Redistribution and the marginal cost of public funds

Discussions of the marginal cost of public funds with distortionary taxation are often cast in the framework of a one-consumer economy, while the main justification of distortionary taxes is that they are needed for redistribution. This paper analyzes the issue in a model with heterogeneous consumers and a linear income tax, focusing on the tradeoff between labour market distortions and the redistribution from high-wage to low-wage workers. In an optimal tax system the MCF will be the same for all sources of funds and under certain assumptions less than one. Without optimality the MCF will in general differ between different sources of finance.     

The marginal cost of public funds and tax reform in Africa

In this paper we propose estimates of the marginal cost of public funds (MCF) in 38 African countries. We develop a simple general equilibrium model that can handle taxes on five major tax classes, and can be calibrated with little more than national accounts data. A key feature of our model is the explicit recognition of the informal economy. Our base case estimate of the average MCF from marginal increases in all five tax instruments is 1.2. Focusing on the lowest cost tax instruments in each country, commonly the VAT but not always, the average MCF is 1.1. Finally extending the tax base to include sections of the informal economy by removing some tax exemptions offers the potential for a low MCF source of public funds, and a lowering of MCFs on other tax instruments.     

Tax revenue and the marginal cost of public funds in Sweden

We assess the welfare cost of raising a marginal unit of tax revenue in a balanced-budget, general-equilibrium framework. The calculated social cost of an increment of public funds is sensitive to both the specific type of tax increase and the type of public spending used on the margin. ‘Best-guess’ assumptions on labor supply elasticities yield marginal costs of public funds for different fiscal mixes of between 0.67 and 4.51 at prevailing tax rates in Sweden. Alternative labor supply assumptions well within the range of current estimates substantially affect the results and can imply infinite marginal welfare costs. Marginal welfare costs are also sensitive to assumptions about both the income and substitution effects of labor supply.     

On the marginal cost of public funds and the optimal provision of public goods

This paper argues that, in models with heterogeneous agents, the concept of the marginal cost of public funds (MCPF) will only be useful if it is compared with an analogous concept for the benefit side. The MCPF does not assume a unique value and is not particularly illuminating in and out of itself. Also gone is the benchmark status of MCPF = 1. Turning to the provision of public goods, using a mechanism design approach, the paper constructs a two-stage proof for Kaplow's [Kaplow, L., 1996. The optimal supply of public goods and the distortionary cost of taxation. National Tax Journal 49, 513–533.] proposition concerning the “irrelevance” of labor supply and distributional concerns in public good provision. This highlights the two fundamental ingredients for his result. First, the provision of public goods per se, when it satisfies the Samuelson's rule, is only potentially Pareto-improving. Second, the actual Pareto improvement will materialize when, or if, one reforms the income tax structure. If the reform is not forthcoming, the decision on public goods provision must rely on redistributional concerns. Finally, the paper generalizes Broadway and Keen's [Boadway, R., Keen, M., 1993. Public goods, self-selection and optimal income taxation. International Economic Review 34, 463–478.] result to a model with many types of agents, many private goods and without making any assumptions regarding which self-selection constraints are or are not binding.     

Optimal incentives for labor force participation

Optimal taxation is analyzed under a Rawlsian criterion in an economy where the only decision of the agents is to participate, or not, to the labor force. The model allows for heterogeneity both in the agent's productivities and aversions to work. At a first-best optimal schedule, the marginal agent who decides to work pockets all of her productivity, while being just compensated for her work aversion. When the planner does not observe work aversion, financial compensation for work is lower than productivity. Theory puts little restrictions on the shape of the optimal tax schedules. The usual first-order conditions involving the elasticities of participation only apply for sufficiently regular economies. We qualitatively show how the optimal incentive schemes depend on the underlying structure of the preferences: 100% marginal tax rates or subsidies to work are related to specific features of the economies.     

Average cost pricing versus marginal cost pricing under moral hazard

This paper presents a general framework for analyzing shadow wages in LDCs. We focus on (i) the differences between the domestic and international prices, (ii) the equilibrating mechanisms in the economy, (iii) the endogeneity of earnings in industry and agriculture, (iv) the consequences of industrial employment creation on agriculture, and (v) the nature of migration and unemployment.We identify those reduced form relationships which are central in determining the shadow wage, and use them to obtain general formulae for the shadow wage. These formulae can be specialized to alternative technological, behavioral, and institutional settings. This yields many new results concerning the relationship between the shadow wage and the market wage. Also, earlier results on shadow wages are derived as special cases of our formulae.     

The impact of stricter criteria for disability insurance on labor force participation

This paper studies the effect of a large-scale policy change in the Austrian disability insurance program, which tightened eligibility criteria for men above a certain age. Using administrative data on the universe of Austrian private-sector employees, the results of difference-in-difference regressions suggest a substantial and statistically significant decline in disability enrollment of 6 to 7.4 percentage points and an increase in employment of 1.6 to 3.4 percentage points. The policy change had important spillover effects into the unemployment and sickness insurance program. Specifically, the share of individuals receiving unemployment benefits increased by 3.5 to 3.9 percentage points, and the share receiving sickness insurance benefits, by roughly 0.7 percentage points.     

Unemployment and labor force participation in the United States

This paper uses historical data from the United States to investigate the relationship between unemployment and labor force participation. Cointegration analysis supports a long-run relationship between these two variables, which leads us to question the empirical relevance of the unemployment invariance hypothesis for the United States.     

Social norms and female labor force participation in urban China

This study investigates the impact of social norms on the labor supply decision of married women in urban China. Our estimation results indicate that men raised by non-working mothers are more likely to support traditional gender roles, are more averse to having working wives, and tend to be less productive or less willing to engage in housework than other men. Consequently, the labor force participation rate of married women with non-working mothers-in-law is 5–18 percentage points lower than that of married women with working mothers-in-law in urban China.     

Commons with increasing marginal costs: random priority versus average cost*

Indivisible units are produced with increasing marginal costs. Under average cost, each user pays average cost. Under random priority, users are randomly ordered (without bias) and successively offered to buy at the true marginal cost. Both average cost (AC) and random priority (RP) inefficiently overproduce. RP tends to overproduce less, but which game collects more surplus depends much on the demand configuration. We show that a key to compare the welfare properties of the two mechanisms is the crowding factor, i.e., the number of potential users over the number of units of output users can afford: The more crowded the commons, the more RP outperforms AC. In the quadratic cost case, beyond the threshold value of 2.4 for the crowding factor, RP strongly outperforms AC; beneath it AC only mildly outperforms RP. Thus the RP mechanism manages crowded commons better than AC.     

Fertility, female labor force participation, and the demographic dividend

We estimate the effect of fertility on female labor force participation in a panel of countries using abortion legislation as an instrument for fertility. We find that removing legal restrictions on abortion significantly reduces fertility and estimate that, on average, a birth reduces a woman’s labor supply by almost 2 years during her reproductive life. Our results imply that behavioral change, in the form of increased female labor supply, contributes significantly to economic growth during the demographic transition when fertility declines.      

The association of pain with labor force participation,absenteeism, and presenteeism in Spain

Abstract

Objectives:

The aims of this paper are to generate estimates of the association between the severity and frequency of pain in Spain and (i) labor force participation and workforce status and (ii) patterns of absenteeism and presenteeism for the employed workforce.

Methods:

Data are from the internet-based 2010 National Health and Wellness Survey (NHWS). This survey covers both those who report experiencing pain in the last month as well as the no-pain population. An estimated 17.25% of adults in Spain report experiencing pain in the past month. A series of regression models are developed with the no-pain group as the reference category. The impact of pain, categorized by severity and frequency, is assessed within a labor supply framework for (i) labor force participation and (ii) absenteeism and presenteeism. Both binomial and multinomial logistic models are estimated.

Results:

The results demonstrate that severe and moderate pain has a significant, substantive, and negative association with labor force participation and, together with the experience of mild pain, a substantive impact on absenteeism and presenteeism within the employed workforce. Compared to no-pain controls, the strongest association is seen in the case of severe pain, notably severe daily pain and labor force participation (odds ratio 0.363; 95% CI: 0.206–0.637). The association of severe pain with labor force participation is also significant (odds ratio 0.356; 95% CI: 0.217–0.585). There is a clear gradient in the association of pain severity and frequency with labor force participation. The impact of pain is far greater than the potential impact of other health status measures (e.g., chronic comorbidities and BMI). Labor force participation is also adversely associated with pain experience. Persons reporting severe daily pain are far more likely not to be in the labor force (relative probabilities 0.339 vs 0.611). The experience of pain, notably severe and frequent pain, also outstrips the impact of other health status factors in absenteeism and presenteeism. In the former case, the odds ratio associated with severe daily pain is 16.216 (95% CI: 5.127–51.283), which contrasts to the odds ratio for the Charlson comorbidity index of 1.460 (95%CI: 1.279–1.666). Similar results hold for presenteeism. The contribution of moderate and mild pain to absenteeism and presenteeism is more marked than for labor force participation.

Conclusions:

The experience of pain, in particular severe daily pain, has a substantial negative impact both on labor force participation in Spain as well as reported absenteeism and presenteeism. As a measure of health status, it clearly has an impact that outstrips other health status measures. Whether or not pain is considered as a disease in its own right, the experience of chronic pain, as defined here, presents policy-makers with a major challenge. Programs to relieve the burden of pain in the community clearly have the potential for substantial benefits from societal, individual, and employer perspectives.     

Long run trends in unemployment and labor force participation in urban China

Unemployment rates in countries across the world are strongly correlated with GDP. China is an unusual outlier from the pattern, whose official government statistics show abnormally low, and suspiciously stable, unemployment rates relative to its GDP. This paper reports estimates of China’s unemployment rate for its local urban Hukou population using a more reliable, nationally representative dataset for that population than in prior work, and which spans a longer period of history than in the past literature. The unemployment rates we calculate differ dramatically from those supplied in official data and are much more consistent with what is known about key historical developments in China’s labor market. The rate averaged 3.7% in 1988–1995, when the labor market was highly regulated and dominated by state-owned enterprises, but rose sharply during the period of mass layoff from 1995 to 2002, reaching an average of 9.5% in the subperiod from 2002 to 2009. The rates were even higher when demographic composition is held fixed. We can also calculate labor force participation rates, which are not available in official statistics at all. We find that they declined throughout the whole period, particularly in 1995–2002 when the unemployment rate increased most significantly. We also find that the impacts of these changes fell most heavily on the unskilled (women, those with less education, and younger individuals). Finally, estimates of unemployment and labor force participation rates are also provided for all urban residents, including migrants without local urban Hukou, and show the same patterns of change over time.     

Smooth transition trends and labor force participation rates in the United States

This paper employs smooth transition trend models to investigate the long-run time series behavior of quarterly US labor force participation rates. In particular, we examine whether long-run growth in labor force participation rates can be modeled by smooth transitions between states rather than as abrupt mean level changes or as a stochastic trend. Smooth transitions permit for non-instantaneous adjustment of individual workers to changes associated with economic events or general labor market conditions. We employ unit root testing procedures with alternatives characterized by stationary fluctuations around one or two smooth transitions in linear trend. We examine labor force participation rates by gender- and age-specific groups. The results indicate that all female and most male participation series are better characterized as stationary processes that undergo transitional deterministics.     

Sources of crime in the state of Veracruz: The role of female labor force participation and wage inequality

Abstract

In recent years, crime has become a serious concern in Mexico as its increase has detrimentally affected government institutions and economic growth. There is considerable speculation among policy analysts about the causes of the increase in crime. Whereas some analysts attribute the increase to a rise in income inequality, others believe internal migration and a loss of morals are the roots of criminal behavior. This research shows that at least for the Mexican state of Veracruz, wage inequality and labor force participation have an important impact on crime. When gender is considered, however, the impact is more complicated than it seems. An increase in women's labor force participation decreases the overall number of alleged violent offenders. However, the number of alleged rapists and grievous bodily harm offenders increases as women's wage distribution improves. The results shed light on the gender dimensions of the economics of crime.