Changes In Disposable Income Research Articles

Welfare Effects of Alternative Financing of Social Security: Some Calculations for Belgium

We analyse the distributional impact of lowering social security contributions and compensating the revenue loss by an increase in indirect taxes. We empirically assess the distributional consequences of this shift by using two Belgian microsimulation models: MODETE for the tax benefit system, and aster for the indirect tax part. Since the underlying micro database of the tax benefit system does not contain expenditures, we first impute detailed expenditures in the income data survey, by means of semiparametric Engelcurves. The currently living generation of pensioners belongs to the losers by such a reform: They do not profit from the reduced tax on labour income, but pay higher consumption prices. Less obvious, also part of the working population loses. Even not all those who leave unemployment after the reform are gainers. We also investigate the sensitivity of the results w.r.t. the choice of welfare measure to assess the combined change in disposable income, consumer prices and - in the case of flexible labour supply - leisure. We show how the specific choice and parameters of the welfare measure will influence the conclusions, possibly even more than the predictive model for assessing the behavioural reactions in labour supply.

Regional house prices

PurposeThe aim of this study is to investigate why housing prices differ between regions, and to estimate the speed‐of‐adjustment.Design/methodology/approachA variety of factors explains the differences in the prices of single‐family houses. Changes in disposable income over time and across regions as well as the cost of capital are important determinants. The model is based on a DiPasquale and Wheaton model where the developments of the house prices are a function of macroeconomic factors such as economic growth, changes in employment and interest rate. It is estimated on a two‐equation error correction model: first, the long‐run price equation and, second, a short‐run price model.FindingsThe estimates suggest that the speed‐of‐adjustment ranges from 16 to 78 per cent (around 50 per cent on average) depending on the region. In regions with a low population density, higher price adjustment rates are observed. Moreover, the speed‐of‐adjustment is higher in an upturn economy than in a downturn reflecting that negative housing stock adjustments is much slower than positive adjustments.Originality/valueThe main contribution is that the speed‐of‐adjustment to the long‐run equilibrium price for 21 regions is estimated instead of at a national level and, furthermore, cyclical asymmetry in responses is tested and such differences are found. It is estimated that the rate of adjustment to long‐run equilibrium price varies considerably between regions.

Combining Microsimulation with CGE and Macro Modelling for Distributional Analysis in Developing and Transition Countries

This paper overviews recent work that has attempted to bring together microsimulation, Computable General Equilibrium (CGE) and macro models to perform distributional analysis in developing and transition countries. Particular attention is paid to applications relating to aspects of economic growth and political economy. Applications in which macro, CGE and microsimulation models are either layered or integrated are considered. It is demonstrated that different combinations of such models, including those where only a single model-type is used, are appropriate for different problems. For short- run impact analysis, microsimulation on its own may be appropriate. For longer-run analyses, where interest is in the interrelationship between changes in disposable income, consumption and labour supply, these models need to be supplemented a combination of microsimulation on the one hand, and general equilibrium price changes or changes in macro variables on the other hand. In the case of national subregions, or countries embedded in free-trade areas, it is argued that microsimulation may adequately be combined with pure macro models. That is, CGE modelling may not be necessary. For distinct national economies, however, the first step beyond microsimulation should likely be integration with CGE modelling. Whilst much promising work has been undertaken on dynamic integrated CGE microsimulation work in developing countries, CGE work is most advanced for Less Developed Countries. At present several groups of development researchers are found to be putting these two approaches together, and in some cases are adding macroeconomic and financial modelling as well. In contrast, with a few conspicuous exceptions, little such work is being done for the transition economies.

Road injuries and long‐run effects on income and employment

This paper investigates whether unexpected shocks in terms of road injuries 'cause' a permanent change in disposable income, earnings, employment, and public transfer income. We use 'propensity score matching' and apply a difference-in-difference matching method to estimate the counterfactual of what the disposable income, earnings, employment, and the amount of public transfer income would have been of a particular group of persons injured by road accidents if they had not in fact been injured. We find that road injuries have important consequences. Older injured persons and injured persons in the lower part of the income distribution have significantly lower disposable incomes than older and low-income non-injured persons. In both the short and the long run the employment rates for the injured men are significantly lower than for non-injured persons. No effects on the employment rate are found for women. Besides, earnings are reduced in the long run for men where significant effects are only found for older women. The analysis shows that both injured men and women are compensated in terms of a significant increase in public transfer incomes in both the short and the long run.

Social Disparities In Health: An Anglo-European Perspective

Social Disparities In Health: An Anglo-European Perspective

Risk/risk trade-offs in pesticide regulation: an exploratory analysis of the public health effects of a ban on organophosphate and carbamate pesticides.

Efforts to reduce pesticide-related risks to consumers and farmworkers often neglect the possibility that measures to reduce the target risk may introduce or enhance countervailing risks. These may arise from substitute pesticides or pest-control practices, from increased levels of pests or pest-related hazards, from increased levels of toxic natural pesticides in plants, from increased costs and decreased consumption of health-enhancing fruits and vegetables, or from direct income effects on consumers and farmers. The effect of the countervailing risks may partially or completely offset the reduction in the target risk. A risk-trade-off analysis was conducted of a potential ban on the use of organophosphate and carbamate (OP/Carbamate) insecticides in U.S. agriculture. Although this scenario is extreme, it has the analytic virtue of dispensing with the infinite number of "next-best" OP/Carbamates that might be substituted for specific combinations of crops and pests should only selected uses be banned. The analysis relies on detailed descriptions of the alternative pesticides and pest-control measures that would be used for each of 14 major crops. The effects of pest-control cost changes on prices and consumption and effects on consumer and producer incomes are projected using a general-equilibrium economic model. Several countervailing risks that may be significant were found, including acute toxicity to farmworkers from substitute pesticides, cancer and noncancer risks from substitute pesticides, and mortality induced by changes in disposable income. Other countervailing risks are more difficult to estimate or weigh. Potential increases in natural plant pesticides following an OP/Carbamate ban are discussed but data are lacking to quantify the effects. Changes in diet following the ban have both positive and negative effects, and the ultimate change is difficult to estimate. Although a net risk cannot be estimated, several approaches were illustrated that would be useful in risk-trade-off analyses. Key factors complicating comprehensive analysis of risk/risk trade-offs for pesticides were also identified, including data gaps and shortcomings of current risk assessment methods.

Some Short-Run Implications of Fightback: A General Equilibrium Analysis

We report ORANI projections of the short-run effects on the macroeconomy and the industrial structure of the main elements of the Fightback proposals, namely the proposed abolition of the wholesale sales tax, petroleum excise and the payroll tax, proposed cuts in income taxes and government outlays, and the proposed introduction of the goods and services tax. In making the projections, we assume (with Fightback) that nominal wage rates are unaffected. We also assume that private domestic aggregate demand moves in line with changes in disposable income. These fiscal changes fall into two main groups — changes in indirect taxes which affect relative prices directly, and changes to income tax rates and government outlays which have their direct impacts on the level and commodity composition of domestic demand. Analysis of the second group is relatively straightforward. Cuts in income taxes increase private-sector demand, crowding out exports but generating a net increase in output and employment. Cuts in government outlays reduce public and private demand, allowing exports to expand but generating a net contraction of output and employment. Because public demand is concentrated on labour-intensive commodities, the contractionary employment effect of cuts in outlays is greater, per dollar of change, than is the expansionary effect of the income tax cuts.Differences in the macroeconomic effects of the indirect-tax components of the package depend on: differences between the taxes in the effects of imposing a dollar's worth of tax on any given industry; differences in the industrial incidences of the taxes; and differences in the sizes of the tax changes.The payroll tax affects the cost of employing labour directly. It therefore has a greater effect in any given industry on employment per dollar of tax change than does the wholesale sales tax, the petroleum excise or the goods and services tax. The GST does not discriminate between imports and domestic commodities and affects exports in only a minor indirect way. Hence, its impact on cost-sensitive industries exposed to international competition is smaller than the impacts of the other taxes, especially the payroll tax. Hence, the implications of the GST for output and employment are relatively small. Our translation of proposals from the Fightback document into shocks for our model is not without some difficulties. The appropriate size of the income tax cuts is one especially controversial issue. We present sufficient information in the paper to allow the reader to perform some sensitivity analysis. For example, to see the effects of assuming that income tax cuts are worth $10billion rather than the $13billion which we impose, the income tax columns in our tables should be scaled down by a factor of 10/13. Substitution of the goods and services tax for the wholesale sales tax, petroleum excise and the payroll tax is a major feature of the Fightback package. Because employment is less sensitive to the cost effects of the goods and services tax than it is to those of the taxes which are replaced, our major conclusion is that the package would generate increases in employment and GDP in the short run. However, our projections also imply that, without adjustments to nominal wage rates, the package would lead to a reduction in the real value of the take-home wage rate. When nominal wage rates are adjusted to maintain the real value of disposable income per unit of employment, the expansionary effects of the package on employment and the GDP are substantially reduced, but not entirely eliminated.

Charitable donations by UK households: evidence from the Family Expenditure Survey

This paper reports estimates based on both standard Tobit and generalized Tobit techniques of the determinants of charitable giving in the UK using 1984 Family Expenditure Survey data. This is the first such study using UK data. Separate estimates are presented of the determinants of participation and of the level of donations by giving households. Participation is seen to be sensitive to income, the tax-price of giving, and a range of demographic variables, while the level of donations varies primarily with income. Donations are found to be inelastic with respect to changes in disposable income.

Japan's Tax Reform

A tax reform influences households in many ways. Income tax reform influences the disposable income of households, and a reform of indirect tax influences the prices of goods and services. Furthermore, the changes in disposable income or in prices are thought to influence the consumption behavior of households. When a tax reform is enacted, one must not only evaluate the impact of the reform ex post facto but also must analyze it ex ante facto. It is likely that such an analysis will stimulate debate over the reform and lead to a more desirable reform. A series of simulation analyses that Homma (1986) attempted in the tax reform project of the Policy Design Forum was conducted with this thought in mind.

Japan's Tax Reform

A tax reform influences households in many ways. Income tax reform influences the disposable income of households, and a reform of indirect tax influences the prices of goods and services. Furthermore, the changes in disposable income or in prices are thought to influence the consumption behavior of households. When a tax reform is enacted, one must not only evaluate the impact of the reform ex post facto but also must analyze it ex ante facto. It is likely that such an analysis will stimulate debate over the reform and lead to a more desirable reform. A series of simulation analyses that Homma (1986) attempted in the tax reform project of the Policy Design Forum was conducted with this thought in mind.

Expectations for the 1982 mid-term U.S. congressional elections: An historical perspective

The record of U.S. mid-term elections since the mid-1940s is examined. The author explores the relationship of their results to those in the preceding Presidential year. Differential turnout does not seem to affect the outcome. Presidential popularity matters less than expected. But change in disposable income goes far to explain the scale of the electoral changes recorded. Party loyalty matters less for chances of re-election than mere incumbency. In 1982 reapportionment will help the Republicans but President Reagan's unpopularity will hurt them.

The Effect of the Changing Size and Composition of Government Purchases on Potential Output

and not from the explicit examination of substitutability between private and public provision of goods and services. If private and government investment expenditures are perfect substitutes (the limiting case) then increases in government investment goods purchases financed by additional debt creation reduces potential output because private net-of-deficit savings decline by more than the increase in government investment at the initial level of output. Since government debt is viewed as an addition to wealth there is a decline in the relative desire to accumulate capital goods, whether private or public. Thus, the observation that there may be a potential decrease in steady state output is not due to perfect (or any other degree of) substitutability between private and public expenditures but rather is due to a less than perfect symmetry to the wealth effects associated with tax and deficit financing. The introduction of less-thanperfect' expenditure substitutability mitigates against this revenue composition effect, as a one dollar increase in government investment goods would initially cause a less than one dollar decrease in private investment demand. In like fashion, von Furstenberg's assertion that the marginal propensity to save must be unity if fiscal actions are not to affect steady state output (p. 77) is correct only within the context of his particular private savings function. If future tax liabilities are perfectly discounted then the marginal propensity to save will be unity out of the obtained by the private sector from changes in the form of financing government expenditures. Thus, alluding to an observed savings rate of 8% in the United States does not constitute any substantive evidence about possible impacts on potential output of changes in government expenditures, as that average savings rate cannot be applied to marginal changes in disposable income when future tax liabilities are fully, or even partially, discounted.

THE INFLUENCE OF THE RATE OF INTEREST ON PERSONAL SAVING*

Now, SEVENTEEN YEARS after the publication of Keynes's The General Theory of Employment, Interest, and Money, it is a commonplace that personal consumption and saving are strongly influenced by changes in disposable income. During these same years, however, most economists have had to adopt an unaccustomed agnostic view about the influence of the rate of interest on personal saving. This shift in scientific opinion was due in part to the recognition of the theoretical indeterminacy of the role of interest in consumer's decisions and in part to the failure of statistical studies to provide convincing evidence. This dissertation attempts first to resolve the theoretical indeterminacy by applying testable psychological propositions as a critique of economic theory, and then in order to break the statistical barrier it separates the problem into the redistribution effect and the credit rationing effect thus making possible the use of a wide source of statistical and institutional data. The results obtained indicate a strong, positive saving-interest relation. Such a doctrine is not counter-revolutionary to developments in economics during the last seventeen years, for the interest-saving relation is clearly complementary to the disposable income-saving relation. In very brief summary, the argument is the following: The theoretical indeterminacy is due to the two-sided effect of (all) incentive payments: increasing the rate of interest (or, e.g., wages) provides both increased marginal payments which serve to spur greater saving (effort), and at the same time increased income, which may lessen the need for further saving (effort). The net effect depends therefore on whether the price effect or the income effect is dominant. Without further information there is no basis for knowledge on this point. Fortunately a development in modem psychology makes it possible for economists to evaluate the implications of the alternative possibilities. But first, it should be clear that saving will increase when the rate of interest rises if the price effect dominates; it may decrease