Simulating the Reform of Means‐tested Benefits with Endogenous Take‐up and Claim Costs*

Microsimulation models are commonly used to examine the distributional impact of reforms of the means‐tested benefit system. Take‐up behaviour is related to the level of entitlement, so reform may induce changes in take‐up. We develop a stochastic simulation method and apply it to a probit model of ‘income support’ take‐up by the UK pensioners. The method allows us to adjust net income for the welfare losses because of tangible or intangible claim costs. Endogenous take‐up and claim costs both have an important impact on the simulated outcomes of the policy reform.     

Scale economies in electricity distribution: a semiparametric analysis

We estimate the costs of distributing electricity using data on municipal electric utilities in Ontario, Canada for the period 1993–5. The data reveal substantial evidence of increasing returns to scale with minimum efficient scale being achieved by firms with about 20,000 customers. Larger firms exhibit constant or decreasing returns. Utilities which deliver additional services (such as water/sewage), have significantly lower costs, indicating the presence of economies of scope. Our basic specifications comprise semiparametric variants of the translog cost function where output enters non‐parametrically and remaining variables (including their interactions with output) are parametric. We rely upon non‐parametric differencing techniques and extend a previous differencing test of equality of non‐parametric regression functions to a panel data setting. Copyright © 2000 John Wiley & Sons, Ltd.     

CARROT AND STICK: HOW RE‐EMPLOYMENT BONUSES AND BENEFIT SANCTIONS AFFECT EXIT RATES FROM WELFARE

To increase the exit from welfare, benefit recipients in the municipality of Rotterdam were exposed to various financial incentives. Once their benefit spell exceeded one year, welfare recipients were entitled to a re‐employment bonus if they found a job that lasted at least 6 months. However, they could also be punished for noncompliance with eligibility requirements and face a sanction, i.e. a temporary reduction of their benefits. We find that the financial sticks in the form of benefit sanctions were effective in stimulating the exit from welfare, while the financial carrots in the form of re‐employment bonuses were not. Copyright © 2011 John Wiley & Sons, Ltd.     

The Effect of Income Distribution on the Ability of Growth to Reduce Poverty: Evidence from Rural and Urban African Economies

The present study examines the extent to which income distribution affects the ability of economic growth to reduce poverty, based on 1990s data for a sample of rural and urban sectors of African economies. Using the basic‐needs approach, an analysis‐of‐covariance model is derived and estimated, with the headcount, gap, and squared gap poverty ratios serving as the respective dependent variables, and the Gini coefficient and PPP‐adjusted incomes as explanatory variables. The study finds that the responsiveness of poverty to income growth is a decreasing function of inequality, albeit at varying rates for the three poverty measures: lowest for the headcount, followed by the gap and fastest for the squared gap. The ranges for the income elasticity in the sample are estimated at: 0.02–0.68, 0.11–1.05, and 0.10–1.35, respectively, for these poverty measures. Furthermore while, on average, the responsiveness of poverty to income growth appears to be the same between the rural and urban sectors, there are substantial sectoral differences across countries. The results suggest the need for country‐specific emphases on growth relative to inequality.     

Estimating class‐specific parametric models under class uncertainty: local polynomial regression clustering in an hedonic analysis of wine markets

We introduce a method for estimating multiple class regression models when class membership is uncertain. The procedure—local polynomial regression clustering—first estimates a nonparametric model via local polynomial regression, and then identifies the underlying classes by aggregating sample observations into data clusters with similar estimates of the (local) functional relationships between dependent and independent variables. Finally, parametric functions specific to each class are estimated. The technique is applied to the estimation of a multiple‐class hedonic model for wine, resulting in the identification of four distinct wine classes based on differences in implicit prices of the attributes. Copyright © 2009 John Wiley & Sons, Ltd.     

Modelling low income transitions

We examine the determinants of low income transitions using first‐order Markov models that control for initial conditions effects (those found to be poor in the base year may be a non‐random sample) and for attrition (panel retention may also be non‐random). The model estimates, derived from British panel data for the 1990s, indicate that there is substantial state dependence in poverty, separate from persistence induced by heterogeneity. We also provide estimates of low income transition rates and lengths of poverty and non‐poverty spells for persons of different types. Copyright © 2004 John Wiley & Sons, Ltd.     

On nonparametric estimation of a hedonic price function

Recently, using mixed data on Canadian housing, Parmeter, Henderson, and Kumbhakar (Journal of Applied Econometrics 2007; 22 : 695–699) found that a nonparametric approach for estimating a hedonic house price function is superior to formerly suggested parametric and semiparametric specifications. We carefully reanalyze these specifications for this dataset by applying a recent nonparametric specification test and simulation‐based prediction comparisons. For the case at issue our results suggest that a previously proposed parametric specification does not have to be rejected and we illustrate how nonparametric methods provide valuable insights during all modeling steps. Copyright © 2010 John Wiley & Sons, Ltd.     

Distance,trade and FDI: a Hausman–Taylor SUR approach

This paper analyses the effects of distance as a common determinant of exports and FDI in a three‐factor New Trade Theory model, assuming that distance affects both pure trade costs and plant set‐up costs. Exports and FDI are not necessarily substitutes with respect to distance, since the predicted impact depends on its importance for fixed plant set‐up costs relative to transportation costs and on the relative importance of vertical MNEs. For the empirical specification, we suggest that the impact of time‐invariant variables such as distance is most appropriately analysed in a Hausman–Taylor SUR model. We apply our model to industry‐level data of bilateral outward FDI stocks and exports of the US and Germany. Copyright © 2004 John Wiley & Sons, Ltd.     

The impact of changes in second pension pillars on public finances in Central and Eastern Europe: The case of Poland

This paper studies the impact of the recent weakening of Poland's fully funded defined contribution second pension pillar on (i) the long-term sustainability (the deficit and implicit debt) of the full pension system and (ii) the implications for pension benefits (gross replacement rates). Simulation results, based on a stylised version of the Polish pension system, show that, in the baseline scenario, the weakening of the second pillar would permanently lower future pension system debt, chiefly as a result of a cut in replacement rates. But using a combination of pessimistic assumptions including strong population ageing, low real wage growth and an indexation of existing pension benefits on nominal wage growth rather than inflation coupled with bringing in tax expenditures related to the third voluntary pension pillar and an increase in the share of minimum pensioners leads to higher pension system deficits and eventually more public debt at a very long horizon. The simulation results also suggest that if Poland had not transformed its pay-as-you-go first pension pillar into a defined contribution from a defined benefit system, the weakening of the second pillar would deteriorate fiscal sustainability relatively quickly in the baseline scenario. This result suggests that the Hungarian pension reversal would reduce deficit and debt only temporarily, mainly because of Hungary's costly defined benefit first pension pillar: the weakening of the second pillar is tantamount to swapping low current replacement rates (in the defined contribution second pillar) against high future replacement rates in the defined benefit first pension pillar.     

The Individual Poverty Incidence of Growth

The canonical approach to analyse the poverty impact of growth is based on the comparison of poverty before and after growth. Measurement tools endorsing this approach fail to capture the different experiences of poverty dynamic in the population: there can be groups of the population made poorer or non‐poor made poor by growth. We propose an approach that allows measuring this individual poverty incidence of growth and show how it is related with existing models. We apply our framework to evaluate the poverty impact of growth in Indonesia, by comparing the 1993–2000 with the 2000–07 and 2007–14 growth spells.     

Poverty Dynamics of Households in Rural China

The objective of our study is to identify patterns and causes of households' transitions into and out of poverty using the long household panel data on rural China in 1989–2009. We propose a discrete‐time multi‐spell duration model that not only corrects for unobserved heterogeneity, but also addresses the endogeneity due to dynamic selection associated with household's livelihood strategies. The household choosing farming or out‐migration as a main livelihood strategy was more likely to escape from persistent poverty than those taking local non‐agricultural employment. The present study emphasizes the central role of agriculture in helping the chronically poor escape from poverty.     

The private costs and benefits of environmental self‐regulation: which firms have most to gain?

A (correctly designed) voluntary self‐regulatory scheme can – in theory – improve social welfare if the benefits to society outweigh the costs. However, businesses may not choose to participate in a voluntary scheme if their private benefits do not outweigh their costs; external benefits are irrelevant to the profit maximizing firm. This paper reviews literature on self‐regulation, primarily focusing on factors that influence the net private benefits of environmental programmes. The literature is summarized in a manner that allows one to identify characteristics of firms that are most likely to accrue positive net benefit from environmental programmes, and to determine ways in which self‐regulatory bodies might raise those benefits, thereby increasing participation rates. Copyright © 2004 John Wiley & Sons, Ltd and ERP Environment.     

Poverty comparisons with dependent samples

Standard inference procedures for poverty comparisons require samples to be independent. For many commonly used income samples, however, this requirement is not fulfilled since samples are rotated. This article introduces an easy‐to‐use method of correction for sample dependency. We also apply the method to test changes in US poverty in the 1990s and to evaluate the marginal effects of public assistance on poverty before and after the recent welfare reform. Copyright © 2004 John Wiley & Sons, Ltd.     

Local Asymptotic Power of Breitung's Test*

In this article, we derive the local asymptotic power function of the unit root test proposed by Breitung [Journal of Econometrics (2002) Vol. 108, pp. 343–363]. Breitung's test is a non‐parametric test and is free of nuisance parameters. We compare the local power curve of the Breitungs’ test with that of the Dickey–Fuller test. This comparison is in fact a quantification of the loss of power that one has to accept when applying a non‐parametric test.     

Is gravity linear?

Despite the solid theoretical foundation on which the gravity model of bilateral trade is based, empirical implementation requires several assumptions which do not follow directly from the underlying theory. First, unobserved trade costs are assumed to be a (log‐)linear function of observables. Second, the effects of trade costs on trade flows are assumed to be constant across country pairs. Maintaining consistency with the underlying theory, but relaxing these assumptions, we estimate gravity models—in levels and logs—using two data sets via nonparametric methods. The results are striking. Despite the added flexibility of the nonparametric models, parametric models based on these assumptions offer equally or more reliable in‐sample predictions and out‐of‐sample forecasts in the majority of cases, particularly in the levels model. Moreover, formal statistical tests fail to reject either parametric functional form. Thus, concerns in the gravity literature over functional form appear unwarranted, and estimation of the gravity model in levels is recommended. Copyright © 2008 John Wiley & Sons, Ltd.     

Estimation of Poverty Transition Matrices with Noisy Data

This paper investigates measurement error biases in estimated poverty transition matrices. We compare transition matrices based on survey expenditure data to transition matrices based on measurement‐error‐free simulated expenditure. The simulation model uses estimates that correct for measurement error in expenditure. We find that time‐varying measurement error in expenditure data magnifies economic mobility. Roughly 45% of households initially in poverty at time t ? 1 are found to be out of poverty at time t using data from the Korean Labor and Income Panel Study. When measurement error is removed, this drops to between 26 and 31% of households initially in poverty. Copyright © 2016 John Wiley & Sons, Ltd.     

Software packages for everything

This paper details the way in which voluntary sector organisations can benefit from software packages designed for the commercial sector. Administrative activities of nonprofit and voluntary sector managers revolve around money and the paper demonstrates how the areas of income generation, administration and service provision can be more efficiently managed by the use of existing software. Off‐the‐shelf systems can be adapted simply by slightly changing the terminology. The paper concludes that, although the costs are high, they are more than offset by the potential benefits. Copyright © 2001 Henry Stewart Publications     

ARE THE CURRENT ACCOUNT IMBALANCES BETWEEN EMU COUNTRIES SUSTAINABLE? EVIDENCE FROM PARAMETRIC AND NON‐PARAMETRIC TESTS

Using parametric and non‐parametric estimation techniques, we analyze the sustainability of the recently growing current account imbalances in the euro area and test whether the European Monetary Union has aggravated these imbalances. Two alternative criteria for the assessment of external debt sustainability are considered: one based on the transversality condition of intertemporal optimization, and the other based on the stationarity properties of the stochastic process of the debt–GDP ratio. Econometric sustainability tests are performed using the pooled mean‐group estimator and panel unit root tests, respectively. Variants of both test procedures with varying coefficients using penalized splines estimation are applied. We find empirical evidence suggesting that the introduction of the euro is associated with a regime shift from sustainability to unsustainability of external debt accumulation for the euro area. Copyright © 2012 John Wiley & Sons, Ltd.     

Income and Democracy: A Smooth Varying Coefficient Redux

Acemoglu et al. (American Economic Review 2008; 98 : 808–842) find no effect of income on democracy when controlling for fixed effects in a dynamic panel model. Work by Moral‐Benito and Bartolucci (Economics Letters 2012; 117 : 844–847) and Cervellati et al. (American Economic Review 2014; 104 : 707–719) suggests that the original model might have been misspecified and proposes alternative specifications instead. We formally test these parametric specifications by implementing Lee's (Journal of Econometrics 2014; 178 : 146–166) dynamic panel test of linear parametric specifications against a general class of nonlinear alternatives robustly and reject all these specifications. However, using a more flexible model proposed by Cai and Li (Econometric Theory 2008; 24 : 1321–1342) we find that the relationship between income and democracy appears to be mediated by education, but results are not statistically significant. Copyright © 2016 John Wiley & Sons, Ltd.     

The Influence of New Technology on the Home Market Competition and the Strategies Chosen by Norwegian Savings Banks in 2000–2010

The adjustment to the new competitive environment is expected to vary by the bank's status in the home market. Six hypotheses on the conduct of dominant vs. fringe banks are tested on Norwegian savings banks in 2000–2010. As expected, monopolies are the slowest to cut costs or to expand into further‐away markets. Fringe banks try to defend their positions as efficient providers of standard quality, whereas dominant oligopoly banks compete head‐on with both adjacent small and regional large savings banks. They adopt innovations faster and make more efforts to diversify, cut costs, and improve quality as means of competition. Copyright © 2015 John Wiley & Sons, Ltd.