EMPLOYMENT EFFECTS OF HEALTH SHOCKS: THE ROLE OF FRINGE BENEFITS

This paper examines whether health shocks influence labour supply. Estimates rely on detailed health measures that not only are more homogeneous than commonly‐used self‐reported health measures, but they also can be interpreted as plausibly exogenous with respect to labour supply. Further, this paper investigates the unique role that certain fringe benefits, namely health insurance and paid sick leave, play in the link between health shocks and subsequent employment activity. Results show that, compared to commonly‐used self‐reported measures of health, health problems defined by the US government as ‘priority’ conditions correlate with smaller labour supply shifts, but non‐work‐related injuries lead to larger shifts. Second, the arrival of a health shock appears to reduce the probability of remaining employed full time, while also increasing the likelihood of quitting work. Relatively few full‐time workers who acquire health problems switch to part‐time employment. Third, in the event of a health shock, sick leave appears to facilitate reductions in employment activities, while employer‐provided insurance appears to hinder such adjustments.     

THE WELFARE GAINS OF AGE‐RELATED OPTIMAL INCOME TAXATION

Using an overlapping generations model with skill uncertainty and private savings, we quantify the gains of age‐dependent labor income taxation. The total steady‐state welfare gain of switching from age‐independent to age‐dependent nonlinear taxation varies between 2.4% and 4% of GDP. Part of the gain descends from relaxing incentive–compatibility constraints and part is due to capital‐accumulation effects. The welfare gain is of about the same magnitude as that which can be achieved by moving from linear to nonlinear income taxation. Finally, the welfare loss from tax‐exempting interest income is negligible under an optimal age‐dependent labor income tax.     

WELFARE LOSSES FROM NON‐TARIFF BARRIERS: THE JAPANESE BEEF QUOTA CASE*

A standard method of estimating deadweight losses caused by import quotas is to estimate a utility function by data over a period in which the quota is not imposed, and to use the estimated utility function to evaluate the virtual price of quota‐laden imports. This method, however, is not applicable if preferences are different between quota and non‐quota periods. In order to overcome this difficulty, the present study introduces a method of estimating a utility function directly from data in a quota period. This method is applied to the estimation of deadweight losses attributable to the Japanese beef quota.     

ESTIMATING INCENTIVE AND WELFARE EFFECTS OF NONSTATIONARY UNEMPLOYMENT BENEFITS

The distribution of unemployment duration in our equilibrium matching model with spell‐dependent unemployment benefits displays time‐varying exit rates. Building on semi‐Markov processes, we translate these rates into an expression for the aggregate unemployment rate. Structural estimation using German microdata allows us to discuss the effects of an unemployment benefit reform (Hartz IV). The reform reduced unemployment by less than 0.1 percentage points. Contrary to general beliefs, the net wage for most skill and regional groups increased. Taking the insurance effect of unemployment benefits into account, however, the reform is welfare reducing for 76% of workers.     

TEMPORARY EMIGRATION AND WELFARE: THE CASE OF LOW‐SKILLED LABOR

This article studies the implications of temporary emigration for the welfare of a source country. The framework is one of general equilibrium, where the economy's stocks of both capital and labor are endogenously determined by the saving and migration decisions of optimizing agents. Simulations of the model suggest that for realistic values of the parameters, welfare of nonmigrants of the source country is maximized when the migrants are employed abroad for a period in the range of roughly 8–12 years. The ideal duration is found to be an increasing function of the international wage differential, migration costs, and the degree to which the rights of migrants are protected in the host country.     

THE WELFARE EFFECTS OF UPSTREAM MERGERS IN THE PRESENCE OF DOWNSTREAM ENTRY BARRIERS*

We examine the incentives for upstream firms to consolidate horizontally and the impact of this process on industry performance, when there are downstream entry barriers and firms negotiate bilaterally. In the short run, consumers are not worse off with upstream mergers, since consolidation only results in a redistribution of industry rents. In the long run, consumers are better off after upstream mergers, since they induce more entry into that segment. When social welfare is evaluated, a limit on upstream consolidation may prevent excessive entry; but upstream entry can be sometimes insufficient, if the retailers' intrinsic bargaining power is excessive.     

CREDIT CRUNCH AND HOUSEHOLD WELFARE,THE CASE OF THE KOREAN FINANCIAL CRISIS*

We examine how the credit crunch in Korea in the late 1990s affected household behaviour and welfare. Using 1996–1998 household panel data, we estimate a consumption Euler equation, augmented by endogenous credit constraints. Korean households coped with the negative shocks of the 1997 credit crunch by reducing consumption of luxury items while maintaining food, education and health related expenditures. Our results show that, in 1997–1998, during the crisis, the probability of facing credit constraints and the resulting expected welfare loss from the binding constraints increased significantly, suggesting the gravity of the credit crunch at the household level.     

GROWTH AND WELFARE EFFECTS OF AN ENVIRONMENTAL TAX‐BASED PUBLIC PENSION REFORM*

This paper presents an overlapping generations model in which: (i) firms create emissions as by‐products of production; and (ii) tax revenue from the working young is transferred to the retired elderly as pay‐as‐you‐go pension benefits. The paper focuses on a replacement ratio, which measures the proportion of after tax work earnings replaced by the public pension, and considers a replacement ratio neutral reform in which the newly introduced environmental tax is devoted to cutting the social security tax, keeping the replacement ratio unchanged. It is shown that the reform may improve growth, environmental quality and the nonenvironmental utility of every generation.     

THE LORENZ ORDER AND THE EFFECTS OF TAXATION POLICIES

To any finite population of n individuals with associated incomes x ₁…, x _n we can associate a Lorenz curve. By associating this population with a random variable X representing the income of a randomly chosen individual of the population, the concept of a Lorenz curve and the associated partial order (the Lorenz Order) based on nested Lorenz curves is readily extended to be defined in the class of all non-negative integrable random variables. In this context well known results on inequality attenuating and inequality rank preserving taxation policies are found to admit simple more general proofs. Some results on the effects of random taxation are also reviewed. The effects of applying different taxation policies within subpopulations lead one to consider questions regarding inequality attenuation results in mixture settings. It is observed that, more generally, inequality comparisons can be unambiguously made between any non-negative variables even if measured in dissimilar units.     

THE WELFARE EFFECTS OF FOREIGN CAPITAL INFLOW WITH TARIFF-RIDDEN AND QUOTA-RESTRICTED IMPORTS*

The welfare effects of foreign capital inflow and changes in the foreign price and tariff rate of a tariff-ridden imported good are considered for a small country for both 3 times 2 and 3 times 3 trade models with a quota-restricted imported good (whose special case is a nontraded good). For the 3 times 2 model, foreign capital inflow does not affect home welfare when there is no tariff on imports, but it harms the home country if a tariff is imposed on the imports to the extent that the tariff-ridden imported good is more capital intensive than the exported good. On the other hand, for the 3 times 3 model the foreign-capital inflow benefits the home country if the tariff rate is below a certain level under the analogous capital-intensity assumptions. The welfare effects of changes in the foreign price of the tariff-ridden good and its tariff rate remain the same for both models.     

ON THE WELFARE EFFECTS OF CREDIT ARRANGEMENTS

This article studies the welfare effects of credit arrangements and how these effects depend on the trading mechanism and inflation. In a competitive market, credit arrangements can be welfare reducing, because high consumption by credit users drives up the price level, reducing consumption by money users who are subject to a binding liquidity constraint. By adopting an optimal trading mechanism, however, these welfare implications can be overturned. Both price discrimination and nonlinear pricing are essential features of an optimal mechanism.     

THE EFFECTIVENESS OF NON‐TRADITIONAL MONETARY POLICY MEASURES: THE CASE OF THE BANK OF JAPAN*

This paper summarizes non‐traditional monetary policy measures adopted by the Bank of Japan (BOJ) during the last 2 decades and by other G7 central banks since the start of the current global financial turmoil and analyses the effectiveness of such measures. The paper begins with a typology of policies usable near the zero lower bound on interest rates. They are: (i) forward guidance of future policy rates; (ii) targeted asset purchases; and (iii) quantitative easing. Using this typology, I review the measures adopted by the BOJ and other central banks. I then offer a news analysis of the effects of the measures adopted by the BOJ on asset prices, comparing them with those adopted by the Fed. Many of the measures, with the exception of strategy (iii), are shown to have moved asset prices in the expected directions. Another exception is that most of the monetary easing measures failed to weaken the yen. Despite some effects on asset prices, however, the measures have failed to stop the deflationary trend of the Japanese economy clearly. I discuss some possible reasons for this and more general implications for monetary policy.     

THE EFFECT OF UNEMPLOYMENT BENEFITS, WELFARE BENEFITS, AND OTHER INCOME ON PERSONAL BANKRUPTCY

Personal bankruptcy, unemployment insurance, and Aid to Families with Dependent Children provide income and wealth insurance. Because they have similar purposes, it should not be surprising that some households use more than one of these programs or that the programs are substitutes. This study contributes to the personal bankruptcy literature by examining this interaction and finds that increases in unemployment benefits decrease the probability of bankruptcy. (JEL D12 , K35 )     

QUALITY AND WELFARE IN MIXED DUOPOLY: EFFECTS OF CAPACITY REDUCTION*

Under rationing of a public service due to its lower price and higher quality, the “privatization” could be regarded as a reduction in the capacity of the public service. We develop a model of mixed duopoly in which the service is vertically differentiated, a public firm is in a Stackelberg leader position, rationing happens, and the market is not covered. In one of two possible cases, it is shown that any reduction in the capacity of a public service will lower total surplus unless the price of the public service is too low and its quality is too high.