A FRAMEWORK FOR REGIONAL ACCOUNTS: AN AUSTRALIAN PERSPECTIVE

The Australian Bureau of Statistics (ABS) has recently published a set of experimental estimates of gross State product at factor cost and its income components for the States of Australia (1): The regular compilation and publication of the estimates is also commencing. In compiling the estimates, certain conceptual issues were confronted. Others were recognized but have not required final resolution as yet because they are beyond the scope of the estimates presently compiled.
This paper considers the development of a framework for regional accounts for countries with regional characteristics broadly similar to those of the Australian States by starting with the SNA framework that applies at the national Ievel. The difficulties that arise are highlighted and alternative approaches for dealing with specific issues discussed. These alternative approaches can have a significant impact on measured State relativities and performance over time. In some instances the choice between approaches may be narrowed because of practical considerations in the same way that the SNA is a conceptual framework that nevertheless has to take account of practicalities. The issues largely involve consideration as to whether or not to regard certain activities as extra-territorial in nature. If an extra-territorial concept is not adopted choices must be made on how to allocate data items related to such activities by State.     

Expanding New York State's Earned Income Tax Credit Programme: the effect on work,income and poverty

Given its favourable employment incentives and ability to target the working poor, the Earned Income Tax Credit (EITC) has become the primary antipoverty programme at both the federal and state levels. However, when evaluating the effect of EITC programmes on income and poverty, governments generally calculate the effect using simple accounting, where the value of the state or federal EITC benefit is added to a person's income. These calculations omit the behavioural incentives created by the existence of these programmes, the corresponding effect on labour supply and hours worked, and therefore the actual effect on income and poverty. This article simulates the full effect of an expansion of the New York State EITC benefit on employment, hours worked, income, poverty and programme expenditures. These results are then compared to those omitting labour supply effects. Relative to estimates excluding labour supply effects, the preferred behavioural results show that an expansion of the New York State EITC increases employment by an additional 14?244 persons, labour earnings by an additional $95.8 million, family income by an additional $84.5 million, decreases poverty by an additional 56?576 persons and increases costs to the State by $29.7 million.     

Does the welfare state induce risk-taking?

In cross-national data on individual and country-level characteristics, the variance of log annual income is shown to correlate positively with indicators of redistribution. The database comes from the Panel Comparability (PACO) project, which provides uniquely comparable cross-national panel data, including both Eastern and Western Europe and the US. A random effects permanent income regression is used to estimate income variance. The variance estimates are then regressed on individual and country characteristics. The results indicate robustly that various measures of risk are higher in countries with a higher share of social spending in GDP. The evidence can be interpreted as support for the argument that the Welfare State encourages risk-taking and thereby economic growth.     

Capital Equalization and the Australian States

The Australian Grants Commission has recently considered ways to take account of differences in capital costs across States within the existing fiscal equalization formula. Here we develop a theoretical methodology for estimating differences in the costs of capital faced by the States in the General Government Sector. This methodology is used to generate preliminary estimates of State capital cost 'disabilities' from 1962–63 to 1995–96. Finally, we suggest how the methodology and the estimates of capital cost disabilities might be integrated into the Commission's formula to produce a grant distribution which reflects different costs of capital across States.     

DISTRIBUTION OF WEALTH IN THE UNITED KINGDOM: EFFECT OF INCLUDING PENSION RIGHTS,AND ANALYSIS BY AGE-GROUP*

This article on the distribution of wealth among individuals in the United Kingdom presents recent work on the effects of including pension rights and the significance of sex, age and marital status. It describes the rationale for including the accrued rights in occupational and State pension schemes (funded or unfunded) and the methods of estimation used. For funded schemes the rights are valued as the accrued liability of the schemes to their members, and for unfunded schemes similar liabilities are hypothecated; these estimates of the value of accrued pension rights involve assumptions about future earnings and interest rates. The trend in average marketable wealth with age is upwards until advanced years when it slows down or slightly reverses. Adding occupational pension rights only slightly raises the trend for females but has a bigger effect for males. Adding State pension rights raises these upward trends until the age of 60 after which there is a decline. For marketable wealth on the average males are wealthier than females but less wealthy if single, divorced or widowed. Adding occupational pension rights improves the relative position of males; adding State pension rights cancels this out. The effect of marital status rises with both age and sex and therefore a detailed three-way analysis is made. For females widows are on average the wealthiest; for young males the married; for older males the single. Using Theil's coefficient of entropy for comparing the inequality of wealth, the addition of pension rights reduces inequality by two-thirds. Age accounts for only 6 percent of inequality for marketable wealth but for 31 percent if pension rights are included.     

The competitive nature of the nursing home industry: price mark ups and demand elasticities

Nursing home markets are likely to deviate from a competitive structure because of limitations on entry imposed by Certificate of Need (CON) regulations and the potential for product differentiation along such attributes as location, religious affiliation and quality. This paper investigates the structure of nursing home markets in New York State by calculating price mark ups and residual private pay demand elasticities. It shows that the residual demand elasticity is bound by estimates based on price mark ups above marginal costs and above Medicaid rates. This approach allows estimation of demand elasticities in all markets, whether or not CON regulations constrain bed supply. Mean price elasticities (in absolute value) calculated for nursing homes in New York State in 1991 ranged from 3.46 to 3.85.     

EFFICIENCY EFFECTS OF CHANGES IN COMMONWEALTH GRANTS TO THE STATES: A CGE ANALYSIS*

This paper describes CSF, a general equilibrium model encompassing factors of relevance to economic efficiency in Federal/State funding including: interstate differences in tax bases and unit costs of State‐provided goods; factor mobility; congestion; State‐government behaviour incorporating the possibility that governments in subsidised States embark on expenditures with low benefit/cost ratios (flypaper effects); fiscal externalities; and non‐discretionary expenditures in each State associated with special national responsibilities. The model is applied to Australia where Federal/State funding is a major political and economic issue. Welfare effects of moving from the present Australian funding system based on fiscal equalisation to a system of equal‐per‐capita grants are calculated. CSF implies that the welfare gain from this move would be small. The most important source of potential welfare gain is a reduction in flypaper effects. The recognition of congestion externalities can eliminate the small welfare gain, but only under seemingly extreme assumptions. The results are not very sensitive to variations in assumptions concerning population mobility and fiscal externalities.     

Market and regulatory forces in the pricing of legal services

New data on individual law firms and attorneys is used to examine the effects of professional licensing restrictions and market forces on prices of legal services. The data allow detailed testing of the hypothesis that licensing restrictions serve to increase the price of professional services as well as the incomes of those providing these services. In general, little support is found for this hypothesis. Instead, the estimates show that market forces are most important in explaining variations in prices and attorney incomes.Dean Lueck is on leave from Louisiana State University. We thank William Boiger, Executive Director of the National Resource Center for Consumers of Legal Services, for providing data on law firms. Andrew Dick, Philip Hersch, Andy Kleit, Bill Kovacic, Fred McChesney, Jeff Moore, and two anonymous referees provided helpful comments on earlier versions. Chris Diener, Jim Larkins, Robert Pace, and Darrin Timothy provided research assistance.     

A summary of ISEW and GPI studies at multiple scales and new estimates for Baltimore City, Baltimore County, and the State of Maryland

This paper (1) summarizes a number of previous Index of Sustainable Economic Welfare (ISEW) and Genuine Progress Indicator (GPI) studies at various scales; (2) estimates the GPI for Baltimore, Baltimore County, and the State of Maryland; and (3) compares these results with previous and parallel studies. GPI incorporates environmental, social, and economic information into a single metric to represent economic well-being. At all three scales, GPI was found to grow at a slower rate than the conventional economic measure of gross domestic product (GDP), while at the US national scale GPI has been relatively flat since 1975. State-level results match an independently calculated Maryland GPI, confirming that GPI methods are robust and reproducible. In addition, the State of Maryland has recently made GPI one of their official State statistics, reported annually. State-level GPI results were also compared with studies for the states of Ohio and Vermont to explore regional differences. We recommend that the GPI research community develop consensus on a standardized measurement approach and seek common ground for advancing the use of improved indicators and accounting systems in official policy settings.     

Flypaper Unstuck: Comment on Dixon, Picton and Rimmer

Commonwealth general revenue grants to the States are substitutes for State taxes, and should be spent by the States. If preferences vary, then differences in State spending are not evidence of flypaper effects.     

The Macroeconomic Effects of Taxation in a Federal Europe

The signing of the Maastricht Treaty in 1992 has created a dilemma for fiscal policy at both a theoretical and a policy level. The conflict between the increasingly important stabilising role for fiscal policy post-Maastricht and the pursuit of fiscal harmonisation requires a re-examination of the theoretical framework within which policy discussion should take place. Orthodox tax incidence theory cannot adequately analyse the macroeconomic effects of taxation and the paper proposes an alternative post-Keynesian approach based on the tax and business cycle theories of Kalecki. To illustrate the applicability of a Kaleckian approach to taxation in a Federal system, the paper presents a discussion of the macroeconomic effects of State and local taxation in the US. It is also shown to be necessary to study the structure of State government receipts, the expenditure functions of State governments, the State government budget stance and the nature of intergovernmental relations in order to identify macroeconomic effects.     

The Regional Demand for Petrol in Australia*

The regional demand for petrol in Australia is estimated using quarterly data on a State basis for the period from the September quarter 1958 through the June quarter 1981. A dynamic demand model is postulated and estimates obtained using an iterative Zellner procedure. The results suggest that per capita petrol demand is not income elastic as reported in other studies, and support the hypothesis that demand is price inelastic. In addition, the States exhibit statistically significant differential responses to price and income shocks. This implies that the specification of a single national demand function may be misleading.     

The Farmers Home Administration's social discount rate

The aim was to estimate the SDR revealed by past decisions by the Farmers Home Administration (FmHA) concerning their farm-ownership programme in New York State. These decisions involved trading off a current loan against a long stream of future farm profits. The ratio of the coefficients to these two variables in a logit equation produced the estimate of the SDR. The main finding was that a very high rate of discount was uncovered, in the range 70–73%. These high rates may be explained by ‘individual risk’ and the life-cycle context in which the estimates were made.     

The Economic Performance of the States and Territories of Australia: 1861–1992

This paper examines the economic performance of the States and Territories of Australia from 1861 to 1992. Original estimates of real per capita output for each State are constructed and used to determine whether, for selected periods, the material standards of living of the States converged. Whilst the data suggest that this was the case for the selected subperiods up to the mid 1970s, it appears that from this period the per capita income gap between the richest and poorest States probably widened. The most important factor driving this phenomenon is the ability of States to successfully adapt to national and international sectoral changes.     

EFFECT OF PRIVATIZATION AND BROADER REFORMS ON LABOUR USE ADJUSTMENTS AND EFFICIENCY

State‐owned firms were said to have an excessive use of labour. The cost of job losses after privatization was debated but ignored due to perceived efficiency gains in the utilization of labour. We estimate longer time employment risk, labour use adjustment and the efficiency of labour utilization in the Pakistani cement industry. We conclude that firms have made significant adjustments in labour use and employment risks have indeed reduced. Our estimates however, show that long run labour use efficiency in the industry and in the privatized firms has not improved, but that, surprisingly, firms set‐up and operated privately have experienced a decrease in labour efficiency.     

The tax implications of cost shifting in cost-benefit analysis in mental health

This paper examines the tax implications of systems of care for psychiatric patients that rely more on the provision of services in the community rather than in state hospitals. State governments pay the costs of patient care in state hospitals, but share costs with the federal government (via Medicaid) for community based care. Taxes create distortions as gauged by the marginal cost of public funds (MCF). Since state and federal governments use different tax mixes, one needs a MCF for each form of government to evaluate system changes. Separate estimates of the MCF for each state in the USA are derived. Only for Alaska is cost shifting welfare improving.     

THE LEVEL OF WORLD INEQUALITY: HOW MUCH CAN ONE SAY?

This paper constructs estimates of income and consumption inequality for the world (124 countries), using various measures of inequality. It then goes on to examine the possible effects of various sources of error in the estimates, and attempts to set rough limits to the size of such effects. Among the sources of error examined are purchasing power parities used for currency conversion, systematic errors in estimates of per capita incomes, differences in age structure, government tax and expenditure policy, and lifetime income effects. The paper concludes that, although the level of uncertainty in the estimates is too great to permit conclusions about, for instance, trends over time, it is clear that the level of world inequality is extreme, and that it is primarily due to differences in average incomes across countries rather than to intra-country inequality.     

An ecosystem services approach to estimating economic losses associated with drought

A consistent methodology enabling the estimation of the economic losses associated with drought and the comparison of estimates between sites and across time has been elusive. In this paper, we develop an ecosystem service approach to fill this research gap. We apply this approach to analysis of the Millennium Drought in the South Australian portion of the Murray–Darling Basin which provided a natural experiment for the economic estimation of hydrological ecosystem service losses. Cataloguing estimates of expenditures incurred by Commonwealth and State governments, communities and individuals, we find that nearly $810 million was spent during the drought to mitigate losses, replace ecosystem services and adapt to new ecosystem equilibria. The approach developed here is transferable to other drought prone regions, providing insights into the potentially unexpected consequences of drought and ecosystem thresholds and socioeconomic and political tipping points after which ecosystem restoration may become very costly. Our application to the South Australian Murray–Darling Basin demonstrates the potential of this approach for informing water, drought preparedness and mitigation policy, and to contribute to more robust decision-making.     

Production Efficiency in the South African Banking Sector: A Stochastic Analysis

Econometric estimates of the level of efficiency at bank branches are likely to provide detailed insight into the overall level of efficiency in banking. Therefore this paper uses Bayesian stochastic frontier analysis to assess the production efficiency of 61 bank branches in the nine provinces of the Republic of South Africa. We find that every branch is operating at increasing returns to scale and that the level of production efficiency of bank branches is lower than it could be. We also find that at current levels of output, on average, bank branches can reduce their costs by about 17% if they improve the level of efficiency. In addition, we find that Gauteng Province has the lowest average level of returns to scale, while the Free State Province has the highest average level of the nine provinces. In addition, via estimates of the posterior mean for shares and price elasticities, we find that the price of capital is the largest predicted proportion of costs. These findings suggest that bank branches could also obtain cost reductions by increasing the level of output. Regulatory policy reforms and competitive incentives to enable banks to meet this objective should be encouraged.     

Does the early bird catch the worm? The effect of school starting age on educational attainment and labor market outcomes: Evidence from Chinese urban twins data

This paper estimates the effects of school starting age (SSA) on educational attainment and labor market outcomes by using unique urban adult twins data from China. Ordinary least squares (OLS) estimates indicate that late enrollment in primary school lowers years of education, earnings, wage rate, and probability of employment. However, when we use the within-monozygotic (MZ)-twin fixed effects method to exclude unobservable endowments and family factors, the effects of SSA on years of education become less negative. For earnings, wage rate, and the probability of employment, the within-twin fixed effects estimates become insignificant. The results indicate that a one-year delay in primary school starting age lowers schooling by 0.51 years but does not affect earnings, wage rate, or probability of employment. The difference between OLS and within-MZ-twin fixed effects estimates indicates that the negative return to SSA is due to unobservable family variables and omitted individual-specific endowments. We further find that the earlier primary school starters fail to obtain a level of education with high return. Specifically, early birds do not have a high probability of getting a vocational school degree or above.