Social security and economic integration

This letter analyzes the impact of economic integration on capital accumulation and capital flows when countries differ in their social security systems. Funding and early retirement both foster capital accumulation relative to pay-as-you-go pensions with flexible retirement. When economies integrate, both imply capital outflow possibly resulting in utility losses.     

Optimal tax progressivity in unionised labour markets: What are the driving forces?

In labour markets with collective wage bargaining higher progressivity of the labour income tax creates a trade-off. On the one hand, wages are lowered and unemployment decreases, on the other hand, the individual labour supply decision is distorted at the hours-of-work margin. The optimal level of tax progressivity within this trade-off is determined using a numerical general equilibrium model with imperfect competition on the goods market, collective wage bargaining and a labour-supply module calibrated to empirically plausible elasticity values. The model is calibrated to macroeconomic and institutional parameters of both the OECD average and a number of individual OECD countries. In most cases the optimal degree of tax progressivity is below the actual level. A decomposition approach shows that the optimal level is increased by high unemployment and by the general tax level.     

A microfoundation for increasing returns in human capital accumulation and the under-participation trap

This paper considers educational investment, wages and hours of market work in an imperfectly competitive labour market with heterogeneous workers and home production. It investigates the degree to which there might be both underemployment in the labour market and underinvestment in education. A central insight is that the ex post participation decision of workers endogeneously generates increasing marginal returns to education. Although equilibrium implies underinvestment in education, optimal policy is not to subsidise education. Instead it is to subsidise labour market participation which we argue might be efficiently targeted as state-provided childcare support.     

Pirates and fishermen: Is less patrolling always bad?

Motivated by the Somali fishermen-pirates, I explore the time allocation decision of potential pirates between piracy and an alternative non-violent occupation, fishing, when the returns of both piracy and fishing are sensitive to patrolling intensity. For a range of parameters, the static model yields multiple equilibria, an “efficient” one with no patrolling and low piracy, a less efficient equilibrium with intermediate levels of both piracy and patrolling and a highly inefficient high-patrolling high-piracy equilibrium. Analyzing the dynamic analogue, I obtain the surprising result that sufficiently low patrolling can be a good strategy.     

Optimal Factor Taxation under Wage Bargaining: A Dynamic Perspective

Abstract. We consider the issue of steady-state optimal factor taxation in a Ramsey-type dynamic general equilibrium setting with two distinct distortions: (i) taxes on capital and labour are the only available tax instruments for raising revenues and (ii) labour markets are subject to an inefficiency resulting from wage bargaining. If considered in isolation, the two distortions create conflicting demands on the wage tax, while calling for a zero capital tax. By combining the two distortions, we arrive at the conclusion that both instruments should be used, implying that the zero capital tax result in general is no longer valid under imperfectly competitive labour markets.     

Child abuse: Does public enforcement crowd out private vigilance?

We investigate whether increased public reporting of child abuse crowds out private reporting. We find, despite theoretical models suggesting significant crowding out, that public and private reports have risen nearly equiproportionately and that crowding out is small and not significant.     

When is multidimensional screening a convex program?

A principal wishes to transact business with a multidimensional distribution of agents whose preferences are known only in the aggregate. Assuming a twist (= generalized Spence-Mirrlees single-crossing) hypothesis, quasi-linear utilities, and that agents can choose only pure strategies, we identify a structural condition on the value b(x,y) of product type y to agent type x — and on the principal?s costs c(y) — which is necessary and sufficient for reducing the profit maximization problem faced by the principal to a convex program. This is a key step toward making the principal?s problem theoretically and computationally tractable; in particular, it allows us to derive uniqueness and stability of the principal?s optimal strategy — and similarly of the strategy maximizing the expected welfare of the agents when the principal?s profitability is constrained. We call this condition non-negative cross-curvature: it is also (i) necessary and sufficient to guarantee convexity of the set of b-convex functions, (ii) invariant under reparametrization of agent and/or product types by diffeomorphisms, and (iii) a strengthening of Ma, Trudinger and Wang?s necessary and sufficient condition (A3w) for continuity of the correspondence between an exogenously prescribed distribution of agents and of products. We derive the persistence of economic effects such as the desirability for a monopoly to establish prices so high they effectively exclude a positive fraction of its potential customers, in nearly the full range of non-negatively cross-curved models.     

Redistribution and Subsidies for Higher Education

The financing of higher education through public spending imposes a transfer of resources from taxpayers to university students and their parents. We provide an explanation for this phenomenon. Those who attend institutions of higher education will earn more income in the future and will pay more taxes. People whose children do not receive higher education, however, should agree to help pay the cost of such education, providing that taxes are sufficiently high to ensure an adequate redistribution in favor of their own children at some time in the future.
JEL classification : D 71; H 21; H 52     

The efficient side of progressive income taxation

This paper examines allocative properties of progressive income taxation when individuals care about their relative income. It shows that introducing a progressive income tax can yield a Pareto improvement if pre-tax income is evenly distributed. Implementing undistorted choices of working hours requires a progressive tax schedule, and the optimal degree of progressivity decreases with pre-tax income inequality.     

LABOUR‐MARKET ATTACHMENT AND TRAINING PARTICIPATION*

This paper examines how expected attachment to the labour market and expected tenure at a specific firm affect training participation. The results, based on cross‐sectional data from Japan, indicate that expected attachment to the labour market affects participation in both employer‐ and worker‐initiated training, while expected tenure at a specific firm mainly explains participation in employer‐initiated training. These two attachment indices explain more than two‐thirds of the sex gap in training participation. Employers in less‐competitive labour markets are more likely to offer employer‐initiated training to their workers.