At whose service? Subsidizing services and the skill premium

In this paper we investigate the effects of subsidizing low-skilled, labour-intensive services hired by high-skilled individuals in the presence of labour income taxation. Whether such a subsidy can be Pareto-improving depends crucially on the degree of substitutability of both types of labour in the non-service sector. In case of some substitutability, a service subsidy can benefit all and decrease inequality, but in case of complementarity, low-skilled individuals benefit and high-skilled individuals are worse off.household production, services, skill premium, subsidy, wage tax

Innovation in Higher Education: Needed and Feasible

It is time for a major overhaul of higher education. Europe’s first university was established in Bologna in 1088. Its curriculum was rather narrow, largely devoted to the study of law. Since that time, universities have developed in an attempt to keep pace with our changing society. How have today’s knowledge institutes responded to the increasing pace of technological progress? How do they rise to new societal challenges? Why are they pursuing innovation in education – and how are they doing so

Too Many Migrants, Too Few Services: A Model of Decision-making on Immigration and Integration with Cultural Distance

In this paper we model the demand for immigrants as a trade-off native voters face between having services, produced by unskilled and non-assimilated immigrants, and experiencing disutility due to the immigrant workers having a culture different from the native culture. Immigrants decide whether to integrate into the native culture. If they don’t, they produce services. Assimilated immigrants take on skilled jobs. At the political level natives choose the number of immigrants that can be allowed, given some fixed price for services. We show that, at the assumed price, it is never optimal for natives to have equilibrium or unemployment in the service sector. Market forces then lead to higher service prices, implying that the initially allowed number of immigrants is too large.

Retirement Flexibility and Portfolio Choice

This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model. We analyse this interaction both in a partial-equilibrium and general-equilibrium setting. Retirement flexibility is often seen as a hedge against capital-market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement flexibility is weakened� and under some conditions even turned around, if not only capital-market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general-equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure. Key words: retirement (in) flexibility, portfolio allocation, risk, intratemporal substitution elasticity JEL codes: E21, G11, J26 �

The International Spillover Effects of Pension Reform

This paper explores how pension reforms in countries with PAYG schemes affect countries with funded systems. We use a two-country two-period overlapping-generations model, where the countries only differ in their pension systems. We distinguish between the case where a reform potentially leads to a Pareto improvement in the PAYG country, and where this is impossible. In the latter case the funded country shares both in the costs and the benefits of the reform. However, if a Pareto-improving pension reform is feasible in the PAYG country, a Pareto improvement in the funded country is not guaranteed.international spillover effects, pension reform

The Politics of Pension Reform under Ageing

In this paper we address the question whether in case of population ageing a transition from an unfunded to a more funded pension scheme is politically feasible in a representative democracy. We consider two parties: a right-wing party which is willing to trade off intragenerational equity against efficiency gains in intergenerational redistribution, and a left-wing party which does not want to adjust the level of intragenerational distribution. We show that, in an economy with an exogenously given interest rate, only a thus defined right-wing government will propose a social-security reform. Moreover, we demonstrate that such a policy proposal may lead to electoral success if it entails an appropriate mix of distributional efficiency and equity.Ageing, overlapping generations, pensions

Benefits of EMU Participation:Estimates using the Synthetic Control Method

This paper investigates quantitatively the benefits from participation in the Economic and Monetary Union for individual Euro area countries. Using the synthetic control method, we estimate how real GDP per capita would have developed for the EMU member states, if those countries had not joined the EMU. The estimates show that most countries have profited from having the euro, though the crisis leads to negative effects of EMU membership. The PIGS countries, in particular, would have been better off if they had not been an EMU member during the crisis, however, Greece, Portugal and Spain experienced the largest benefits of EMU participation in the pre-crisis period

Retirement Flexibility and Portfolio Choice in General Equilibrium

This paper explores the interaction between retirement flexibility and portfolio choice in an overlapping-generations model of a closed economy. Retirement flexibility is often seen as a hedge against capital market risks which justifies more risky asset portfolios. We show, however, that this positive relationship between risk taking and retirement flexibility is weakened - and under some conditions even turned around - if not only capital market risks but also productivity risks are considered. Productivity risk in combination with a high elasticity of substitution between consumption and leisure creates a positive correlation between asset returns and labour income, reducing the willingness of consumers to bear risk. Moreover, it turns out that general equilibrium effects can either increase or decrease the equity exposure, depending on the degree of substitutability between consumption and leisure

Population ageing and the international capital market

Abstract This paper analyses the effects of ageing on the international capital market. The first part applies a simple model and distinguishes between the cases of a small open economy and a closed economy to explore the separate effects of ageing, the design of pension schemes and government policy on savings, labour supply and the interest rate. The second part of the paper analyses cross-border capital flows and spillover effects caused by international differences in ageing patterns, pension schemes and policy reactions. The final part is devoted to the quantitative effects found by various recent simulation studies