Applied Economics

The federal Section 8 housing program provides eligible low-income families with an income-conditioned voucher that can be used to lease privately owned, affordable rental housing units. This paper extends prior research on the effectiveness of housing support programs in several ways. We use a quasi-experimental, propensity score matching research design, and examine the effect of housing voucher receipt on neighborhood quality, earnings, and work effort. Results are presented for a wide variety of demographic groups for up to five years following voucher receipt. The analysis employs a unique longitudinal dataset that was created by combining administrative records maintained by the State of Wisconsin with census block group data. The results of our propensity score matching procedure show voucher receipt to have no effect on neighborhood quality in the short-term, but positive long-term effects. Furthermore, the results indicate that on average voucher receipt causes lower earnings in the initial years following receipt, but that these negative earnings effects dissipate over time. Finally, we find that recipient responses to voucher receipt differ substantially across demographic subgroups.

I study the cyclical behavior of an equilibrium search model, with focus the model's failure to match the observed cyclical volatility in the job finding rate. I show that job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence on wage cyclicality in new matches and show that the key model elasticities are consistent with the evidence. Therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. I discuss some modifications of the canonical model that can increase cyclical unemployment volatility consistent with wage flexibility in new matches.

I examine the dynamic evolutions of unemployment, hours of work and the service share since the war in the United States and Europe. The theoretical model brings together all three and emphasizes technological growth. Computations show that the very low unemployment in Europe in the 1960s was due to the high productivity growth associated with technological catch-up. Productivity also played a role in the dynamics of hours but a full explanation for the fast rise of service employment and the big fall in aggregate hours needs further research. Taxation has played a role but results are mixed.

We study a multi-sector model of growth with differences in TFP growth rates across sectors and derive sufficient conditions for the coexistence of structural change, characterized by sectoral labor reallocation, and balanced aggregate growth. The conditions are weak restrictions on the utility and production functions. Along the balanced growth path, labor employed in the production of consumption goods gradually moves to the sector with the lowest TFP growth rate, until in the limit it is the only sector with nontrivial employment of this kind. The employment shares of intermediate and capital goods remain constant during the reallocation process. (JEL O41, O14, E29) Economic growth takes place at uneven rates across different sectors of the economy. This paper has two objectives related to this fact: (a) to derive the implications of different sectoral total factor productivity (TFP) growth rates for structural change, the name given to the shifts in industrial

Theoretical predictions of the impact of TFP growth on unemployment are ambiguous, and depend on the extent to which new technology is embodied in new jobs. We evaluate a model with embodied and disembodied technology, capitalization, and creative destruction effects. In econometric estimates with a panel of industrial countries we find a large negative impact of TFP growth on unemployment, which implies that embodied technology and creative destruction play no role in the steady-state dynamics of unemployment. Capitalization effects explain some of the estimated impact but a part remains unexplained. *

We examine the implications of tax and subsidy policies for employment in the "three worlds of welfare", Anglo-Saxon, Continental European and Scandinavian. We argue that home production is key to a proper evaluation of the employment outcomes. Anglo-Saxon low-support policies encourage more overall market employment. Continental transfer policies encourage more home production in services with close substitutes at home. Scandinavian policies give incentives to move home production in social services to the market but discourage other service activity. We find support for our claims in sectoral employment data for five representative countries, United States, Britain, France, Italy and Sweden.

One of the central questions in macroeconomics for many years has been whether government policy can affect private saving rates, and if so, to what extent and through what channels. The question has remained controversial because, as with other macroeconomic questions, experiments to check divergent hypotheses cannot be deliberately performed, so economists must rely upon the often dubious evidence from the limited experiments with which nature and history have endowed us. This paper discusses the results of an exceptionally good natural experiment that has been provided by Canada and the U.S. over the past thirty-five years. After moving in tandem for almost twenty-five years, American and Canadian private saving rates have diverged dramatically over the last decade. The primary conclusion emerging from our analysis of this phenomenon is that tax policies can have a potent impact on private savings behavior. Differences in tax structures and in the interactions of taxation and inflation appear to be important factors explaining the divergent behavior of the American and Canadian private savings rates. Recognixing the importance of asset revaluations, caused partially but not entirely by tax effects, also helps to explain the different behavior of U.S. and Canadian savings. There may also be a relationship between government deficits and the private savings differential.

At least since , many economists have had the intuition that the marginal propensity to consume out of wealth declines as wealth increases. Nonetheless, standard perfect-certainty and certainty equivalent versions of intertemporal optimizing models of consumption imply a marginal propensity to consume that is unrelated to the level of household wealth. We show that adding income uncertainty to the standard optimization problem induces a concave consumption function in which, as Keynes suggested, the marginal propensity to consume out of wealth or transitory income declines with the level of wealth.

This paper uses the Panel Study of Income Dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty. However, the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cycle model in which consumers are patient enough to begin saving for retirement early in life: wealth is estimated to be far less sensitive to uncertainty than implied by that model. Instead, our results suggest that over most of their working lifetime, consumers behave in accordance with the "buffer-stock" models of saving described in or , in which consumers hold wealth principally to insulate consumption against near-term fluctuations in income.

Economists have long emphasized the importance of expectations in determining macroeconomic outcomes. Yet there has been almost no recent effort to model actual empirical expectations data; instead, macroeconomists usually simply assume that expectations are 'rational.' This paper shows that while empirical household expectations are not rational in the usual sense, expectational dynamics are well captured by a model in which households' views derive from news reports of the views of professional forecasters, which in turn may be rational. The model's estimates imply that people only occasionally pay attention to news reports; this inattention generates 'stickyness' in aggregate expectations, with important macroeconomic consequences.

Precautionary saving reflects the consequences of uncertainty for the rate of change of wealth. In the standard model, an increase in uncertainty will increase the level of saving, but will reduce the marginal propensity to save. Empirical evidence suggests that precautionary effects on saving are substantial, but no consensus has emerged on how to characterize the magnitude of precautionary wealth, either for individuals or in the aggregate. This partly reflects an epistemolgical problem: While theoretical models can contemplate the complete elimination of uncertainty, empirical data are not likely to shed much light on the consequences of such an extreme out-of-sample experiment.

We consider the open economy consequences of U.S. monetary policy, extending the identification approach of Romer and Romer [2004] and adapting it for use with asset prices. Intended policy changes are orthogonalized against the economy's expected future path, which captures any effects from open economy variables. Estimated from a set of bilateral VARs, the dynamic responses of the exchange rate, foreign interest rate, and foreign output are consistent with recent work that identifies U.S. policy via futures market changes and a priori impulse response bounds. We compare the two approaches, finding important commonalities. We also outline some advantages of our approach. JEL Classification: E52, F31, F41 Keywords: open economy monetary policy identification, exchange rate adjustment, interest rate pass-through † This paper supersedes Nuffield College Working Papers 2005-w18 and 2006-w04. The authors acknowledge financial support from British Academy post-doctoral fellowships. We would like to thank

We develop a novel system of re-classifying historical exchange rate regimes. One difference between our study and previous classification efforts is that we employ an extensive data base on market-determined parallel exchange rates. Our "natural" classification algorithm leads to a stark reassessment of the post-war history of exchange rate arrangements. When the official categorization is a form of peg, roughly half the time our classification reveals the true underlying monetary regime to be something radically different, often a variant of a float. Conversely, when official classification is floating, our scheme routinely suggests that the reality was a form of de facto peg. Our new classification scheme points to a complete rethinking of economic performance under alternative exchange rate regimes. Indeed, the breakup of Bretton Woods had a far less dramatic impact on most exchange rate regimes than is popularly believed. Also, contrary to an influential empirical literature, our evidence suggests that exchange rate arraignments may be quite important for growth, trade and inflation. Our newly compiled monthly data set on market-determined exchange rates goes back to 1946 for 153 countries.

Meltzer and Richard (1981) state that democracy will boost redistribution of income from the rich to the poor. Given that the median voter is poorer than the average-income voter, a majority of voters will vote for redistribution. However, the positive relationship between democracy and equalization of income has been highly criticized on both theoretical and empirical grounds. From a rational point of view, why do not the poor vote for a higher level of redistribution? Some scholars have argued that expectations of social mobility may induce the poor to believe they will have a higher income in the future and thus to vote against redistribution. However, the sociological literature has shown that people are not well aware of their relative position on the income ladder, because they evaluate their relative income through comparison to others. In this paper, I analyze to what extent preferences for redistribution at the individual level depend on expectations of future income and meritocracy. Departing from previous studies, I analyze whether expectations of social mobility are related to true probability of mobility or whether they are based on subjective expectations of mobility, which depend on perceived position on the income ladder. Empirical results show that preferences for redistribution depend on both expectations of social mobility and meritocracy, although subjective expectations of social mobility have a stronger impact on preferences for redistribution than objective expectations.

Through the application of spatial econometric techniques, this paper examines the spatial patterns of tourism and the role of the underlying geography of urban economic spaces in modelling Tourism Related Employment (TRE) across the South East Queensland (SEQ) region in Australia. Despite a decline in the degree of inequality in the distribution of TRE over the last decade, the SEQ region exhibits a high concentration of TRE along the coast as well as manifesting a strong spatial dependency, that means areas of high employment in tourism sector tend to have neighbours with high values or vice versa. The economies of agglomeration, dwelling density and accessibility to shopping centres are found to be significant positive predictors of TRE; whilst the proximity to industrial areas and closeness to open spaces are identified to exert negative externalities.

Key words: Tourism Related Employment, sunbelt region, spatial econometrics, spatial autocorrelation, and GIS.

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Some probabilistic aspects of the number variance statistic are investigated. Infinite systems of independent Brownian motions and symmetric α-stable processes are used to construct new examples of processes which exhibit both divergent and saturating number variance behaviour. We derive a general expression for the number variance for the spatial particle configurations arising from these systems and this enables us to deduce various limiting distribution results for the fluctuations of the associated counting functions. In particular, knowledge of the number variance allows us to introduce and characterize a novel family of centered, long memory Gaussian processes. We obtain fractional Brownian motion as a weak limit of these constructed processes.

This paper tests between the standard "random matching function" approach and "stock-flow" matching while controlling for temporal aggregation bias. Consistent with previous empirical work, the random matching function fits the matching data reasonably well. But match flows are more highly correlated with vacancy inflows than is consistent with the random matching approach. Instead the data support stock-flow matching, where unemployed workers match directly with suitable new vacancies as such vacancies come on to the market.

In this paper we o¤er a new theory of religious organizations. Our theory links between two important aspects of religion: individual beliefs about the causality between private actions their and consequences, and the social aspects of religious practices. The model has three main ingredients: (i) a social interaction game; (ii) heterogeneous beliefs about the statistical relation between private actions in the game and uncertain events that a¤ect individual's utility; (iii) observable actions (interpreted as rituals) that allow religious individuals to identify themselves.

The credible identification of endogenous peer group effects-i.e. social multiplier or feedback effects-has long eluded social scientists. We argue that such effects are most credibly identified by a randomly assigned social program which operates at differing intensities within and between peer groups. The data we use are from Project STAR, a class size reduction experiment conducted in Tennessee elementary schools. In these data, classes were comprised of varying fractions of students who had previously been exposed to the Small class treatment, creating class groupings of varying experimentally induced quality. We use this variation in class group quality to estimate the spillover effect. We find that when allowance is made for this 'feedback' effect of prior exposure to the Small class treatment, the peer effects account for much of the total experimental effects in the later grades, and the direct class size effects are rendered substantially smaller.

We study a two-country two-sector model of international trade in which one sector produces homogeneous products while the other produces differentiated products. The differentiatedproduct industry has firm heterogeneity, monopolistic competition, search and matching in its labor market, and wage bargaining. Some of the workers searching for jobs end up being unemployed. Countries are similar except for frictions in their labor markets, which include efficiency of matching, cost of vacancies, firing costs, and unemployment benefits. We study the interaction of labor market rigidities and trade impediments in shaping welfare, trade flows, productivity, and unemployment. We show that both countries gain from trade but that the flexible countrywhich has lower labor market frictions-gains proportionately more. A flexible labor market confers comparative advantage; the flexible country exports differentiated products on net. A country benefits from lowering frictions in its labor market, but this harms the country's trade partner. And the simultaneous proportional lowering of labor market frictions in both countries benefits both of them. The model generates rich patterns of unemployment. In particular, better labor market institutions do not ensure lower unemployment, and unemployment and welfare can both rise in response to a policy change or falling trade costs. for editorial assistance, and Helpman thanks the National Science Foundation for financial support. simple way, which can be related to a variety of labor market features, such as the cost of vacancies, the efficiency of matching in labor markets, firing costs and unemployment insurance. We focus the analysis on search and matching frictions in Sections 2-6, and show in Section 7 how the results generalize to economies with firing costs and unemployment benefits. We show, however, that even the simpler search and matching frictions generate rich patterns of unemployment in response to both variation across countries in labor market rigidities and changes in trade impediments.

We develop a simple general equilibrium model for studying the impact of workers'relativewage concerns on resource allocation and the organization of production. We characterize equilibria for the closed economy and for an open economy in which an intermediate input can be produced o¤shore. In the closed economy, …rms that are otherwise identical may have di¤erent hiring practices and pay di¤erent wages to low-skill workers. In the open economy, some …rms perform all production at home while others produce all of the intermediate input o¤shore. We show that relative-wage concerns add to incentives for o¤shoring. O¤shore production may take place in the presence of relative-wage concerns in situations where it would not be pro…table in their absence. And if o¤shoring takes place with or without such concerns, the extent of o¤shore production is greater in the former setting than in the latter. We further show that when workers are concerned about relative pay, the equilibrium does not maximize the economy's net output. Nonetheless, the competitive equilibrium with o¤shoring is constrained Pareto e¢ cient.

This paper develops a unified approach to study participation and voting in multiple elections. The theoretical setting combines an "uncertain-voter" model of turnout with a spatial model of voting behavior. We apply our framework to the study of turnout and voting in U.S. presidential and congressional elections.

We incorporate trade imbalances into a quantitative model of bilateral trade in manufactures, dividing the world into forty countries. Fitting the model to 2004 data on GDP and bilateral trade we calculate how relative wages, real wages, and welfare would di¤er in a counterfactual world with all current accounts balancing. Our results indicate that closing the current accounts requires modest changes in relative wages. The country with the largest de…cit (the United States) needs its wage to fall by around 10 percent relative to the country with the largest surplus (Japan). But the prevalence of nontraded goods means that the real wage in Japan barely rises while the U.S. real wage falls by less than 1 percent. The geographic barriers implied by the current pattern of trade are su¢ ciently asymmetric that large bilateral de…cits remain even after current accounts balance. The U.S. manufacturing trade de…cit with China falls to $65 billion from its 2004 level of $167 billion.

This paper summarizes our recent research on evaluating the distributional consequences of social programs. This research advances the economic policy evaluation literature beyond estimating assorted mean impacts to estimate distributions of outcomes generated by different policies and to determine how those policies shift persons across the distributions of potential outcomes produced by them. Our approach enables analysts to evaluate the distributional effects of social programs without invoking the "Veil of Ignorance" assumption often used in the literature in applied welfare economics. Our methods determine which persons are affected by a given policy, where they come from in the ex-ante outcome distribution and what their gains are. We apply our methods to analyze two proposed policy reforms in American education. These reforms benefit the middle class and not the poor.

We analyze a banking system in which the class of feasible deposit contracts, or mechanisms, is broad. The mechanisms must satisfy a sequential service constraint, but partial or full suspension of convertibility is allowed. Consumers must be willing to deposit, ex ante. We show, by examples, that under the socalled "optimal contract," the post-deposit game can have a run equilibrium.

We begin our study of international trade with a model that has two goods and two factors (labor and capital). We shall suppose that the two goods are traded on international markets, but do not allow for any movements of factors across borders. This reflects the fact that

Using original survey data collected at the county (commune) level, we examine the relationship between insecurity and welfare. Correcting for unobserved heterogeneity at the commune level, we …nd that insecurity is associated with lower incomes and health status in all our analysis, and it associated with lower school enrollment and higher infant mortality in regressions. Results are robust to the inclusion of shocks potentially a¤ecting both welfare and insecurity. We further …nd a signi…cant association between insecurity and the provision of certain public services, notably schooling and health care. A similar relationship is found with the placement of development projects. Taken together, the evidence suggest that insecurity is an important determinant of welfare in the country studied.

This paper tests whether manufacturing exporters pay more to educated workers in an e¤ort to ascertain whether the productivity of human capital is raised by exports. Using a panel of matched employer-employee data from Morocco, we …nd no evidence that the education wage premium is higher in exporting sectors and …rms. Although exporters pay more on average, much of the wage di¤erential can be explained by the fact that exporters have a larger workforce and more capital. Educated workers who start working for an exporter do not experience a larger wage increase relative to their previous job. We …nd a mild positive association between exports, technology, and product quality, part of which is due di¤erences in …rm size. We discuss why our results di¤er from those obtained using di¤erent countries and methodologies.

This paper examines the determinants of assets at marriage in rural Ethiopia. We identify and test three separate processes that determine assets brought to marriage: assortative matching; compensating parental transfers at marriage; and strategic behavior by parents. We Þnd ample evidence for the Þrst, none for the second, and some evidence of the third for brides. We also Þnd no evidence of competition for parental assets among siblings. Results suggests that parents do not transfer wealth to children in ways that compensate for marriage market outcomes. Certain parents, however, give more assets to daughters whenever doing so increases the chances of marrying a wealthy groom.

Using original survey data, we document the activities, resources, and governance structure of NGOs operating in Uganda. The NGO sector is funded primarily by international non-governmental organizations and bilateral donors. We …nd large di¤erences in size and funding across NGOs, with only a few NGOs attracting most of the funding. Most NGOs are small and underfunded and focus on raising awareness and advocacy. Few NGOs are faith-based. Most screening and monitoring is done by grant agencies. Some monitoring is also done internally by members and trustees. Little monitoring is done by government. NGOs do not …le an income tax returns and few respondents are able to provide coherent …nancial accounts.

This paper examines the determinants of human and physical capital at marriage. Using detailed data from rural Ethiopia, we …nd that assets brought to marriage are distributed in a highly unequal manner. For …rst unions, assets brought to marriage are positively associated with parents'wealth, indicating that a bequest motive a¤ects assets at marriage. Parental wealth a¤ects the inheritance of neither groom nor bride. Sibling competition from brothers a¤ects grooms' inheritance, but sisters have no e¤ect. The marriage market is a major conduit for rural and gender inequality, although avenues do exist for couples to accumulate wealth over their life cycle.

This paper tests the efficiency of insurance markets in the Pakistan Punjab by examining how crop choices are affected by the presence of price and yield risk. We estimate reduced-form and structural models of crop choices. Although we cannot reject the hypothesis that village members efficiently share risk among themselves, production choices are shown to depend on risk. Existing risk sharing and selfinsurance mechanisms thus imperfectly protect Punjab farmers against village-level shocks. Results also indicate that households respond to consumption price risk, thereby suggesting that empirical and theoretical work on risk should avoid putting an exclusive emphasis on yield and output price risk.

Credit from suppliers is an important but often neglected source of finance for manufacturing firms. Zimbabwe is no exception. Unlike credit from financial institutions, trade credit does not rely on formal collateral but on trust and reputation. Contract enforcement is flexible.

This paper investigates the extent to which poor households are discouraged from making a non-divisible but profitable investment. Using data on irrigation wells in India, we estimate the parameters of a structural model of irreversible investment. Results show that poor farmers fail to undertake a profitable investment that they could, in principle, self-finance because the non-divisibility of the investment puts it out of their reach.

We investigate whether available enforcement mechanisms a¤ects who shares risk with whom in sub-Saharan Africa by applying dyadic regression analysis to data from a lab-type experiment, surveys and a genealogical mapping exercise. During the experiment participants were invited to form risk sharing groups under three enforcement mechanisms: external, intrinsic, and extrinsic, i.e., social sanctioning. Same sex dyads and dyads who belong to the same economic community-based organizations (CBOs) are more likely to share risk.

It is commonly asserted by economists, comparative political scientists and international policymakers that government effectiveness is important. The liberal tradition holds that good government performance leads to competitive markets and to the efficient delivery of goods and services. These ideas derive from numerous studies emphasising the benefits of good governance. These studies suggest that the incentives for good governance are created by a country’s formal political rules. Political and economic “success are often attributed to a set of formal institutions, social infrastructure, or even mental frameworks. The underlining rationale of this approach is based on the assumption that "institutions matter". Although the literature stressing the benefits of institutions for good governance is prolific, no one has actually been able to prove which institutions matter for social and economic success or to what extent. At the same time, and more fundamentally, most scholars have difficulty agreeing what effective government really is. Added to this conundrum is the reality that fully effective governments and markets have not been attained in any country. In summary, this vast literature is casual and even contradictory in defining which institutions actually matter for good governance and is generally lacking in empirical foundation.

"In 1984, the world was shocked at the scale of a famine in Ethiopia that caused over half a million deaths, making it one of the worst in recent history. The mortality impacts are clearly significant. But what of the survivors? This paper provides the first estimates the long-term impact of
the famine twenty years later, on the height of young adults aged 17--25 who experienced this severe shock in-utero and as infants during the crisis. Improving methodologically on other studies, famine intensity is measured at the household level, while impacts are assessed using a difference-in-differences comparison across siblings. We find that by adulthood, affected children who were under the age of 36 months at the peak of the crisis are significantly shorter than the older cohort, by at least 3cm. They are also less likely to
have completed primary school, and more likely to have experienced recent illness. Indicative calculations show that this may lead to income losses of between 3%  and 8% per year over their lifetime. The evidence also suggests that the relief operations at the time made little difference."