a critical analysis of the findings of this study contests the idea that ROS is an unqualified success story.     

Capital gains tax,supply‐driven trading and ownership structure: direct evidence of the lock‐in effect

This study investigates the effect of differential capital gains tax rates on investor trading and share prices in a unique market setting that facilitates the resolution of conflicting prior evidence of holding period tax incentives. In particular, we examine whether the concessionary tax treatment of long‐term capital gains increases the supply of shares that qualify for long‐term status, thereby causing downward price pressure. We find evidence of abnormal seller‐initiated trading following the 12‐month anniversary of listing for IPO firms that appreciate in price (‘winners’) and report no such evidence for firms that decline in price (‘losers’). Consistent with the tax concessions being greater for individual than institutional investors, we report that abnormal seller‐initiated trading is mitigated by higher levels of ownership by institutional investors. We also report limited evidence, for winners, of declining share prices upon qualifying for long‐term tax status.     

Supply‐Side Policies in the Depression: Evidence from France

The effects of supply‐side policies in depressed economies are controversial. We shed light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented mandatory wage increases and hours restrictions. Deflation ended but output stagnated. We present time‐series and cross‐sectional evidence that these supply‐side policies, in particular the 40‐hour law, contributed to French stagflation. These results are inconsistent both with the standard one‐sector New Keynesian model and with a medium scale, multisector model calibrated to match our cross‐sectional estimates. We conclude that the New Keynesian model is a poor guide to the effects of supply‐side shocks in depressed economies.     

Identifying the Stance of Monetary Policy at the Zero Lower Bound: A Markov‐Switching Estimation Exploiting Monetary‐Fiscal Policy Interdependence

In this paper, I propose an econometric technique to estimate a Markov‐switching Taylor rule subject to the zero lower bound of interest rates. I show that linking the switching of the Taylor rule coefficients to the switching of the coefficients of an auxiliary uncensored Markov‐switching regression improves the identification of an otherwise unidentifiable prevalent monetary regime because of the presence of the zero lower bound. Using a Markov‐switching fiscal policy rule as the auxiliary regression, I apply the estimation technique to U.S. data. Results show evidence of monetary and fiscal policy comovements, with monetary policy reacting weakly to inflation when fiscal policy is focused on real activity as opposed to debt stabilization, and vice versa.