Housing Subsidies and Work Incentives in Great Britain

The relationship between housing costs, wages and transfer programmes is complex yet helps determine the incentive to work for individuals in low income or high housing cost households. We estimate a static discrete choice labour supply model that allows for housing benefit programme participation, using samples of married women and unmarried women drawn from Great Britain Family Resources Surveys 1994/5–97/8. We find women are quite responsive to labour supply incentives and that housing benefit income has similar incentive effects to earned income which suggests any 'stigma' is small. Our analysis is complemented by simulating housing benefit and direct rent subsidy reforms.     

城市居民居住区位选择微观机制的实证研究——以万科青青家园为例

随着我国城市住房分配制度的变革,居民由被动的接受住房转变为根据自己的偏好进行主动的选择,消费者在住房市场的主体地位得以确立。文章以“万科青青家园”为例,采用比奇的分异度指数和GIS分析方法,对购房者的社会属性特征、工作地、原居住地等微观因素与居住地选择的关系进行了研究。研究表明,在微观居住区位的选择上,具有相同社会经济属性的群体趋向于选择相同的居住区位,社会经济属性的作用和居住分异现象在居住区位选择中开始凸显;受房价和经济实力的约束,年轻型家庭居住区位的选择方向已向郊区外移;对于有子女的家庭来说,教育资源的丰富与否则是居住区位决策的重要因素之一;现工作地和居住地之间的通勤时间对居住区位的选择具有决定性的影响;家庭生命周期、原居住地、消费观念和信息搜寻等对微观居住区位的选择具有一定影响。     

The Division of Labor, Inequality and Growth

We present a model that links the division of labor and economic growth with the division of wealth in society. When capital market imperfections restrict the access of poor households to capital, the division of wealth affects individual incentives to invest in specialization. In turn, the division of labor determines the dynamics of the wealth distribution. A highly concentrated distribution of wealth leads to a low degree of specialization, low productivity, and low wages. In that case workers are unable to accumulate enough wealth to invest in specialization. Hence, in a highly unequal society, there is a vicious cycle in which the degree of specialization, productivity and wages stay low, wealth and income inequality stays high and the economy stagnates. By contrast, greater equality increases investment in specialization and leads to a greater division of labor and higher long run development.     

Financial market frictions in a model of the Euro area

We build a model of the euro area incorporating financial market frictions at the level of firms and households. Entrepreneurs borrow from financial intermediaries in order to purchase business capital, in the spirit of the “financial accelerator” literature. We also introduce two types of households that differ in their degree of time preference. All households have preferences for housing services. The impatient households are faced with a collateral constraint that is a function of the value of their housing stock. Our aim is to provide a unified framework for policy analysis that emphasises financial market frictions alongside the more traditional model channels. The model is estimated by Bayesian methods using euro area aggregate data and model properties are illustrated with simulation and conditional variance and historical shock decomposition.     

Immigrant decisions concerning duration of stay and migratory frequency

"The temporary and repetitive character of contemporary labor migration is explained by assuming that immigrants have a preference for location. A life-cyle model of immigrant behavior is developed to determine net lifetime income, total time allocated to home-country and foreign-country residence, and the number of migratory trips. Because of income effects, home wages and foreign wages are not symmetric in their effect on the location of work effort. It is also shown that changes in travelling costs have predictable consequences for the number of border crossings, but not for the total time spent in the foreign labor market." The emphasis is on labor migration to developed countries.     

How much does household collateral constrain regional risk sharing?

We construct a new data set of consumption and income data for the largest US metropolitan areas, and we show that the extent of risk-sharing between regions varies substantially over time. In times when US housing collateral is scarce nationally, regional consumption is about twice as sensitive to income shocks. We also document higher sensitivity in regions with lower housing collateral. Household-level borrowing frictions can explain this new stylized fact. When the value of housing relative to human wealth falls, loan collateral shrinks, borrowing (risk-sharing) declines, and the sensitivity of consumption to income increases. Our model aggregates heterogeneous, borrowing-constrained households into regions characterized by a common housing market. The resulting regional consumption patterns quantitatively match those in the data.     

Migration and urban poverty and inequality in China

Using data from recent surveys of migrants and local residents in ten cities in 2005, this paper examines how migration influences measurements of urban poverty and inequality in China, and also compares how other indicators of well-being differ for migrants and local residents. Contrary to previous studies that report that the income poverty rate of migrant households is 1.5 times that of local resident households, we find relatively small differences in the poverty rates of migrants and local residents. Although the hourly wages of migrants are much lower than those of local residents, migrant workers work longer hours and have lower dependency ratios and higher labor force participation rates. Including migrants increases somewhat measures of urban income inequality. Significant differences between migrants and local residents are found for non-income welfare indicators such as housing conditions and access to social insurance programs.     

Fertility and housing

Young households in Hong Kong face particularly steep increases in house prices and low fertility despite low gender wage gaps. The model of fertility and housing in this paper explains why fertility decline need not reverse as female wages rise relative to male wages where housing land is scarce. For given house prices, demand for children may rise with female relative wages if housing comprises a sufficiently large share of childrearing. If the user cost of housing falls with rising house prices then fertility also rises. For endogenous house prices, however, growth in wages and a burgeoning working age population raises the market price of housing. In turn, fertility no longer rises with female relative wages. The analysis provides a novel mechanism whereby high population support ratios depress fertility and the results fit recent evidence that house prices affect fertility.     

The Household, Time Use and Tax Policy

This paper is concerned with modelling household decisions andthe welfare effects of tax policy. It seeks to emphasise theimportance of a model that incorporates household productionand can take account of the evident female labour supply heterogeneityacross two-parent families. If, after having children, someproportion of households substitute domestic for market laboursupply, the income and consumption variables used as the taxbase in most countries may be poorly correlated with livingstandards. Taxes and welfare programs based on these variablesmay increase inequality by shifting the overall tax burden tolow and middle wage families with both partners in work, awayfrom families with much higher wages and in which only one memberworks to earn the same joint market income. The paper combinesdata on time use, income, taxes and benefits to show how theytrack female labour supply over the life cycle, resulting inmuch higher tax burdens on two-earner households. (JEL D13,D91, H31, J22)     

Wealth inequality and employment fluctuations

This paper is concerned with the business cycle dynamics in search and matching models of the labor market when agents are ex-post heterogeneous. We focus on heterogeneity caused by different labor market histories and the resulting wealth inequality they generate. We show that this inequality implies wage rigidity relative to a complete insurance economy. The fraction of wealth poor agents prevents real wages from falling too much in recessions, since small decreases in income imply large losses in utility. Analogously, wages rise less during expansions than in models with homogeneous workers as small increases are enough for poor workers to accept job offers. This mechanism reduces the volatility of wages but generates more volatile employment levels.     

Housing Allowance and the Rent of Low‐income Households

This paper analyses the effect of a housing allowance programme on the rent paid by assisted low‐income households. The data consist of 12,000 rental households in the free‐market and municipal sectors. The effect is estimated using the programme reform of 2002 as an instrument. The reform increased the allowance of the assisted households depending on housing characteristics, but it had little effect on the eligibility. Results suggest that in the private sector, one additional euro of allowance increases the rent of claimants by 60–70 cents. The effect is zero in the municipal sector, as rents are tied to the housing costs.     

Income Distribution,Household Debt and Growth in Modern Financialized Economies

Abstract:

We analyze some core features of the institutional transformation of the Canadian and U.S. economies over the last half century, as they became increasingly financialized economies resting on household consumption as the key contributor to economic growth, despite weak growth in real wages and personal disposable income. This growth in consumption spending is highly fragile not only because it is a debt-led growth that has relied on an unsustainable expansion of household indebtedness largely dependent on credit bubbles in the housing market, but also because of the perverse form of this indebtedness. Studied from the angle of disaggregated household consumption/saving behavior, it is the poorest and most vulnerable households who have been building up unsustainable debt, thereby presaging increasing financial fragility and crises.     

Optimal unemployment insurance and redistribution

We characterize optimal income taxation and unemployment insurance in a search‐matching framework where both voluntary and involuntary unemployment are endogenous and Nash bargaining determines wages. Individuals decide whether to participate as job seekers and if so, how much search effort to exert. Unemployment insurance trades off insurance versus search and participation incentives. We also allow for different productivity types so there is a redistributive role for the income tax and show that a piecewise linear wage tax internalizes the macro effects arising from endogenous wages. Type‐specific lump‐sum taxes and transfers can then redistribute between individuals of differing skills and employment states. Our analysis embeds optimal unemployment insurance into an extensive‐margin optimal redistribution framework where transfers to the involuntarily and voluntarily unemployed can differ, and nests several standard models in the literature.     

An econometric model of tenure choice and demand for housing as a joint decision

This paper models a household's choice of tenure and demand for housing services as a joint decision imposing the restriction that both discrete and continuous decisions are derived from a single preference ordering. The utility index for households is the translog form of the reciprocal indirect utility function allowing for random preferences. Each household chooses between the two main tenures, the owner-occupied and subsidised rental sectors, but households may be rationed in either or both of these sectors and refused admission, in which case they are assumed to enter the third sector, uncontrolled rental. The model is estimated on UK data for 5895 households.     

Asset price fluctuations without aggregate shocks

We analyze the pricing of a productive asset in a class of dynamic exchange economies with heterogeneous, infinitely-lived agents, and self-enforcing intertemporal trades. Individual incomes fluctuate and are correlated; preferences, dividends and aggregate income are fixed. Almost all economies in this class have a unique stationary Markovian equilibrium with fluctuations in asset prices. As the set of unrationed households changes over time and states, excess demand functions shift, asset returns fluctuate, and some households are shut out of asset markets. Examples suggest that the amplitude of these movements is negatively correlated with the productivity of the asset and with the penalty for default.     

Portfolio choice with internal habit formation: a life-cycle model with uninsurable labor income risk

Motivated by the success of internal habit formation preferences in explaining asset pricing puzzles, we introduce these preferences in a life-cycle model of consumption and portfolio choice with liquidity constraints, undiversifiable labor income risk and stock-market participation costs. In contrast to the initial motivation, we find that the model is not able to simultaneously match two very important stylized facts: a low stock market participation rate, and moderate equity holdings for those households that do invest in stocks. Habit formation increases wealth accumulation because the intertemporal consumption smoothing motive is stronger. As a result, households start participating in the stock market very early in life, and invest their portfolios almost fully in stocks. Therefore, we conclude that, with respect to its ability to match the empirical evidence on asset allocation behavior, the internal habit formation model is dominated by its time-separable utility counterpart.     

On the user cost and homeownership

This paper studies the differences in the cost of housing services for renters and homeowners and calculates the bias that results when we value owner-occupied housing services using a rental equivalence approach. Our framework is a life-cycle model with endogenous tenure choice with households facing idiosyncratic uninsurable earnings risk and housing price risk. We model houses as illiquid assets that provide collateral for loans. To analyze the impact of preferential housing taxation on the tenure choice and the bias, we consider a tax system that mimics that of the US economy. Namely, owner-occupied housing services are not taxed and mortgage interest payments are deductible. Through simulations, we show that a rental equivalence approach (relative to a user cost approach) overestimates the cost of housing services. The magnitude of the bias is very sensitive to both the income tax rate and the size of adjustment costs in the housing market.     

Cyclical wage movements in emerging markets compared to developed economies: The role of interest rates

This paper documents that, at the aggregate level, (i) real wages are positively correlated with output and, on average, lag output by about one quarter in emerging markets, while there are no systematic patterns in developed economies, and (ii) real wage volatility (relative to output volatility) is about twice as high in emerging markets compared with developed economies. We then present a small open economy model with productivity shocks and countercyclical interest rates. The model incorporates a working capital requirement and the Jaimovich and Rebelo (2009) preference that allows for flexible parameterization of the strength of income effects on labor supply. The model can account for the high volatility of wage and consumption relative to output and countercyclical trade balances that characterize emerging-market economies. During economic downturns, rising interest rates in emerging markets induce relatively large income effects on labor supply, so households would not reduce their labor input as much even though wages drop significantly.     

Optimal age‐dependent income taxation in a dynamic extensive model: The case for negative participation tax on young people

We consider optimal age‐dependent income taxation in a dynamic model where the labor‐leisure choice is the extensive margin, each household faces idiosyncratic shocks to labor productivity and a pecuniary cost to work, and there is no insurance market against the shocks. We show that the well‐known property of the optimal participation tax rate in the static model continues to hold in our dynamic economy, that is, the participation tax rates for some income groups with low consumption are likely negative. In dynamic models, the optimal participation tax rate depends on age and on labor income. Our numerical simulations suggest that a negative participation tax should be restricted to young households.     

Housing investment in urban China

What explains the rapidly increasing housing investment demand in China? To address this question, we develop an analytical framework featuring how expected capital gains impact households' housing investment decisions when subject to financial constraints. Housing demand in China takes place not only through households' owning multiple houses, but also through their owning a larger primary living residence if they are constrained from buying multiple houses. We show that households are more likely to own multiple houses when expecting higher capital gains. As expected capital gain increases, the primary housing demand of those households who are constrained from owning multiple houses increases, while those owing multiple housing units invest in extra ones instead of improving primary housing. Our empirical findings, based on 2010 and 2011 household survey data, are consistent with our theoretical predictions. We also find that the marginal effect of expected capital gains is higher for wealthier households. This links the booming housing market to widening income inequality which is a typical growth pain in a developing country like China. As an extension, we apply the analysis to derive implications of the institutional features (such as purchasing restriction policy and the existence of subsidized housing) for China’s housing markets.