In this paper, we develop a dynamic politico-economic theory of social security to address two questions. First, how is social security sustained? Second, how does inequality affect the size of social security, and can the theoretical predictions be consistent with the observed puzzling relationships between inequality and the size of social security? As a stark framework, our model economy features the absence of altruism, commitment, reputation mechanism and electoral uncertainty. We characterize analytically a Markov perfect equilibrium and find that the joint between Markovian tax policy and tax distortion on private investment shapes an intertemporal policy rule linking taxes positively over time. The positive intertemporal tax linkage, by allowing current taxpayers to influence their own future social security benefit, provides the political support for social security. Moreover, we find that a larger wage inequality weakens the intertemporal tax linkage and, thus, reduces inter-generational redistributive benefit. This may lead to a smaller size of social security. Our theoretical predictions are in line with both time-series and cross-country correlations between inequality and social security.
{"title":"Markovian Social Security in Unequal Societies","authors":"Kaiji Chen, Zheng Song","doi":"10.1111/sjoe.12072","DOIUrl":"https://doi.org/10.1111/sjoe.12072","url":null,"abstract":"In this paper, we develop a dynamic politico-economic theory of social security to address two questions. First, how is social security sustained? Second, how does inequality affect the size of social security, and can the theoretical predictions be consistent with the observed puzzling relationships between inequality and the size of social security? As a stark framework, our model economy features the absence of altruism, commitment, reputation mechanism and electoral uncertainty. We characterize analytically a Markov perfect equilibrium and find that the joint between Markovian tax policy and tax distortion on private investment shapes an intertemporal policy rule linking taxes positively over time. The positive intertemporal tax linkage, by allowing current taxpayers to influence their own future social security benefit, provides the political support for social security. Moreover, we find that a larger wage inequality weakens the intertemporal tax linkage and, thus, reduces inter-generational redistributive benefit. This may lead to a smaller size of social security. Our theoretical predictions are in line with both time-series and cross-country correlations between inequality and social security.","PeriodicalId":398400,"journal":{"name":"ERN: Other Macroeconomics: National Income & Product Accounts (Topic)","volume":"101 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117260762","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Clàudia Canals, X. Gabaix, Josep M. Vilarrubia, David E. Weinstein
International Macroeconomics has long sought an explanation for current account fluctuations that matches the data. The approaches have typically focused on better models and new macroeconomic variables. We demonstrate the limitations of this approach by showing that idiosyncratic shocks are an important cause of macroeconomic volatility even for large countries. When explaining these fluctuations, standard macroeconomic models generally assume that firms are small and that their microeconomic shocks cancel out. We show that the high degree of concentration of bilateral trade flows means that idiosyncratic shocks can have a significant impact on aggregate economic fluctuations. We theoretically develop a descomposition components. Taking the model to data on bilateral trade flows from 1970 to 1997, we find that the most comprehensive macroeconomic model can only account for at most half of the observed variance in trade account volumes of each country. Thus, this paper highlights the importance of considering disaggregated data when modeling the current account.
{"title":"Trade Patterns, Trade Balances and Idiosyncratic Shocks","authors":"Clàudia Canals, X. Gabaix, Josep M. Vilarrubia, David E. Weinstein","doi":"10.2139/ssrn.997993","DOIUrl":"https://doi.org/10.2139/ssrn.997993","url":null,"abstract":"International Macroeconomics has long sought an explanation for current account fluctuations that matches the data. The approaches have typically focused on better models and new macroeconomic variables. We demonstrate the limitations of this approach by showing that idiosyncratic shocks are an important cause of macroeconomic volatility even for large countries. When explaining these fluctuations, standard macroeconomic models generally assume that firms are small and that their microeconomic shocks cancel out. We show that the high degree of concentration of bilateral trade flows means that idiosyncratic shocks can have a significant impact on aggregate economic fluctuations. We theoretically develop a descomposition components. Taking the model to data on bilateral trade flows from 1970 to 1997, we find that the most comprehensive macroeconomic model can only account for at most half of the observed variance in trade account volumes of each country. Thus, this paper highlights the importance of considering disaggregated data when modeling the current account.","PeriodicalId":398400,"journal":{"name":"ERN: Other Macroeconomics: National Income & Product Accounts (Topic)","volume":"3 4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133700230","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we identify methodological differences and similarities in the measurement of wealth using survey data constructed for different purposes in the U.K. and separately for England. The focus of the paper is on two prominent surveys in the U.K.: the English Longitudinal Survey of Ageing (ELSA) and the British Household Panel Survey (BHPS). We find conceptual differences in the measurement of financial assets and debt. At the same time, striking similarities exist in the measurement of non-financial assets. For the most part, many differences arise in the tails of the distributions of wealth. Comparable definitions of overall wealth in the surveys lead us to find a 10% and 3% difference in mean and conditional median of total net worth, respectively. Reassuring is the fact that inequality results carried out with the two surveys support one another and quantile regression shows that the distribution of total net worth across demographic groups is similar in the two surveys.
{"title":"Differences in the Measurement and Structure of Wealth Using Alternative Data Sources: The Case of the UK","authors":"Zoé Oldfield, Eva Sierminska","doi":"10.2139/ssrn.1008240","DOIUrl":"https://doi.org/10.2139/ssrn.1008240","url":null,"abstract":"In this paper, we identify methodological differences and similarities in the measurement of wealth using survey data constructed for different purposes in the U.K. and separately for England. The focus of the paper is on two prominent surveys in the U.K.: the English Longitudinal Survey of Ageing (ELSA) and the British Household Panel Survey (BHPS). We find conceptual differences in the measurement of financial assets and debt. At the same time, striking similarities exist in the measurement of non-financial assets. For the most part, many differences arise in the tails of the distributions of wealth. Comparable definitions of overall wealth in the surveys lead us to find a 10% and 3% difference in mean and conditional median of total net worth, respectively. Reassuring is the fact that inequality results carried out with the two surveys support one another and quantile regression shows that the distribution of total net worth across demographic groups is similar in the two surveys.","PeriodicalId":398400,"journal":{"name":"ERN: Other Macroeconomics: National Income & Product Accounts (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129481864","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
One of the main difficulties in building financial accounts is the necessity of reconciling different sources and complying with the aggregation constraints. The Italian financial accounts are available on an annual basis from 1950 to 2004 (see Bonci and Coletta in this volume). Quarterly series are available from 1990 onwards, but not for the earlier years. The paper explores the feasibility of constructing a database including quarterly information. This task is achieved by presenting some examples of temporal disaggregation of financial accounts series taking advantage of methods relying on the choice of available quarterly indicators.The empirical application shows the following results:1) for the household assets examined, the stock market index is the most stable indicator for obtaining quarterly data;2) for corporate liabilities, in addition to the stock market index, the real variables such as investment and GDP are important. Information on a quarterly basis is of interest both for short-term univariate analysis and for use in econometric models.
{"title":"Obtaining Quarterly Series from the Annual Financial Accounts","authors":"G. Bruno","doi":"10.2139/ssrn.2160410","DOIUrl":"https://doi.org/10.2139/ssrn.2160410","url":null,"abstract":"One of the main difficulties in building financial accounts is the necessity of reconciling different sources and complying with the aggregation constraints. The Italian financial accounts are available on an annual basis from 1950 to 2004 (see Bonci and Coletta in this volume). Quarterly series are available from 1990 onwards, but not for the earlier years. The paper explores the feasibility of constructing a database including quarterly information. This task is achieved by presenting some examples of temporal disaggregation of financial accounts series taking advantage of methods relying on the choice of available quarterly indicators.The empirical application shows the following results:1) for the household assets examined, the stock market index is the most stable indicator for obtaining quarterly data;2) for corporate liabilities, in addition to the stock market index, the real variables such as investment and GDP are important. Information on a quarterly basis is of interest both for short-term univariate analysis and for use in econometric models.","PeriodicalId":398400,"journal":{"name":"ERN: Other Macroeconomics: National Income & Product Accounts (Topic)","volume":"9 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130510394","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
It has generally been considered that the opening of the economy to the rest of the world is an integral part of any economic reform aiming at increasing the role of markets in LDCs. Until recently, however, very little discussion has been devoted to the order in which the capital and current account should be liberalized. This paper deals with several aspects of the order of liberalization. First, the brief literature is critically reviewed. Second, a three goods-two factors model is used to analyze the effects of alternative orderings on production and income distribution. And third, a two periods model of a small economy is used to investigate the welfare effects of opening the capital account in the presence of distortions. While the discussion does not yield a theorem regarding the appropriate order of liberalization, there are strong presumptions that it is more prudent to liberalize the current account first.
{"title":"The Order of Liberalization of the Current and Capital Accounts of the Balance of Payments","authors":"S. Edwards","doi":"10.3386/w1507","DOIUrl":"https://doi.org/10.3386/w1507","url":null,"abstract":"It has generally been considered that the opening of the economy to the rest of the world is an integral part of any economic reform aiming at increasing the role of markets in LDCs. Until recently, however, very little discussion has been devoted to the order in which the capital and current account should be liberalized. This paper deals with several aspects of the order of liberalization. First, the brief literature is critically reviewed. Second, a three goods-two factors model is used to analyze the effects of alternative orderings on production and income distribution. And third, a two periods model of a small economy is used to investigate the welfare effects of opening the capital account in the presence of distortions. While the discussion does not yield a theorem regarding the appropriate order of liberalization, there are strong presumptions that it is more prudent to liberalize the current account first.","PeriodicalId":398400,"journal":{"name":"ERN: Other Macroeconomics: National Income & Product Accounts (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1983-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130799539","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Monetary liquidity is an important yet complicated concept. This paper reviews various definitions of monetary liquidity in existing literature, and expands the discussion on comparison of measures of monetary liquidity. This paper uses time series of CPI and PPI to construct a new composite inflation index (CII), which is a comprehensive reflection of a nation’s inflation level. Based on this new composite inflation index and other three variables, namely M2, the industrial added value, and real interest rate, a new monetary liquidity indicator ML can be constructed, with demand for money taken into account. The results of Granger tests show that ML and the returns of stock market index are bidirectional Granger causes, and ML is the Granger cause of the volatility of stock market index. A strategic asset allocation model based on this new measure of monetary liquidity is proposed and it shows a good performance.
{"title":"Monetary Liquidity in China, Measurement and Implied Investment Strategy","authors":"Yueyan Zhang, Zelin Xie, Yue Hou, Zhongbo Jing, Xianhua Wei","doi":"10.2139/ssrn.1322204","DOIUrl":"https://doi.org/10.2139/ssrn.1322204","url":null,"abstract":"Monetary liquidity is an important yet complicated concept. This paper reviews various definitions of monetary liquidity in existing literature, and expands the discussion on comparison of measures of monetary liquidity. This paper uses time series of CPI and PPI to construct a new composite inflation index (CII), which is a comprehensive reflection of a nation’s inflation level. Based on this new composite inflation index and other three variables, namely M2, the industrial added value, and real interest rate, a new monetary liquidity indicator ML can be constructed, with demand for money taken into account. The results of Granger tests show that ML and the returns of stock market index are bidirectional Granger causes, and ML is the Granger cause of the volatility of stock market index. A strategic asset allocation model based on this new measure of monetary liquidity is proposed and it shows a good performance.","PeriodicalId":398400,"journal":{"name":"ERN: Other Macroeconomics: National Income & Product Accounts (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127705608","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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