‘Flattening’ tax evasion?

We analyze the response of tax evasion to the introduction of a flat tax in several transition economies. Using a novel estimator based on household level data, we show that in most of the countries studied there was no discernible effect on the measured size of unreported income following a flat tax reform. This may imply that decreases in marginal tax rates may frequently have been accompanied by a parallel deterioration in attitudes towards public services and the government in general. The countries that show a response to the flat tax reform appear to be those where satisfaction with government services increased.     

Foreign market conditions and export performance: does ‘crowdedness’ reduce exports?

Abstract This paper analyzes the link between firm exports and the competitive environment in foreign markets. We derive a theory‐based econometric specification linking market‐specific exports to foreign demand and the degree of a market’s ‘crowdedness,’ which depends on the number and efficiency of firms competing there and the barriers impeding their access. Estimates on a large sample of Italian firms indicate that increased crowdedness has reduced Italian exports, but only by 0.2%–0.3% per year. This is substantially less than the contribution of other factors such as higher unit labour costs or weak demand growth in the EU15.     

Substitute or complement? Assessing renewable and nonrenewable energy in OECD countries

The elasticity of interfuel substitution between renewable and nonrenewable energy is key to establishing effective climate change policy. This is the first study to estimate the elasticity of substitution between different fossil fuels and renewable resources. We used 12 manufacturing industry-level datasets for the OECD countries from 1995 to 2009. We found a complementary relationship from nonrenewable energy to renewable energy in eight industries, whereas a substitute relationship was maintained for four industries. In particular, the food and pulp industries had a strong complementary relationship.     

Public and Private Education in an Integrated Europe: Studying to Migrate and Teaching to Stay?

This paper investigates public and private choices between internationally applicable and country‐specific education when graduates are mobile. Human capital depends on innate skills and study effort with either type of education. It is shown that national governments provide too few students with internationally applicable education, and too many with country‐specific education. This effect is mitigated, but not entirely eliminated, by the introduction of a graduate tax, according to which graduates are required to pay part of their taxes to the country where they received their education, regardless of residence. However, private educational choices are socially optimal with suitably differentiated tuition fees.     

Public or Private Sector Wage Leadership? An International Perspective*

Whether a government acts as a wage leader, placing pressure on private‐sector wages (more open to competition), or whether it plays a passive role and merely follows wage negotiations in the private sector, there are important implications for macroeconomic development, particularly in small open economies and/or countries that are members of a monetary union, such as those of the European Monetary Union. With the notable exception of the case of Sweden, opinion on this issue is still divided. In this paper, we look at public‐ and private‐sector wage interactions from an international perspective (18 OECD countries). We focus on the causal two‐way relationship between public and private wage setting, confirming that the private sector, on the whole, appears to have a stronger influence on the public sector, rather than vice versa. However, we also find evidence of feedback effects from public wage setting, which affect private‐sector wages in a number of countries. When the private sector takes the lead on wages, there are few feedback effects from the public sector, while public wage leadership is typically accompanied by private‐sector feedback effects.     

SHORT‐RUN POLICY COMMITMENT WHEN INVESTMENT TIMING IS ENDOGENOUS: ‘MORE HARM THAN GOOD?’

In our model, firms choose when to set cost‐reducing investment and the government, which only has short‐run commitment power, sets an output subsidy. We show that firms that delay investment without government intervention have an incentive to invest early under policy activism, strategically underinvesting or overinvesting to obtain larger subsidies. The policy scheme thus creates a new, potentially more harmful, distortion. Under oligopoly, a firm has a weaker incentive to manipulate policy than under monopoly, which makes policy intervention less harmful. We investigate when the government may do better by adhering to laissez‐faire than by engaging in active policy intervention.     

How do school ‘report cards’ affect school choice decisions?

Abstract. We estimate the effect of information about school achievement that is disseminated to the public through websites and school ‘report cards’ on school choice decisions. We find that students are more likely to leave their school when public information reveals poor school‐level performance. Some parents’ school choice decisions respond to information soon after it becomes available. Others, including non‐English‐speaking parents, alter their school choice decisions only in response to information that has been disseminated widely and discussed in the media. Parents in low‐income neighbourhoods are most likely to alter their school choice decisions in response to new information. JEL classification: I21, D83     

Stochastic Cost Frontier and Inefficiency Estimates of Public and Private Universities: Does Government Matter?

Stochastic frontier analysis is used to estimate operating cost inefficiencies of public and private non-profit universities in the U.S. while also accounting for the possible effects arising from differences in the degree of government ownership. Using panel data for four academic years, 2005?C2009, inefficiencies are estimated under two model specifications. Results indicate that public universities are more cost efficient when environmental factors influence cost frontiers but private universities are the cost efficient institutions when those factors are determinants of inefficiency. Increased government funding does matter and increases private sector inefficiency but offers some efficiency improvements among public universities. Following the global financial crisis, there is evidence indicating a considerable slowdown in the inefficiency growth among both public and private universities.     

On Britain's Return to the Gold Standard: Was there a ‘Pigou–McKenna School’?

It is common to refer to the ‘Keynes–McKenna school’ in opposition to Britain's return to the gold standard. However, after considering A.C. Pigou's reading of Sir Reginald McKenna's testimony to the Chamberlain–Bradbury Committee and the influence of that reading on Pigou's draft of the Committee's report to the British government, the case is made for the ‘Pigou–McKenna school’ as a policy school that was supportive of a return to the gold standard but against doing so prematurely. This is perhaps more meaningful than reference to the ‘Keynes–McKenna school’, which incorrectly implies that McKenna was opposed to Britain returning to gold.     

‘CHOOSE TO BE OPTIMISTIC,IT FEELS BETTER?’ EVIDENCE OF OPTIMISM ON EMPLOYMENT UTILITY

Individual's expected wages exceed predicted market wages. Rational expectations imply the divergence should be zero. If individuals over‐estimate the return from their attributes and view the paid‐employment return distribution too favourably, then conditional on market wages, subsequent employment utility is likely to be low through disappointment.     

‘HAVE YOU FELT ANGRY LATELY?’: A NOTE ON UNFAIR WAGE PERCEPTIONS AND THE NEGATIVE EMOTION OF ANGER

The author analyses the nexus between unfair wage perceptions of workers and the frequency of the negative emotion of anger. For this purpose, German household panel data for the years 2007, 2009, 2011 and 2013 are used. Angry feelings in the last four weeks have occurred significantly more frequently for workers who perceive their wage as unfair, whereas the own absolute hourly wage is not significantly correlated with the frequency of having felt angry. The results further indicate that workers have felt more often angry if working hours are larger; but the economic significance seems rather small compared to unfair wage perceptions.     

Economic Calculation: Private Property or Several Control?

Abstract

As the centenary of the 1917 Russian revolution approaches, it is worth reviewing the past 100 years’ discussion amongst economists on the possibility—or otherwise—of economic planning under socialism. The socialist calculation debate is of fundamental importance, not merely as a specialist application of economic ideas, but as an investigation of the foundations of economic activity. Every economic action is premised upon calculation, every choice depends upon an assessment of the costs and benefits of each alternative between which the agent must choose. The view of that choice and its attendant calculation is constitutive of the schools of thought—Marxian, neoclassical and Austrian—which have contributed to the debate. An understanding of the calculation debate is therefore required to understand how these paradigms stand in relation to each other. This article addresses one aspect of that debate—the claim by Austrian economists that socialism is impossible because the absence of private property in the means of production precludes economic calculation. The article suggests that several control rather than private property is required for economic calculation, and that several control is consistent with public ownership of the means of production. The Austrian argument on this point, therefore, is without force.     

Public investment in developing countries: A blessing or a curse?

This paper analyzes the relationship between public and private investment in developing countries. We set up a simple theoretical model where two countervailing forces coexist. On the one hand, public investment raises the marginal productivity of private capital and leads to potential crowding-in of private investment. On the other hand, weak institutions and restricted access to financing could diminish the positive effects of public investment projects and crowd-out private investment. The empirical results - which exploit both the time series and cross sectional variation in the data using a panel of 116 developing countries with annual observations between 1980 and 2006 - suggest that on average the crowing-out effect dominates. Moreover, we find that this crowing-out effect is dampened (or even reversed) in countries with better institutions - where the marginal productivity of public investment is conceivably higher - and that are more open to international trade and financial flows, such that financing constraints are less binding.