Consumption responses and redistributive implications of luxury durable tax rebates

Comment

We estimate the consumption response of Italian households to the "Euro80 tax bonus" intro-duced in 2014, using the panel component on the Survey of Household Income and Wealth. We find that households that received the tax rebate increased their monthly consumption of food and means of transportation by about Euro20 and Euro30, respectively, about 50-60 per cent of the total bonus. There was a larger increase for households with low liquid wealth or low income. Our estimates are quite robust to different model specifications and are broadly in line with the evidence available from similar tax rebates in other countries but, due to the small sample size, are not always statistically significant. To understand the mechanism behind our results we then simulate an overlapping generations model of household consumption: the marginal propensity to consume generated by the structural model is in line with our empirical estimates.

We estimate the consumption response of Italian households to the “€80 tax bonus” introduced in 2014, using the panel component on the Survey of Household Income and Wealth. We find that households that received the tax rebate increased their monthly consumption of food and means of transportation by about €20 and €30, respectively, about 50-60 per cent of the total bonus. There was a larger increase for households with low liquid wealth or low income. Our estimates are quite robust to different model specifications and are broadly in line with the evidence available from similar tax rebates in other countries but, due to the small sample size, are not always statistically significant. To understand the mechanism behind our results we then simulate an overlapping generations model of household consumption: the marginal propensity to consume generated by the structural model is in line with our empirical estimates. JEL Classification: D12, E21

A wide body of empirical evidence, based on randomized experiments, finds that 20-40 percent of fiscal stimulus payments (e.g. tax rebates) are spent on nondurable household consumption in the quarter that they are received. We develop a structural economic model to interpret this evidence. Our model integrates the classical Baumol-Tobin model of money demand into the workhorse incomplete-markets life-cycle economy. In this framework, households can hold two assets: a low-return liquid asset (e.g., cash, checking account) and a high-return illiquid asset (e.g., housing, retirement account) that carries a transaction cost. The optimal life-cycle pattern of wealth accumulation implies that many households are “wealthy hand-to-mouth”: they hold little or no liquid wealth despite owning sizeable quantities of illiquid assets. They therefore display large propensities to consume out of additional income. We document the existence of such households in data from the Survey of Consumer Finances. A version of the model parameterized to the 2001 tax rebate episode is able to generate consumption responses to fiscal stimulus payments that are in line with the data.

PurposeGlobal manufacturers have faced unprecedented cost pressures in China because of Chinese currency appreciation, rising labour costs, higher oil prices and reduced value‐added tax rebates. This paper aims to reassess the decision of operating global manufacturing facilities in China.Design/methodology/approachA mixed integer programming model is developed for a typical global manufacturing supply chain that includes production in the Pearl River Delta region and trade in Hong Kong. A case study with a footwear product is used to illustrate model application and present detailed analyses.FindingsThe modelling results affirm the need of relocating labour‐intensive production that mainly competes on low costs. Nevertheless, coastal China offers considerable benefits from industrial clustering and a logistics advantage in comparison with inland China and Asian countries where labour costs are still relatively low. Hong Kong remains a robust location choice for trade operations because of its favourable tax policies.Practical implicationsRetaining production in China faces high risks from Chinese currency appreciation, while relocation to lower‐cost Asian countries is more vulnerable to risks from high oil prices. An intermediate trade operation in Hong Kong can be used to hedge against risks from unfavourable tax policy changes at manufacturing locations.Originality/valueChina has risen to an important position in global manufacturing because of its cost advantages. This paper analyzes the new phenomenon of dramatically increasing cost pressures in China. It develops a first‐of‐its‐kind supply chain configuration model for the popular front‐shop‐back‐factory business model in China.

Economic feasibility of solar photovoltaic rooftop systems in a complex setting: A Swedish case study

This paper explores the modelling of time-varying dynamics of the elasticity of substitution between money and liquid assets considered near-money. The liquidity premium between near-money assets over other safe but illiquid assets can vary with time, depending on economic conditions. The model presented in this paper introduces dynamics into the elasticity of substitution between deposits and near-money assets in order to explicitly capture such variation in the modelling of liquidity premium. Adding an autoregressive structure to the elasticity of substitution accounts for the pattern of expansion and contraction described in the credit markets literature, and yields a more realistic model for the expansion and contraction of liquidity in funding markets. The model is applied to U.S. and Canadian data and is shown to exhibit key economic features with important policy implications for market participants and regulators.

Many important classes of assets are illiquid in the sense that they cannot always be traded immediately. Thus, a portfolio position in these types of illiquid investments becomes at least temporarily irreversible. We study the asset-pricing implications of illiquidity in a two-asset exchange economy with heterogeneous agents. In this market, one asset is always liquid. The other asset can be traded initially, but then not again until after a blackout period. Illiquidity has a dramatic effect on optimal portfolio decisions. Agents abandon diversification as a strategy and choose highly polarized portfolios instead. The value of liquidity can represent a large portion of the equilibrium price of an asset. We present examples in which a liquid asset can be worth up to 25 percent more than an illiquid asset even though both have identical cash flow dynamics. We also show that the expected return and volatility of an asset can change significantly as the asset becomes relatively more liquid.

A Time Series Analysis of Macroeconomic Determinants of Household Spending in the Era of Cross-cultural Dynamics: Czech Republic as a Case Study

Macroeconomic calibrations imply much larger labor supply elasticities than microeconometric studies. One prominent explanation for this divergence is that indivisible labor generates extensive margin responses that are not captured in micro studies of hours choices. We evaluate whether existing calibrations of macro models are consistent with micro evidence on extensive margin responses using two approaches. First, we use a standard calibrated macro model to simulate the impacts of tax policy changes on labor supply. Second, we present a metaanalysis of quasi-experimental estimates of extensive margin elasticities. We find that micro estimates are consistent with macro evidence on the steady-state (Hicksian) elasticities relevant for cross-country comparisons. However, micro estimates of extensive-margin elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours. Hence, indivisible labor supply does not explain the large gap between micro and macro estimates of intertemporal substitution (Frisch) elasticities. Our synthesis of the micro evidence points to Hicksian elasticities of 0.3 on the intensive and 0.25 on the extensive margin and Frisch elasticities of 0.5 on the intensive and 0.25 on the extensive margin.

Life-cycle consumption and hyperbolic discount functions

PartI: Social Networks.- A Simple Model of Fads and Cascading Failures on Sparse Switching Networks.- Self Organised Criticality in Economic and Social Networks - The Case of Innovation Diffusion.- Social Percolators and Self Organized Criticality.- Lock-out in Social Networks.- Cooperation, Adaptation and the Emergence of Leadership.- PartII: From micro to macro behaviours.- Technology Diffusion, Stability and Decay: Some Results.- On Dynamic Re-Specifications of Kiyotaki-Wright Model.- Industrial Dynamics with Quasi-Zero Intelligence Interacting Firms.- PartIII: Finance.- Stability of Pareto-Zipf Law in Non-stationary Economies.- Toy Models of Markets with Heterogeneous Interacting Agents.- Price Bubbles and the Long Run Profitability of a Trend Following Technical Trading Rule.- Firms' Financial Heterogeneity and Business Cycles.- PartIV: Coalitions.- Stable Coalition Structures with Fixed Decision Scheme.- Coalition Formation with Heterogeneous Agents.- Location Games with Externalities.- V: Interactions and Knowledge.- Simon says... What ? - Rationality of Imitation in a Simonian Perspective.- Interacting Individuals and Organizations: a Case Study on Cooperations Between Firms and Research Laboratories.- Organisational Innovation, Communities of Practice and Epistemic Communities: the Case of Linux.- Knowledge Creation, Knowledge Diffusion and Network Structure.

Sweden aspires to become totally carbon dioxide-neutral by 2045. Indisputably, what is needed is not just a reduction in the emissions of CO2 (greenhouse gases in general) from the technosphere, but also a manipulated diversion of CO2 from the atmosphere to ‘traps’ in the lithosphere, technosphere, hydrosphere, and biosphere. The case study in this paper focused on Stockholm Exergi’s proposed waste-to-energy incineration plant in Lövsta, which is keen on incorporating carbon capture and storage (CCS), but is also interested in understanding the potential of carbon capture, utilization, and storage (CCU/S) in helping it to achieve ‘carbon-dioxide-negativity’. Waste-to-energy incineration plants (in cases where the petro-plastics in the waste mix can be substantially reduced) are a key component of a circular bio-economy, though the circularity here pertains to recovering energy from materials which may or may not be recyclable. CCS (storage in the North Sea) was compared with CCU/S (CO2 sintered into high-quality building blocks made of recycled slag from the steel sector) from techno-economic and environmental perspectives. The comparative analysis shows, inter alia, that a hybridized approach—a combination of CCS and CCU/S—is worth investing in. CCU/S, at the time of writing, is simply a pilot project in Belgium, a possible creatively-destructive technology which may or may not usurp prominence from CCS. The authors believe that political will and support with incentives, subsidies, and tax rebates are indispensable to motivate investments in such ground-breaking technologies and moving away from the easier route of paying carbon taxes or purchasing emission rights.

Indeterminacy and expectation-driven fluctuations with non-separable preferences

Consumption adjustment to real interest rates: Intertemporal substitution revisited