Reply

Conclusion There are strong theoretical arguments in favor of the private sector approach. If there also would have been theoretical arguments in favor of the banking approach, then Boeschoten would have been right in claiming that the degree to whether the private sector or the banking approach is valid has to be verified empirically. However, the theoretical arguments put forward by Boeschoten in support of the banking approach are either incorrect or empirically not very relevant. Thus, the degree to which either approach is valid does not seem to be a purely empirical question.The views expressed in this paper are those of the author and do not necessarily reflect the views of the International Monetary Fund. The author thanks David Coe and Frank Lakwijk for their valuable comments on an earlier version.     

Comparing econometric methods to empirically evaluate activation programs for job seekers

We test whether different identification strategies give similar results when evaluating activation programs. Budgetary problems at the Dutch unemployment insurance (UI) administration in March 2010 caused a sharp drop in the availability of these programs. Using administrative data provided by the UI administration, we evaluate the effect of the program (1) exploiting the policy discontinuity as a quasi-experiment, (2) using dynamic matching assuming conditional independence, and (3) applying the timing-of-events model. All three strategies use the same data to consider the same program in the same setting, and show that the program reduces job finding directly after enrollment. However, the magnitude of the estimated drop in job finding differs between the three estimation methods. In the longer run, all three methods show a zero effect on employment.     

Social security and endogenous fertility: pensions and child allowances as siamese twins

This paper analyses public pensions and child support in a model with endogenous fertility. We show that the individual fertility choice may not coincide with the social optimum, due to the existence of external effects of children on society as a whole. The market outcome without government intervention is efficient, however, as the externalities exactly cancel out in that case. If the government wants to redistribute towards the old, it cannot replicate the command optimum by merely applying lump-sum transfers, but rather needs a child allowance scheme to effectively alter the number of offspring. Finally, we analyse whether a Pareto-improving social security reform is possible. It is shown that merely reducing the PAYG-scheme cannot be Pareto-improving, but the introduction of a child allowance scheme can be.     

Policymakers’ Coalitions and Stabilization Policies in the EMU

A highly integrated area like the EMU features a large amount of interactions between the participating countries. In this context the interactions of monetary and fiscal policies are a crucial issue. This paper focuses on how coalitions among policymakers are formed and discusses their effects on the stabilization of output and price. We emphasize the role played by the institutional design of cooperation forums (as, e.g., the ECOFIN). If the coalition formation game is played without communication among the policymakers, full cooperation is an unlikely outcome. On the other hand, if policymakers can communicate, full cooperation becomes a possible equilibrium, while the complete non-cooperative solution is, in general, not a stable equilibrium. This supports the view that institutions for discussions can play a crucial role in achieving international cooperation even when these institutions are not endowed with enforcement powers.revised version received August 1, 2003     

Do financial distress and liquidity crises affect value and size premiums?

This study investigates the impact of liquidity crises on the relationship between stock (value and size) premiums and default risk in the US market. It first examines whether financial distress can explain value and size premiums, and then, subsequently, aims to determine whether liquidity crises increase the risk of value and size premium investment strategies. The study employs a time-varying approach and a sample of US stock returns for the period between January 1982 and March 2011, a period which includes the current liquidity crisis, so as to examine the relationship between default risk, liquidity crises and value and size premiums. The findings indicate that the default premium has explanatory power for value and size premiums, which affect firms with different characteristics. We also find that liquidity crises may actually increase the risks related to size and value premium strategies.     

Is Prescott right? Welfare state policies and the incentives to work, learn, and retire

This paper bolsters Prescott’s (Fed. Reserve Bank Minneap. Q. Rev. 28(1):2–13, 2004) claim that high taxes are responsible for lackluster labor market performance in Continental European countries. We develop a life-cycle model with endogenous skill formation, endogenous labor supply, and endogenous retirement. Labor taxation distorts not only labor supply, but also education and retirement decisions. Actuarially unfair pensions further exacerbate labor tax distortions on retirement. Education subsidies can nevertheless cushion the adverse impact of taxation on skill formation. Feedbacks between education, labor supply, and retirement are important. The model is simulated with realistic behavioral elasticities that are consistent with microeconometric evidence. If, besides labor supply, also learning and retirement are endogenous, the uncompensated (compensated) elasticity of the tax base equals 0.46 (0.85), which is more than twice as large as the standard uncompensated (compensated) labor supply elasticity of 0.18 (0.40). Furthermore, life-cycle interactions between education, working, and retirement are quantitatively important and the interactions raise all behavioral elasticities substantially. For example, the uncompensated labor supply elasticity increases with one-half due to life-cycle interactions (to 0.26). We demonstrate that low European labor supply can be fully explained by taxation without relying on unrealistically high labor supply elasticities. Reducing labor market distortions, cutting benefit levels, lowering tax rates, and making (early) retirement actuarially more fair, therefore, boosts labor supply, delays retirement, and stimulates skill formation. In addition, high education subsidies are needed in large welfare states to offset explicit and implicit tax burdens on human capital investment.      

How did women count? A note on gender‐specific age heaping differences in the sixteenth to nineteenth centuries1

The role of human capital in economic growth is now largely uncontested. One indicator of human capital frequently used for the pre-1900 period is age heaping, which has been increasingly used to measure gender-specific differences. In this note, we find that in some historical samples, married women heap significantly less than unmarried women. This is still true after correcting for possible selection effects. A possible explanation is that a percentage of women adapted their ages to that of their husbands, hence biasing the Whipple index. We find the same effect to a lesser extent for men. Since this bias differs over time and across countries, a consistent comparison of female age heaping should be made by focusing on unmarried women.     

Urban Laboratories: Experiments in Reworking Cities

The notion of the ‘urban laboratory’ is increasingly striking a chord with actors involved in urban change. Is this term simply a metaphor for urban development or does it suggest urbanization by substantially different means? To answer this question, we review the work of science and technology studies (STS) scholars who have empirically investigated laboratories and practices of experimentation over the past three decades to understand the significance of these spaces of experimentation in urban contexts. Based on this overview of laboratory studies, we argue that urban laboratories and experimentation involve three key achievements — situatedness, change‐orientation and contingency — that are useful for evaluating and critiquing those practices that claim to be urban laboratories. We conclude by considering some future directions of research on urban laboratories.