The pace of fiscal consolidations,fiscal sustainability,and welfare: An overlapping generations approach

This study investigates expenditure- and tax-based consolidations under the rule of reductions in debt-to-GDP ratios to the target level and the effects of these consolidations on fiscal sustainability and welfare, using an overlapping generations model with exogenous growth settings. We derive (i) a threshold (ceiling) of public debt to ensure fiscal sustainability, (ii) sustainable paces of these consolidations, and (iii) the optimal pace of consolidations under both expenditure- and tax-based consolidations, examining whether these consolidations are effective in the sense that they are sustainable, increase welfare, and induce fairness of welfare distribution across generations (lower intergenerational conflicts over welfare). We find that the pace of tax-based consolidation required to ensure fiscal sustainability is higher than that required for expenditure-based consolidation. As for welfare, countries may differ in their choice of the type of consolidation, which depends on the size of outstanding debts relative to capital, the economy’s productivity, tax rate levels, and the extent of utility derived by individuals from public goods and services. More importantly, it may also depend on whether policymakers emphasize social welfare or fairness of welfare distribution between generations. By contrast, a common result from the viewpoints of both social welfare and fair distribution of welfare across generations is that fiscal consolidation cannot persist much longer than 30 years (one period in the model). This result will support the pace of consolidation in the EU: the Stability and Growth Pact.     

Why do education vouchers fail at the ballot box?

We compare a uniform voucher regime against the status quo mix of public and private education, focusing on the distribution of welfare gains and losses across households by income. We argue that the topping-up option available under uniform vouchers is not sufficiently valuable for the poorer households, so the voucher regime is defeated at the polls. Our result is robust to partial voter turnout and efficiency differences between public and private schools, but depends critically on the opting-out feature in the current system.     

THE INCOME UNIT AND THE ANATOMY OF INCOME DISTRIBUTION*

This paper focuses on a neglected aspect of the treatment of the income unit in the construction of size distributions of income. If the size distribution is to be an indicator of the distribution of economic welfare, and if the economic welfare of each individual in society is to count equally, then conventional distributions are inconsistent with individualistic welfare functions. We estimate size distributions with each person's welfare weighted equally, and contrast these results with those weighting each household unit's welfare equally. The choice of weights is shown to affect both the level and the trend in income inequality.     

Trade and industrial structure with large firms and heterogeneity

We develop a model of trade and firm heterogeneity in an oligopolistic setting. This setting generates key differences in terms of modelling setup, modelling predictions and welfare implications with respect to the existing literature on trade and firm heterogeneity. In terms of modelling setup our approach allows us to explore interaction between potentially large heterogeneous firms, in contrast to recent trade literature with heterogeneity and atomistic firms. As a result variables like market price and total sales vary endogenously as different firms enter the market. We offer a solution for the integer problem inherent in small group models, based on stochastic dominance. The model generates testable predictions deviating from the benchmark firm heterogeneity model of Melitz (2003) in terms of the effect of trade liberalisation on markups, market shares, the market price. We also derive predictions on the effect of distance and market size on the probability of zero trade flows and export prices. Our model features the possibility that welfare declines as a result of trade liberalisation. The result in Brander and Krugman (1983), the benchmark model for trade under oligopoly, that welfare unambiguously rises with free entry and might decline without free entry due to increased cross-hauling is reversed. In a setting with heterogeneous instead of homogeneous firms, welfare might decline with free entry. A negative welfare effect without free entry can be ruled out if the firm size distribution is sufficiently dispersed.     

Parallel Trade and its Ambiguous Effects on Global Welfare

The regulation of parallel trade is a fiercely debated issue in the global trading system. This paper investigates the welfare effects of parallel trade freedom for different levels of trade costs and market size. It is found that parallel trade freedom has a positive effect on global welfare if countries are sufficiently heterogeneous in terms of market size and trade costs are sufficiently low. Contrary to intuition, this result even holds in a situation where parallel trade freedom implies the closure of the smaller market. If, however, countries are virtually homogenous in terms of market size, parallel trade freedom may be detrimental to global welfare for specific levels of trade costs.     

EDUCATIONAL VOUCHERS WHEN THERE ARE PEER GROUP EFFECTS—SIZE MATTERS*

In this article, I study the effects various educational voucher policies have on the sorting of children across schools and the per‐student expenditure levels at these schools, when a child's peer group matters and students differ over income and ability. I find that, depending on the magnitude of the voucher, switching from a public system to a voucher system could entail either welfare gains or losses. All voucher policies under consideration lead to greater inequality than the public system; however, these increases are not monotone in the voucher size.     

Optimum tariffs and patent length in a model of North–South technology transfer

We study a developing country's choice of optimum tariffs and patent length in a theoretical model of trade and technology transfer. A Northern firm chooses whether to export or produce a new good in a Southern country. In the absence of patent protection, a high tariff is required to induce FDI. This reduces Southern welfare when the good is imported. The Southern government can combine a positive patent length with tariffs to reduce this loss and induce FDI. Thus Southern countries may have an incentive to protect patents, although never to the same extent as Northern countries.     

Welfare and Distribution Effects of Water Pricing Policies

In this paper, distribution and welfare effects of changes in block price systems are evaluated. A method is discussed to determine, for a Marshallian demand function, equivalent variation in case of a block price system. The method is applied to compare, for the Metropolitan Region of São Paulo, alternative pricing policies on the basis of their demand, welfare and distribution effects of changing water prices. Results show that there is a trade off between average welfare and income distribution. A pro-poor price system may result in lower average welfare than a flat price system, but in higher individual welfare for the poor. Moreover, there is a trade off between revenues for the water company and income distribution. Even though pro-poor price systems may not be as good for average welfare as flat price systems, their direct effects on poverty are important. Introducing pro-poor price systems, however, may have financial consequences for the water companies.     

Social welfare and the unrepresentative representative consumer

If, for all prices, income distribution is optimal for a planner with a social welfare function, then aggregate demand is the same as that of a single “representative consumer” whose preferences over aggregate consumption are the same as the planner's. This paper shows that the converse is false. Aggregate demand may be the demand function of a representative consumer although the income distribution is not optimal for any social welfare function. The representative consumer may be Pareto inconsistent, preferring situation A to B when all the actual consumers prefer B to A. We give conditions under which existence of a representative consumer implies that the income distribution satisfies first order conditions for optimality. Satisfying the first order optimality conditions for an additively separable social welfare function is essentially equivalent to aggregate demand for every pair of consumers having a symmetric Slutsky matrix.     

Privatization Neutrality Theorem: When a Public Firm Pursues General Objectives

This paper examines the privatization neutrality theorem when a public firm pursues general objectives other than welfare maximization. This theorem states that when the government gives firms optimal subsidies, welfare is exactly the same before and after privatization. However, we present a seemingly paradoxical result. When a public firm incorrectly assumes that subsidies change the welfare size, privatization is necessarily welfare neutral, whereas when the public firm correctly recognizes that subsidies only bring about income redistribution, without affecting welfare, the situations in which neutrality holds are limited.     

Intergenerational transfers and the social discount rate

This paper investigates the relationship between intergenerational asset transfers and the choice of the discount rate for use in cost-benefit analysis in a model of a competitive overlapping generations economy constrained by a socially managed exhaustible resource. Provided that there are no distortions in capital markets and that all agents hold perfect foresight, cost-benefit techniques will result in a Pareto efficient resource allocation if the discount rate is set equal to the market rate of interest. But since the path of the interest rate depends on the level of intergenerational transfers, cost-benefit techniques do not ensure a socially desirable distribution of welfare between generations; a social optimum will result only if intergenerational transfers are properly chosen and enforced. Decentralized private altruism may result in intergenerational transfers that both present and future individuals would agree are too small if members of the present generation attach positive weight to the general welfare of future generations, not simply their personal descendants. In a world where intergenerational transfers are non-optimal, second-best policy-making may imply a constrained optimum that is inefficient. Together, these findings suggest that cost-benefit analysis is at best a partial criterion to policy formulation that should be used only in conjunction with ethical principles that define the proper distribution of welfare between present and future generations.     

A model of income distribution in a revenue-sharing firm

Income distribution within a fixed-membership firm is modeled assuming that all net revenue is distributed to workers. The payment system used is a generalization, for heterogeneous workers, of an income equation first adopted by Sen. We introduce the assumption that payment rates for different workers are chosen to maximize an individualistic welfare function for the firm. A general result for a maximin welfare function is obtained and, using a simulation, we explore the effects of different elasticities of substitution in individual utility functions and different weights put on egalitarianism in the welfare function.     

Subsidy competition and imperfect labor markets

This study presents a two‐country model of subsidy competition for manufacturing firms under labor market imperfections. Because subsidies affect the distribution of firms, subsidies influence unemployment rates and welfare in both countries. We show that when labor market frictions are high, subsidy competition is beneficial, although subsidies under subsidy competition are inefficiently high. In the coordinated equilibrium, the supranational authority provides a subsidy to firms that equal the expected total search costs, which increases the number of firms relative to laissez‐faire and improves welfare relative to laissez‐faire and subsidy competition. Finally, we find that a rise in a country's labor market frictions raises the equilibrium subsidy rate, affects unemployment rates, and lowers welfare.     

Cleaner Technologies and the Stability of International Environmental Agreements

This paper shows that if countries are farsighted when deciding whether to defect from a coalition, then the implementation of cleaner technologies, as embodied by a reduction in the emission per output ratio, may either improve or jeopardize the chances of reaching an international environmental agreement. A small change in the emission per output ratio can result in a discrete jump in the stable size of a coalition and global welfare evaluated under the stable coalition size. In the case of three countries, the grand coalition may be destabilized by the implementation of cleaner technologies, ultimately resulting in higher global emissions and lower global welfare. In the case of more than three countries, implementing cleaner technologies may result in a discrete jump, either upward or downward, of the largest stable coalition size and welfare. We examine both, the case of a flow and that of a stock pollutant. In the latter case, we show that the higher the stock of pollution at the instant when the cleaner technology is implemented, the more likely that a grand coalition of three countries is destabilized. Measures that enhance the natural rate of decay of stock pollutants are shown to have similar effects on the size of stable coalitions to reductions in the emission per output ratio.     

城乡公共福利差距的影响因素研究

长期以来,我国财政投入明显偏向城市的政策使城乡基本公共福利存在着巨大差距。随着我国国民经济的快速发展,国家经济实力的增强,农村公共福利供给有所改善,但城乡在教育、卫生医疗、社会保障、基础公共设施和就业服务等方面存在很大差距。目前,在我国公共福利分配主要由地方财政承担的前提下,区域经济发展不平衡、各地区财力大小的不同等因素是导致我国城乡公共福利差异的主要原因。     

Foreign aid and weakest-link international public goods: An experimental study

In this paper, we investigate efficiency differences between income and in-kind transfers as distribution mechanisms of foreign aid to weakest-link international public goods in a laboratory environment. We find that if there is relatively small difference in country size, then income transfers seem to provide a higher provision of the international public good, and thus higher overall welfare level than that of in-kind transfers. However, if there is a large disparity in country size, then in-kind transfers appear to provide a higher level of IPG provision and higher accompanying global welfare.     

国际贸易、技术进步和中国工业行业的生产率增长

本文研究了一国的最优银行结构怎样随着经济中资本的积累而变化。我们证明了,经济增长过程中,随着资本的积累,最优银行结构所要求的银行规模越来越大。对这种银行结构的偏离会导致福利的严格下降,并有可能使经济中某些成员无法获得银行服务。本文的结论说明,我国作为一个发展中国家,由于资本的相对稀缺,更应该发展中小银行。这样可以促进经济的成长并提高福利。     

Tax Reform with Useful Public Expenditures

We examine the effects of tax reform in an endogenous growth with two types of useful public expenditures. The optimal fiscal policy shifts the tax base to private consumption and generally requires a change in the size of government. If a tax reform holds the size of government fixed to satisfy a revenue‐neutrality constraint, then the reform will be suboptimal; theory alone cannot tell us if welfare will be improved. For some model calibrations, we find that a revenue‐neutral consumption tax reform can result in large welfare gains. For other quite plausible calibrations, the exact same reform can result in tiny or even negative welfare gains as the revenue‐neutrality constraint becomes more severely binding. Overall, our results highlight the uncertainty surrounding the potential welfare benefits of fundamental tax reform.     

Complementarity of willingness to pay and cost heterogeneity under vertical product differentiation: A welfare analysis

Due to the fact that a consumer’s willingness to pay differs between segments, many unregulated industries are price constrained, although the specific costs of market segments also differ. If the product quality is endogenously chosen, we find that third-degree price discrimination increases welfare if a sufficiently pronounced complementarity between the willingness to pay and variable cost heterogeneity is given. This is due to the fact that the monopolist’s incentive for employing a pronounced price dispersion strategy is directly influenced by the consumers’ willingness to pay for the quality of a product. With endogenous product quality, the paper shows that the standard welfare result of third-degree price discrimination compared to uniform monopoly pricing (e.g. that total welfare and consumer surplus both fall if total output does not rise) can be only reversed given the complementarity is sufficiently pronounced.     

城镇化的双重失衡与户籍制度改革

我国当前的城镇化面临着双重失衡,即不同规模城市发展水平的失衡和城市内部户籍与非户籍人口分享城市福利的失衡。本文认为,由于城市中存在许多不依赖于户籍身份的福利,在不同城市发展水平存在巨大差距的条件下,大城市中即使是非户籍居民的福利水平也高于小城市户籍居民的福利水平,剥离城市户籍福利含义的单一改革政策会造成外来人口向大城市进一步集中,最终导致大城市户籍控制加剧,使改革政策具有无效性。因此,应当改变单一地消除城市内部户籍与非户籍居民享受城市福利失衡的改革政策取向,转而致力于缩小不同规模城市经济社会发展水平的失衡。