Envy, leisure, and restrictions on working hours

Abstract.  We present a simple model of capital accumulation where agents care about their consumption relative to the consumption of other members of society, 'envy,' In this context we quantify the extent of the distortions and welfare costs associated with envy. Under conservative estimates of envy we find that the implied welfare losses are substantial. We explore the implications of alternative policy arrangements designed to minimize the effects of the consumption externality. Our results suggest that if the optimal tax policy is not politically feasible, restrictions on working hours provide an alternative tool to induce a market outcome that resembles the efficient allocation achieved under a benevolent central planner. JEL classification: D62, H21     

Informational spillovers and the coordination of speculative investments

Abstract. The influence of informational spillovers on the entrepreneur's incentive to undertake reversible investment opportunities is considered. It is shown how investment activity can be driven by the influence that the prospect of social learning has on the option value of investment. In this context, episodes of high investment activity result from a speculative motive, and the expected short‐run profitability of new investment opportunities may inadequately reflect the entrepreneurs’ incentive to invest.     

Democracy, Governance, and Economic Growth: Theory and Evidence

The paper examines how democracy affects long-run growth by influencing the quality of governance. Empirical evidence is first presented showing that measures of the quality of governance are substantially higher in more democratic countries. A general-equilibrium, endogenous growth model is then built to show how a governance-improving democracy raises growth. In this model, stronger democratic institutions influence governance by constraining the actions of corrupt officials. Reducing corruption, in turn, stimulates technological change and spurs economic growth. Empirical evidence is presented showing that democracy is in fact a significant determinant of total factor productivity (TFP) growth between 1960 and 1990 in a cross-section of countries. But this contribution occurs only insofar as stronger democratic institutions are associated with greater quality of governance.     

The expectations hypothesis of the term structure when interest rates are close to zero

In an economy where cash can be stored costlessly in nominal terms, the nominal interest rate is bounded below by zero. This paper derives the implications of this non-negativity constraint for the term structure and shows that it induces a nonlinear and convex relation between short- and long-term interest rates. The long-term rate responds asymmetrically to changes in the short-term rate, and by less than that is predicted by the benchmark linear model. In particular, a decrease in the short-term rate produces a smaller response in the long-term rate than an increase of the same magnitude. The empirical predictions of the model are examined using data from Japan.     

How Do Migrants from Latin America and the Caribbean Fare in the US Labour Market?

This paper discusses the causes of mass migration from Latin America and the Caribbean (LAC) to the United States in recent decades and how these migrants have fared in US labour markets. The evidence shows that LAC migrants have higher unemployment rates and substantially lower wages than other immigrants and natives. Furthermore, the relative wages of LAC migrants have been declining sharply over the last 25 years. The most significant factor explaining the latter is the lower (and declining) educational attainment of LAC migrants relative to other immigrants and natives, compounded by the rising rates of return to education in the US.     

Popularity functions, partisan effects, and support in Parliament

This paper analyzes the popularity of the main political entities in Portugal. Estimation results of popularity functions validate the responsibility hypothesis, with unemployment, and to a lesser extent inflation, affecting popularity levels. There is also evidence of personality effects, of popularity erosion over consecutive terms and of honeymoon effects. Finally, we found that voters' evaluations of incumbents' performance regarding unemployment is affected by their support in Parliament – when an incumbent faces more opposition in Parliament, voters are less likely to hold him responsible for unemployment increases.     

Skewness Risk and Bond Prices

This paper uses extreme value theory to study the implications of skewness risk for nominal loan contracts in a production economy. Productivity and inflation innovations are drawn from generalized extreme value distributions. The model is solved using a third‐order perturbation and estimated by the simulated method of moments. Results show that the data reject the hypothesis that innovations are drawn from normal distributions and favor instead the alternative that they are drawn from asymmetric distributions. Estimates indicate that skewness risk accounts for 12% of the risk premia and reduces bond yields by approximately 55 basis points. For a bond that pays 1 dollar at maturity, the adjustment factor associated with skewness risk ranges from 0.15 cents for a 3‐month bond to 2.05 cents for a 5‐year bond. Copyright © 2016 John Wiley & Sons, Ltd.     

Non‐Fulfilment of Debt Limits in Spanish Municipalities

In decentralised European Monetary Union members such as Austria, Belgium, Finland, Germany and Spain, the Stability and Growth Pact can only be implemented if there is close fiscal coordination among government tiers. Thus, limits on subcentral governments' debt are essential in this coordination. This paper analyses which political and socio‐economic factors influence compliance with debt limits. We use a database with information on Spanish municipalities with at least 1,000 inhabitants for 2001–08. Our results indicate that the non‐financial surplus limit is the requirement that is most commonly breached, followed by the net operating balance requisite. Population has a positive and significant impact on failure to comply with debt limits. In addition, we show a positive relationship between income level and global limit compliance. Finally, it can be stated that municipalities appear to manipulate debt with electoral purposes.     

ON THE DETERMINANTS OF LOCAL TAX RATES: NEW EVIDENCE FROM SPAIN

This article examines the determinants of local tax rates. For the two main local taxes in Spain—the property tax and the motor vehicle tax—we test the existence of tax mimicking, yardstick competition, and political trends in a sample of 2,713 municipalities. Using various spatial models, the results support the hypothesis of tax mimicking, with coefficients above 0.40. We also show the relevance of political variables such as the ideology of incumbents and political fragmentation. The fact that incumbents with weaker political support exhibit stronger mimicking behavior is interpreted as evidence in favor of yardstick competition. Finally, we find that incumbents mimic neighboring municipalities ruled by the same political party, confirming the political trends hypothesis. (JEL C31, H71, H77)     

Institutions,Governance and Economic Growth in the EU: Is There a Role for the Lisbon Strategy?

While European economic integration and in particular the single European market often appear to be only a smallest common denominator in the EU, they condition the economic policy framework facing Member States and have been instrumental in putting governance patterns into motion. The Lisbon Agenda is a case in point. Motivated by competitiveness concerns, it outlines an economic and social strategy meant to relaunch the EU within the changed setting of world-wide competition and a knowledgebased economy. Its success ultimately hinges on whether the necessary coordination to implement policies with an EU rationale can be achieved so as to realise the efficiency properties of the internal market. *and Research Fellow at IEEI **and National Institute for Public Administration (INA). This paper stems from the authors' joint research and teaching on European Economics at the University of Victoria, Canada, at INA and at the University of Aveiro in 2005 and 2006 and is part of an FCT research project on Economic Growth, Convergence and Institutions (research grant POCI/EGE/55423/2004, partially funded by FEDER).