Information shocks and cigarette addiction: views from dynamic panels with common structural changes

In this article we attempt to evaluate the impact of various information shocks on cigarette consumption. In contrast to the existing studies, we do not impose any break points a priori. We use recently developed techniques for sample splitting in the data on US cigarette demand, and find that using a time index as a transition variable can cluster cigarette demand into four distinct regimes. In the past four decades a myopic-to-rational switch in cigarette consumption behaviour was observed in response to various anti-smoking information events. In particular, we find strong evidence in support of the rational addiction model in the 1980s and 1990s. Moreover, in line with the theoretical prediction, our estimate of the long-run elasticity is twice as large as the short-run elasticity. Our empirical framework should improve policy makers' understanding of the dynamics of cigarette consumption in response to various anti-smoking campaigns, and stress the role of sound policy making in improving smoking control measures.     

Public Preferences for Government Spending Priorities: Survey Evidence from Germany

Employing data from a representative survey conducted in Germany, this paper examines public preferences for the size and composition of government expenditure. We focus on public attitudes towards taxes, public debt incurrence and public spending in six different policy areas. Our findings suggest, first, that individual preferences for the use of additional tax money can be categorised as either capital‐oriented expenditure or public debt reduction. Second, we find that fiscal preferences differ along various dimensions. Specifically, personal economic well‐being, economic literacy, confidence in politicians, political ideology and time preference are significantly related to individual attitudes towards public spending, taxes and debt. The magnitude of the effects is particularly large for time preference, economic knowledge and party preference. Third, public preferences for public spending priorities are only marginally affected when considering a public budget constraint.     

Redistributive policy,inequality and growth

Does redistribution increase inequality? Is inequality harmful for growth? Both questions have recently been addressed in a number of single-tax models. In this paper, I examine the relationship between policy, growth and inequality when income and inherited wealth can be taxed at different rates. In the model, parents accumulate human capital and a return-bearing, storable good in order to increase the quality of their children. Inequality arises because the learning ability of children is stochastic. Redistributive labor income taxation has a negative impact on short- and long-run growth while taxation of inherited stocks increases growth. Effects of both taxes on income inequality are ambiguous. A switch from income to inheritance taxation may increase average utility of all generations involved. I calculate a structure-induced equilibrium of the political process by means of a stochastic simulation of the model. In the short run initial wealth-inequality can stimulate growth, while initial inequality of the endowment with human capital is harmful for growth.     

Cigarette and Tobacco Consumption: Have Anti-Smoking Policies Made a Difference?

The consumption of cigarette and tobacco products in Australia is modelled using the rational addiction theory of Becker and Murphy, augmented by data on advertising, regulatory intervention, and demographic factors. Over the past 35 years, price (including tobacco taxes), real income, and demographic effects explain most of the variation in tobacco consumption. Advertising by tobacco companies has had a relatively small direct effect on consumption. Work-place smoking bans and health warnings on cigarette packs have had a relatively minor impact, while anti-smoking advertising and bans on electronic media advertising have had no detectable direct effect.     

Public finance and the optimal speed of transition*

We develop a general equilibrium model that jointly considers the influence of capital accumulation constraints and of labour market frictions on the process of transition. We endogenize the economic and budgetary costs of different government policies and show that, early in transition, governments ought to subsidize state firms. Provided that intertemporal commitment is feasible, this policy limits the initial output fall, which relaxes capital accumulation constraints, accelerates transition, and increases welfare. Moreover, by resorting to indirect – instead of direct – taxes, governments can bring the path of transition closer to the first best. Yet, political pressures may induce a policy of suboptimal subsidization.     

Tax tilting and politics: Some theory and evidence for Latin America

A government budget deficit can exist for at least two possible reasons: tax smoothing and/or tax tilting. Under tax-smoothing, deficits are temporary phenomena resulting from the decision not to vary the tax rate in response to fluctuations in government spending (as a share of output). This is done in order to minimize the distortionary cost of taxes. Tax tilting occurs whenever the government has an incentive to discount the losses to society from taxes at a higher rate than society discounts them; hence it delays taxes or advances spending introducing an upward trend in total government debt. This paper develops a model that implies that tax-tilting tends to increase with political risk. An increase in political risk, measured by the probability of losing power, increases the rate at which the government discounts the future, causing government policy to be relatively more myopic. Hence it delays taxes or advances spending and its deficit increases. Using data from a panel of 19 Latin-American countries for the period 1984–2009, the paper presents estimation results that strongly support the proposition that an increase in political risk increases the degree of tax-tilting.     

On the Cyclicality of Public Finances in Europe

Under EMU, monetary policy is oriented toward the euro area as a whole and fiscal policy is an important instrument remaining in the hands of national governments to cushion economic shocks to individual countries. The current paper analyses the cyclical pattern of public finances in Europe and addresses the question of whether fiscal policies have been geared towards this stabilising role. Although taxes fluctuate countercyclically in a conventional manner, we find that discretionary measures have tended to undermine automatic stabilisers. On the expenditure side, we find that public investment also displays a consistent procyclical pattern. Dynamic analysis reveals that a permanent shock to output induces asynchronous fluctuations in taxes and expenditures in the year of the shock and in periods thereafter. Finally, we examine political and institutional factors. The political fragmentation of the government as well as the partisan hue of the government do not interfere with the cyclical response of public finances, but we do find evidence of a pronounced electoral cycle.     

Optimal sin taxes

We investigate “sin taxes” on unhealthy items, such as fatty foods, that people may (by their own reckoning) consume too much of. We employ a standard optimal-taxation framework, but replace the standard assumption that all consumers have 100% self control with an assumption that some consumers may have some degree of self-control problems. We show that imposing taxes on unhealthy items and returning the proceeds to consumers can generally improve total social surplus. Because such taxes counteract over-consumption by consumers with self-control problems while at the same time they naturally redistribute income to consumers with no self-control problems (who consume less), such taxes can even create Pareto improvements. Finally, we demonstrate with some simple numerical examples that even if the population exhibits relatively few self-control problems, optimal taxes can still be large.     

Exports to Smuggle and Smuggling Technologies*

Our analysis is motivated by cases of cigarette smuggling in Canada and in the UK. In the 1990s, domestic cigarettes were legally exported to be subsequently illegally imported. At first, smuggling was done by individual consumers who bought cigarettes abroad and brought them back through policed points of entry. This Mom and Pop smuggling was a mechanism to implement a second‐degree price discrimination scheme by cigarette manufacturers. Regrets from committing tax evasion and labels on exported cigarettes packs permit vertical differentiation of illegal and legal cigarettes. Paradoxically, labeling measures can make illegal sales more resilient to tax reductions, and stricter border enforcement encourages a switch to a less benign smuggling technology exclusive to criminal organizations. High export taxes terminated export‐to‐smuggle schemes, but brought about a surge of counterfeit cigarettes. Because of a second‐degree price discrimination scheme, the elimination of taxes need not suffice to eradicate smuggling.     

中国古代农业赋税减免政策初探

中国古代赋税政策发生了八次重大的改革,其中不乏有减免农业赋税的政策,这些政策有长期减免赋税以劝农和临时减免赋税以救荒为主,表现出赋税减免政策的周期性、单一性、偏重性和阶级性。这些政策的出台,与中国古代一直奉行的＂重农思想＂、历史条件下的土地制度和政治人士的推动作用是分不开的,它们在一定程度上缓和了阶级矛盾,促进了社会的发展。     

Harmful Addiction

We construct an infinite horizon model of harmful addiction. Consumption is compulsive if it differs from what the individual would have chosen had commitment been available. A good is addictive if its consumption leads to more compulsive consumption of the same good. We analyse the welfare implications of drug policies and find that taxes on drugs decrease welfare while prohibitive policies may increase welfare. We also analyse the agent's demand for voluntary commitment ("rehab"). For appropriate parameters, the model predicts a cycle of addiction where the agent periodically checks into rehab. Between these visits his drug consumption increases each period.     

Political Competition, Rent Seeking and the Choice of Environmental Policy Instruments

This paper investigates the impact of political lobbying on the choice of environmental policy instruments. It is argued that the prevalence of pollution emission standards over more efficient policy instruments may result from rent seeking behaviour. The model further predicts that when an emission standard is used to control pollution, rival political parties have an incentive to set the same standard. There is therefore a convergence of policies. Moreover, it is shown that emission taxes are more likely to be supported and proposed by political parties which represent environmental interest groups. This feature appears to accord with the observed support for environmental taxes by Green parties in Europe, Australia, New Zealand and elsewhere.     

A choice experiment on fuel taxation and earmarking in Norway

Pigouvian taxes are efficient — but unpopular among voters — and hence often politically infeasible. Earmarking of revenues has been widely reported to increase public support for taxes, but earmarking is generally not the most efficient use of the revenues. This trade-off between efficiency and political feasibility is the motivation for our primary research objective: to quantify the effect of earmarking on support for fuel tax rises. Our secondary research objective is to investigate why earmarking increases support. Using data from a representative sample of the Norwegian voter population (N = 1147), we estimate models of voter preferences for fuel taxes using logistic regression models. Our results show that, in the absence of earmarking, the majority of voters would like to reduce fuel taxes, but earmarking the revenues for environmental measures has a substantial effect on voter support for fuel tax increases, garnering a majority for increases of up to 15% above present levels. Further analysis indicates that a prime reason why earmarking for environmental measures is popular is that it increases the perceived environmental effectiveness of the tax, and hence its legitimacy as an environmental rather than a fiscal policy instrument.     

Oligarchy, democracy, and state capacity

We develop a dynamic political economy model in which investment in the state capacity to levy taxes and deter crime is a policy variable, and we study the evolution of state capacity when policy is chosen by an elite. We show that democratization in the sense of expansion of the elite leads to an increased investment in state capacity and to a reduction in illegal activities and has nonmonotonic effects on tax rates as it reduces the willingness of the elite to engage in particularistic spending but enhances its willingness to provide public goods. Depending on initial conditions, consensual political changes may lead either to democratization or to the entrenchment of an immovable elite.     

Fiscal policy under loose commitment

Due to time-inconsistency or political turnover, policymakers' promises are not always fulfilled. We analyze an optimal fiscal policy problem where the plans made by the benevolent government are periodically revised. In this loose commitment setting, the properties of labor and capital income taxes are significantly different than under the full-commitment and no-commitment assumptions. Because of the occasional reoptimizations, the average capital income tax is positive even in the long-run. Also, the autocorrelation of taxes is lower, their volatility with respect to output increases and the correlation between capital income taxes and output changes sign. Our method can be used to analyze the plausibility and the importance of commitment in a wide-class of dynamic problems.     

The political economy of sin taxes

We analyse the determination of taxes on harmful goods when consumers have self-control problems. We show that under reasonable assumptions, the socially optimal corrective tax exceeds the average distortion caused by self-control problems. Further, we analyse how individuals with self-control problems would vote on taxes on the consumption of harmful goods, and show that the equilibrium tax is typically below the socially optimal level. When the redistributive effects of sin taxes are taken into account, the difference between the social optimum and equilibrium is small at low levels of harm, but becomes more pronounced when consumption is more harmful.     

Search,shirking and labor market volatility

This paper proposes a modified version of the standard search and matching model of the labour market that includes a shirking mechanism. We show that our model delivers a close match to the simulated volatilities, correlations and autocorrelations of unemployment, vacancies, labour market tightness and the job finding rate with values observed in US data. In doing so, it outperforms prominent alternative models. Our model also has novel policy implications for the impact of income taxes, subsidies on hiring and employment taxes on unemployment and its volatility.     

Optimal Timing of Climate Change Policy: Interaction Between Carbon Taxes and Innovation Externalities

This paper addresses the impact of endogenous technology through research and development (R&D) on the timing of climate change policy. We develop a model with a stock pollutant (carbon dioxide) and abatement technological change through R&D, and we use the model to study the interaction between carbon taxes and innovation externalities. Our analysis shows that the timing of optimal emission reduction policy strongly depends on the set of policy instruments available. When climate-specific R&D targeting instruments are available, policy has to use these to step up early innovation. When these instruments are not available, policy has to steer innovation through creating demand for emission saving technologies. That is, carbon taxes should be high compared to the Pigouvian levels when the abatement industry is developing. Finally, we calibrate the model in order to explore the magnitude of the theoretical findings within the context of climate change policy.      

MACROECONOMIC POLICY AND ELECTIONS IN OECD DEMOCRACIES*

The purpose of this paper is to test for evidence of opportunistic “political business cycles” in a large sample of 18 OECD economies. Our results can be summarized as follows: 1) We find very little evidence of pre-electoral effects on economic outcomes, in particular, on GDP growth and unemployment; 2) We see some evidence of “political monetary cycles,” that is, expansionary monetary policy in election years; 3) We also observe indications of “political budget cycles,” or “loose” fiscal policy prior to elections; 4) Inflation exhibits a post-electoral jump, which could be explained by either the pre-electoral “loose” monetary and fiscal policies and/or by an opportunistic timing of increases in publicly controlled prices, or indirect taxes.