Changes in Income Distributions and the Role of Tax‐Benefit Policy During the Great Recession: An International Perspective

In this paper, we examine the impact of the economic crisis and the policy reaction on inequality and relative poverty in four European countries: France, Germany, Ireland and the UK. The period examined, 2008–13, was one of great economic turmoil, yet it is unclear whether changes in inequality and poverty rates over this time period were mainly driven by changes in market income distributions or by tax‐benefit policy reforms. We disentangle these effects by producing counterfactual (‘no reform') scenarios using tax‐benefit microsimulation and representative household surveys for each country. For the first stage of the Great Recession, we find that the policy reaction contributed to stabilising or even decreasing inequality and relative poverty in the UK, France and, especially, Ireland. Market income changes nonetheless pushed up inequality and relative poverty in France. Relative poverty increased in Germany as a result of policy responses combined with market income changes. Subsequent policy reforms, in the later stage of the crisis, had markedly different cross‐country effects, decreasing overall poverty in France, increasing it in Ireland, and giving mixed effects for different subgroups in Germany and the UK.     

Joint econometric modeling of spot electricity prices, forwards and options

We propose a joint modeling of spot electricity prices, forwards prices and other derivative prices, using recent developments in discrete time asset pricing methods based on the notions of stochastic discount factor and of Compound Autoregressive (or affine) stochastic processes. We show that this approach provides quasi explicit formulae for forward and option prices, while allowing for a large flexibility in the modeling of dynamics, spikes and seasonality, both in the historical and the risk neutral worlds. We also propose a variety of inference techniques involving inversion methods, the Kalman filter and the Kitagawa?CHamilton filter. Finally, an application based on French spot prices and forward products is proposed.     

Decomposition analysis of distributive policies using behavioural simulations

For policy makers and analysts, it is important to isolate the redistributive impact of tax-benefit reforms from changes in the environment in which policies operate. When actual reforms are motivated by work incentives, it is also crucial to evaluate behavioural responses and the distributional consequences thereof. For that purpose, I embed counterfactual simulations in a formal decomposition framework to quantify the relative roles of (i)?direct tax-benefit policy changes, (ii)?indirect policy effects due to labour supply responses to the reforms and (iii)?all other factors affecting income distribution over time. An application to the UK shows that the redistributive reforms of the 1998–2001 period have offset much of the rise in market income inequality and contributed to a strong decline in child poverty and poverty amongst single parent households. In the latter group, a third of the headcount poverty reduction (and half of the reduction in the depth of poverty) is on account of the very large incentive effect of the policy changes.     

Accelerated share repurchase and other buyback programs: what neural networks can bring

When firms want to buy back their own shares, they have a choice between several alternatives. If they often carry out open market repurchase, they also increasingly rely on banks through complex buyback contracts involving option components, e.g. accelerated share repurchase contracts, VWAP-minus profit-sharing contracts, etc. The entanglement between the execution problem and the option hedging problem makes the management of these contracts a difficult task that should not boil down to simple Greek-based risk hedging, contrary to what happens with classical books of options. In this paper, we propose a machine learning method to optimally manage several types of buyback contract. In particular, we recover strategies similar to those obtained in the literature with partial differential equation and recombinant tree methods and show that our new method, which does not suffer from the curse of dimensionality, enables to address types of contract that could not be addressed with grid or tree methods.     

Exchange-rate return predictability and the adaptive markets hypothesis: Evidence from major foreign exchange rates

This study examines return predictability of major foreign exchange rates by testing for martingale difference hypothesis (MDH) using daily and weekly nominal exchange rates from 1975 to 2009. We use three alternative tests for the MDH, which include the wild bootstrap automatic variance ratio test, generalized spectral test, and Dominguez–Lobato consistent tests. We evaluate time-varying return predictability by applying these tests with fixed-length moving sub-sample windows. While exchange rate returns are found to be unpredictable most of times, we do observe a number of episodes of statistically significant return predictability. They are mostly associated with the major events such as coordinated central bank interventions and financial crises. This finding suggests that return predictability of foreign exchange rates occurs from time to time depending on changing market conditions, consistent with the implications of the adaptive markets hypothesis.     

Why OECD Countries Should Reform Rules of Origin

With preferential trade agreements on the rise worldwide rulesof origin—which are necessary to prevent trade deflection—areattracting increasing attention. At the same time, preferenceerosion for Generalized System of Preferences (GSP) recipientsis increasing resistance to further multilateral negotiations.Drawing on different approaches, this article shows that thecurrent system of rules of origin that is used by the EuropeanUnion and the United States in preferential trade agreements(including the GSP) and that is similar to systems used by otherOrganisation for Economic Co-operation and Development countriesshould be drastically simplified if developed economies reallywant to help developing economies integrate into the world tradingsystem. In addition to diverting resources for administrativetasks, current rules of origin carry significant compliancecosts. More fundamentally, it is becoming increasingly clearthat they are often been designed to force developing economiesto buy inefficient intermediate products from developed economiesto "pay for" preferential access for the final product. Theevidence also suggests that a significant share of the rentsassociated with market access (net of rules of origin compliancecosts) is captured by developed economies. Finally, the restrictivenessof rules of origin is found to be beyond the levels that wouldbe justified to prevent trade deflection, suggesting a captureby special interest groups. The article outlines some alternativepaths to reforms. JEL codes: F13, F15     

Modeling Starting Point Bias as Unobserved Heterogeneity in Contingent Valuation Surveys: An Application to Air Pollution

Up to now, the starting point bias has generally been considered to be a homogeneous phenomenon. In this article, we treat anchoring as an unobserved heterogeneous phenomenon. Our contribution is twofold. First, we show analytically and by way of simulations that assuming homogeneous anchoring can be hazardous and lead to misspecifications. Second, we propose an econometric model that starts with a dichotomous question and then uses an open-ended question. We finally apply our model to a contingent valuation survey on air quality. Our results suggest that how anchoring is modeled in empirical studies deserves more attention.     

Farm-based modelling of the EU sugar reform: impact on Belgian sugar beet suppliers

A mathematical programming model, calibrated on individual farmdata, is used to analyse the reform of the common market organisation(CMO) in the sugar sector of the European Union. The model includesa precautionary farm supply function for out-of-quota sugarbeet that is estimated as part of a simultaneous system of first-orderconditions. Simulation results from a sample of Belgian sugarbeet farms show that the sugar CMO reform induces differentsupply and income effects across farms depending on their shareof out-of-quota sugar beet relative to their total beet supplyand their quota rent. A further cut in the minimum price ofsugar beet initiates structural change in the farm sector.     

Wind power planning in France (Aveyron), from state regulation to local planning [Erratum,paper published in Land Use Policy 26 (2009) 744–754]

The development of wind energy in France presents an exemplary case of contrast between the policy instrument and its effectiveness in terms of installed wind power capacity. After 7 years of one of the highest feed-in tariffs in the world, the installed capacity in France is still very low. This is notably due to a diffuse pattern of administrative landscape protection which impacts on the construction of wind power potential. In turn, the pace of wind power development can be understood only by looking in more detail at the way in which landscape is dealt with in local planning processes. This paper examines the question using the case of Aveyron in southern France. We follow the shifting ways in which landscape is enrolled in wind power planning, in a context where new planning instruments favor an incipient decentralization in wind power policy. The case points to a change in both the networks and the concepts involved in the design of landscape representations that underlie the construction of wind power potential. We show that this change has been forced by the far-reaching and decentralized visual impacts of wind power technology, suggesting that technology is recomposing the social as part of its development process and questioning the very meaning and perception that is given to landscape.     

Lobbying, Counterlobbying, and the Structure of Tariff Protection in Poor and Rich Countries

A political economy model of protection is used to determineendogenously the intersectoral patterns of protection. Threepropositions are derived that are consistent with the stylizedpatterns of tariff protection in rich and poor countries: Nominalprotection rates escalate with the degree of processing, protectionis higher on average in poor countries, and rich countries protectagriculture relatively more than they protect manufacturing,whereas poor countries do the reverse. Numerical simulationsfor archetypal rich and poor economies confirm that the endogenouslydetermined structure of protection is broadly consistent withobserved patterns of protection.