When is a tax neutral?

A proportional income tax is said to be neutral if variations in the tax rate do not affect the optimal composition of the consumption commodities of a utility maximizing consumer. It is shown that neutrality obtains if and only if the indirect utility function of the consumer is groupwise homothetic. If the income tax rates on labor and property incomes are allowed to differ, then neutrality obtains if and only if the indirect utility function of the consumer is homothetically separable. If, in addition, it is required that the proportional income tax be neutral with respect to not only consumption commodities but also to leisure, then 'the indirect utility function must have the form: $\text{V = V(f(w)+H}{}^1\text{(p))}$, where w and p are the normalized prices of leisure and consumption respectively, and H¹(p) is homogeneous of degree one in p.     

Government Partisanship and Property Rights: Cross‐Country Firm‐Level Evidence

Property rights are essential to economic development but vary with the political environment. We develop and test the claim that government partisanship influences the security of business firms' property rights: the perceived security of property rights increases when right‐wing parties take power and declines with the election of left‐leaning parties. Unlike research that uses country‐level aggregates to draw inferences about the determinants of secure property rights, we analyze survey responses of over 7,400 firm owners from 73 countries using a novel difference‐in‐differences approach. We find that the political partisanship of the government in power strongly affects individual perceptions of property rights: firm owners are more likely to perceive that their property rights are secure under right‐leaning governments. Our results are robust to firm‐ and country‐level economic performance as well as controls for political institutions that might induce more stability to property rights, such as the number of checks and balances (veto players) in a system. Overall, our results indicate that business owners' beliefs about the security of property rights are highly responsive to changes in government partisanship.     

Econometrics and equilibrium models

In Rational Econometric Man, Edward Nell and Karim Errouaki present a welcome and timely case for the view that econometrics and econometric model-building may not be the magic tools to solve all empirical questions despite what many seem to have thought they were in the 1960s. Here I examine some possible problems with econometric models that have to do with their usually taking the form of equilibrium models. Some of these problems were recognized by Trygve Haavelmo decades ago. And as Aris Spanos has recently discussed, the problems are often the result of what we say in our textbooks. Some problems have to do with what we mean by econometric parameters and others with how we use probabilities.     

Postauditing capital assets and firm performance: An empirical investigation

The argument presented in this paper is that the adoption of sophisticated postaudit procedures should be associated with improved firm performance. Based on a matched-pair experimental design, utilizing the Wilcoxon matched-pairs signed-ranks test and a newly developed statistic to test for a change point, empirical evidence is provided to support this argument.     

Rethinking Profit-Maximization in Second-Degree Price Discriminating Markets

Atlantic Economic Journal - Standard models of indirect price discrimination generate a separating equilibrium in which all consumers choose bundles on their demand curves. Low-demand consumers...     

When it pays to have a friend on the inside: contingent effects of buyer advocacy on B2B suppliers

As organizational buying systems grow more complex and sophisticated, suppliers increasingly rely on buyer advocacy: an individual buyer’s efforts to influence his/her colleagues such that the supplier’s standing is improved. Drawing from cognitive response theory, the authors hypothesize an inverted U-shaped relationship between a buyer’s advocacy for a supplier and the customer’s purchases from that supplier. They theorize that this effect is moderated by the advocate’s industry experience and customer–supplier relationship characteristics. An analysis of multisource data from a B2B service provider (Study 1) supports the predicted inverted U-shaped relationship, while a unique dataset from a large industrial supplier (Study 2) provides broad support for the hypothesized moderators. Finally, a randomized experiment (Study 3) replicates key findings and corroborates the theorized cognitive response mechanisms. Findings contribute to the limited literature on buyer advocacy within the organizational buying domain and offer practical implications for suppliers and buyers.

     

Temporary jobs and job search effort in Europe

Using longitudinal data on individuals from the European Community Household Panel (ECHP) for eleven countries during 1995-2001, I investigate temporary job contract duration and job search effort. The countries are Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. I construct a search model for workers in temporary jobs which predicts that shorter duration raises search intensity. Calibration of the model to the ECHP data implies that at least 75% of the increase in search intensity over the life of a 2+ year temporary contract occurs in the last six months of the contract. I then estimate regression models for search effort that control for human capital, pay, local unemployment, and individual and time fixed effects. I find that workers on temporary jobs indeed search harder than those on permanent jobs. Moreover, search intensity increases as temporary job duration falls, and roughly 84% of this increase occurs on average in the shortest duration jobs. These results are robust to disaggregation by gender and by country. These empirical results are noteworthy, since it is not necessary to assume myopia or hyperbolic discounting in order to explain them, although the data clearly also do not rule out such explanations.