Inflation and Endogenous Growth in Underground Economies

The paper examines the effect of inflation on the growth rate in economies with underground, or ”non-market”, sectors. The model incorporates a non-market good into an endogenous growth cash-inadvance economy with human capital. Taxes on labor and capital induce substitution into the non-market sector which avoids such taxes. However the non-market sector uses only cash for exchange and cannot avoid the inflation tax, while the market sector allows costly credit use. We estimate a MIMIC model for latent underground economy using monthly data for Bulgaria, Croatia and Romania. Furthermore, we estimate a dynamic structural equation model and investigate short-run effects of the underground economy on output growth and test for Granger causality and long-run cointegrating relationships using bivariate Granger-causality tests and Johansen’s maximum likelihood technique. The result indicate different shares of underground economies across the three countries and a positive long-run effect of underground economy on output growth.Shadow economy, endogenous growth, dynamic structural equation modelling, latent variables

Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement

Deadlines and penalties are widely used to incentivize effort. We model how these incentive contracts affect the work rate and time taken in a procurement setting, characterizing the efficient contract design. Using new micro-level data on Minnesota highway construction contracts that includes day-by-day information on work plans, hours actually worked and delays, we find evidence of moral hazard. As an application, we build an econometric model that endogenizes the work rate, and simulate how different incentive structures affect outcomes and the variance of contractor payments. Accounting for the traffic delays caused by construction, switching to a more efficient design would substantially increase welfare without substantially increasing the risk borne by contractors.

System- and Data-Driven Methods and Algorithms

An increasing complexity of models used to predict real-world systems leads to the need for algorithms to replace complex models with far simpler ones, while preserving the accuracy of the predictions. This two-volume handbook covers methods as well as applications. This first volume focuses on real-time control theory, data assimilation, real-time visualization, high-dimensional state spaces and interaction of different reduction techniques

On Vector Fitting methods in signal/power integrity applications

This conference proceedings appears in: Lecture Notes in Engineering and Computer Science. Open-access online version: http://www.iaeng.org/publication/IMECS2010/Vector Fitting (VF) has been applied to reformulate traditional system identification techniques by introducing a partial-fraction basis to avoid ill-conditioned calculation in broadband system identifications. Because of the reliable and versatility of VF, many extensions and applications have been proposed, for example, the macromodeling of linear structures in signal/power integrity analyses. In this paper, we discuss the macromodeling framework and some main features in VF in terms of data, algorithms and models. Finally, an alternative P-norm approximation criterion is proposed to enhance the macromodeling process.postprintThe International MultiConference of Engineers and Computer Scientists (IMECS 2010), Hong Kong, 17-19 March 2010. In Proceedings of the International MultiConference of Engineers and Computer Scientists, 2010, v. 2, p. 1407-141

Essays on business taxation and development

This thesis addresses a number of questions on the optimal taxation of firms, with particular emphasis on the challenges to taxation in developing economies. Chapter 1 exploits bunching of firms at a tax kink to identify the effect of a tax rate change on investment. Building on the standard bunching framework, I estimate the frequency distribution of firms around the kink, and the share of bunching firms with excess investment. I apply this approach to administrative tax returns for firms in the United Kingdom and find that excess investment explains up to 20% of bunch ing. Chapter 2 examines the trade-off between production efficiency and revenue efficiency in taxation under imperfect enforcement. We exploit quasi-experimental variation created by a minimum tax scheme, a production inefficient policy used in many developing countries, which consists of taxing firms on turnover as their profit rate falls below a certain threshold. Using administrative tax records of corporations in Pakistan, we find large bunching around the profit rate kink createded by the minimum tax scheme and estimate that the turnover tax reduces evasion by up to 60-70% of corporate income. Chapter 3 analyzes the impact of interventions by the International Monetary Fund (IMF) on countries’ likelihood of adopting the value added tax (VAT). I discuss how the IMF has promoted VAT adoption by making lending conditional on adoption, providing administrative and technical assistance, and reducing the political costs of adoption. Applying a Cox proportional hazard model to a cross-country panel for the period 1975-2000, I find that countries that are under a lending agreement with the IMF are three times as likely to adopt the VAT than are countries not under a lending agreement

How effective are unemployment benefit sanctions? Looking beyond unemployment exit

This paper provides a comprehensive evaluation of benefit sanctions ,i.e. temporary reductions in unemployment benefits as punishment for noncompliance with eligibility requirements. In addition to the effects on unemployment durations, we evaluate the effects on post-unemployment employment stability, on exits from the labor market and on earnings. In our analysis we use a rich set of Swiss register data which allow us to distinguish between ex ante effects, the effects of warnings and the effects of enforcement of benefit sanctions. Adopting a multivariate mixed proportional hazard approach to address selectivity, we find that both warnings and enforcement increase the job finding rate and the exit rate out of the labor force. Warnings do not affect subsequent employment stability but do reduce post-unemployment earnings. Actual benefit reductions lower the quality of post-unemployment jobs both in terms of job duration as well as in terms of earnings. The net effect of a benefit sanction on post-unemployment income is negative. Over a period of two years after leaving unemployment workers who got a benefit sanction imposed face a net income loss equivalent to 30 days of full pay due to the ex post effect. In addition to that, stricter monitoring may reduce net earnings by up to 4 days of pay for every unemployed worker due to the ex ante effect.Benefit sanctions; earnings effects; unemployment duration; competing-risk duration models

Hourly Wage Rate and Taxable Labor Income Responsiveness to Changes in Marginal Tax Rates

Recently, a voluminous literature estimating the taxable income elasticity has emerged as an important field in empirical public economics. However, to a large extent it is still unknown how the hourly wage rate, an important component of taxable income, reacts to changes in marginal tax rates. In this study we use a rich panel data set and a sequence of tax reforms that took place in Sweden during the 1980’s to estimate the elasticity of the hourly wage rate with respect to the net-of-tax rate. While carefully accounting for the endogeneity of marginal tax rates as well as other factors that determine wage rates we do find a statistically significant response both among married men and married women. The hourly wage rate elasticity with respect to the net-of-tax rate is estimated to 0.14-0.16 for males and 0.41-0.57 for females. In addition, we obtain uncompensated taxable labor income elasticities of around 0.21 for men and 0.96-1.44 for women. In contrast to earlier studies, we also find significant income effects for males. Accordingly, for males the compensated taxable labor income elasticity is about 4 percentage points higher than the uncompensated one.income taxation, hourly wage rates, work effort, taxable income