Is the Optimal Labor Income Tax Progressive in a Unionized Economy?*

This paper concerns optimal nonlinear labor income taxation in an economy with union wage setting and endogenous hours of work. The purpose is to study the determinants of tax progression. We show that the optimal degree of progression of the labor income tax depends on the extent to which the government can influence the wage rate via tax policy as well as on its ability to redistribute income across individuals. In addition, the argument for progressive labor income taxation depends on whether hours of work are chosen by the employed themselves or the union.     

Relative risk aversion, relative prudence and comparative statics under uncertainty: The case of (μ, σ)‐preferences

From the expected‐utility approach, relative risk aversion being smaller than one and relative prudence being smaller than two emerge as preference restrictions that fully determine the optimal responses of decisions under uncertainty to certain shifts in probability distributions. We characterize the magnitudes of relative risk aversion and relative prudence in terms of the two‐parameter, mean‐standard deviation approach. We demonstrate that this characterization is instrumental in obtaining comparative static results in the two‐parameter setting. We further relate our findings to the results in the expected‐utility framework.     

Programme Evaluation with Unobserved Heterogeneity and Selective Implementation: The Mexican PROGRESA Impact on Child Nutrition

This paper considers the impact of Programa de Educación, Salud y Alimentación ( PROGRESA ), a large Mexican rural anti-poverty programme that had an evaluation sample in which overall treatment was randomly assigned to some communities but not others, on child nutrition. When we examine the impact of PROGRESA based on the presumption of randomized allocations, we find that PROGRESA had no or even a negative impact on child nutrition. However, not all children designated to receive nutritional supplements actually did so. Our preferred estimates – child fixed-effects estimates that control for unobserved heterogeneity that is correlated with access to the supplement – indicate a significantly positive and fairly substantial programme effect of the nutritional supplements on children 12–36 months. They imply an increase of about a sixth in mean growth per year for these children and a lower probability of stunting. Effects are somewhat larger for children from poorer communities but whose mothers are functionally literate. The long-term consequences of these improvements are non-trivial; its impact working through adult height alone could result in a 2.9% increase in lifetime earnings.     

The Economics and Financing of Hospitals in Australia

The Australian hospital industry is described and it is noted that the term ‘hospital’ is applied to a wide range of institutions. The main problems and issues associated with hospitals are discussed, including the lack of adequate methods of measuring their ‘products’ and of allocating funds to them. The role of the medical staff in influencing the ‘demand’ for hospital beds and in resource allocation is emphasised as a major influence on hospital behaviour. In a study of the determinants of the costs of Victorian public hospitals it was found that the complexity of the case-mix as measured by diagnosis related groups (DRGs) was a major determinant of teaching hospital costs but not of those of other large hospitals. DRG-based funding and costing of hospitals is recommended as a strategy for achieving increased efficiency.     

Reform of European Merger Policy

The paper highlights the main drivers for merger policy reform in the European Union, including the consequences of the recent appeal court reverses. It discusses some of the substantive and procedural issues that the reform package should address, and outlines the reforms in progress. The author concludes that much of the reform package will be beneficial, but some important opportunities have been missed in this inevitably patchwork process.     

Disentangling the Dividend Information in Splits: A Decomposition Using Conditional Event-Study Methods

While folklore in finance holds that split valuation effectsare due to dividend increases associated with splits, littleis known about magnitudes of dividend and nondividend componentsof split announcement effects. We find that splits and dividendsare indeed informational substitutes, a notion we characterizemore precisely, but a significant portion of split valuationeffects, 46% according to our estimates, cannot be attributedto dividend information in splits. Our techniques extend theliterature on conditional event-study methods and we illustratetheir practical value in testing hypotheses and analyzing datanot amenable to analysis by standard procedures.     

Worker separations in a nonstationary corporate environment

Assessing ten years of unique personnel data from a large firm, this paper investigates how determinants of worker turnover differ between periods of corporate expansion and decline. Performance and career progress considerably reduce the hazard of job separation during downsizing for blue-collar workers, but are less important for white-collar workers. Effects of firm-tenure, occupation, education, training, part-time status, and gender are largely in accordance with the implications from existing models. But no model generates all patterns observed in the data. Age effects are sensitive to retirement options and discontinuous, dropping in response to the anticipation of becoming eligible for early retirement during downsizing and jumping at the actual retirement age.