Comparative Welfare Analysis Research Articles

Comparative Welfare Analysis of German Public Policies

This paper implements the comparative welfare analysis method Marginal Value of Public Funds (MVPF) developed by Hendren and Sprung-Keyser (2020) for historical public policies in Germany between 1990–2018 across the domains of taxation, job training, social insurance, and infrastructure. It contributes to the public finance literature by constructing among the first MVPF collections of public policies outside the United States, identifying key similarities and differences between MVPF results of the two nations, expanding the MVPF framework into the field of public infrastructure, and shedding light on the approach’s particular weaknesses. German tax reforms generated positive and significant MVPFs; retirement and unemployment insurance policies yielded relatively small MVPFs, and child treatment scored the largest MVPF among health insurance programs. Keywords: public policy, policy evaluation, welfare analysis JEL : H21, H41, H50, I38

A Unified Welfare Analysis of Government Policies*

AbstractWe conduct a comparative welfare analysis of 133 historical policy changes over the past half-century in the United States, focusing on policies in social insurance, education and job training, taxes and cash transfers, and in-kind transfers. For each policy, we use existing causal estimates to calculate the benefit that each policy provides its recipients (measured as their willingness to pay) and the policy’s net cost, inclusive of long-term effects on the government’s budget. We divide the willingness to pay by the net cost to the government to form each policy’s Marginal Value of Public Funds, or its ``MVPF''. Comparing MVPFs across policies provides a unified method of assessing their effect on social welfare. Our results suggest that direct investments in low-income children’s health and education have historically had the highest MVPFs, on average exceeding 5. Many such policies have paid for themselves as the government recouped the cost of their initial expenditures through additional taxes collected and reduced transfers. We find large MVPFs for education and health policies among children of all ages, rather than observing diminishing marginal returns throughout childhood. We find smaller MVPFs for policies targeting adults, generally between 0.5 and 2. Expenditures on adults have exceeded this MVPF range in particular if they induced large spillovers on children. We relate our estimates to existing theories of optimal government policy, and we discuss how the MVPF provides lessons for the design of future research.

SAFTA and AFTA: a comparative welfare analysis of two regional trade agreements

The gravity model is one of the most successful empirical models in economics to evaluate the effects of several factors on international trade or bilateral trade flows. Many factors that are related to trade barriers can influence the bilateral trade between two countries. Regional trade agreements (RTAs) are important factors, which can pave the path of bilateral trades. In this paper, I use GEPPML estimator of Anderson et al. (Estimating general equilibrium trade policy effects: GE PPML. CESifo Working Papers-5592, 2015) to evaluate the counterfactual welfare effect of SAFTA and AFTA on member countries as well as on the non-member countries. After accounting for potential endogeneity of RTAs, removal of AFTA causes 3.08% real GDP loss for member countries, removal of SAFTA causes 6.36% real GDP loss for member countries, and joint agreement of SAFTA and AFTA brings 0.71 real GDP gains for member countries. In all scenarios, trade diversion effect is not remarkable.

The Private Rented Sectors in the North and South of Ireland: A Case Study in Convergence Analysis

The theme of this paper centres on the convergence and divergence of housing policy between two regimes inhabiting the same geographical space on the island of Ireland, as reflected in the development of the private rented sector (PRS) in both jurisdictions. Using a historical comparative analysis of key indicators, this paper aims not just to present an accurate picture of the state of policy towards the sector in both jurisdictions today, but to place this analysis within a framework which looks at the backdrop of overall housing systems. The paper postulates that while Northern Ireland and the South of Ireland are reflective of the Anglo Saxon tradition in housing, major historical differences in their pathways have brought clearly identifiable policy outcomes indicative of their differing status in comparative welfare analysis. While both jurisdictions have diverged significantly during the course of the twentieth century in the profile of policy and housing tenure mix, showing examples of path dependency at work, there is clear evidence of more recent convergence. More recent changes in housing policy in both jurisdictions away from direct social housing provision and the changing role of the private rented sector are also examined and a convergence theory is proposed.

Entry regulation, firm’s behaviour and social welfare

This work performs a comparative welfare analysis of two types of entry regulation in a duopolistic retail market: number of licenses and minimum distance between stores. In a linear (Hotelling) market we show that a minimum distance rule is beneficial for consumers and disadvantageous for the firms when demand is sufficiently inelastic. The distance rule that maximises social welfare is one quarter of the market under which firms will be located at the quartiles. Those locations are also optimal under regulated prices. Moreover, our model of two licenses with simultaneous entry is the first one that performs the horizontal product differentiation analysis using quadratic transportation costs and a binding reservation price. We find that a subgame perfect equilibrium exists for all the values of the reservation price and, for those values that induce a unique location equilibrium, the distance between the firms ranges from one half of the of the market to the whole market length.This analysis, which is not yet considered in the literature, is motivated by a change of entry regulation in the drugstore market in the Spanish region of Navarre. Since the demand in this market is quite inelastic, the minimum distance rule maybe socially more beneficial than the license rule.

A Comparative Welfare Analysis of Electoral Systems with Endogenous Turnout

I investigate the welfare properties of a broad class of electoral systems with endogenous turnout. I find that the welfare ranking of electoral systems depends on the composition of the electorate. If citizens have identical voting costs, then all electoral systems that satisfy certain regularity properties generate the same level of welfare. If voting costs are heterogeneous, and the two parties are (almost) equally popular, then majority rule (MR) generates the highest welfare among these systems. I also analyse a model with heterogeneous and group-specific costs. I show that, under certain conditions, proportional representation dominates MR

Investment in transport infrastructure, regulation, and gas–gas competition

This paper develops a simple model in which a regulated (upstream) transporter provides capacity to a marketer competing in output with an incumbent in the (downstream) gas commodity market. The equilibrium outcome of the firms' interaction in the downstream market is explicitly taken into account by the regulator when setting the transport charge. We consider various forms of competition in this market and derive the corresponding optimal transport charge policies. We then run simulations that allow us to perform a comparative welfare analysis of these transport infrastructure investment policies based on different assumptions about the intensity of the competition that prevails in the gas commodity market.

A Comparative Welfare Analysis of Social Security System Selection

The design of a comprehensive social security system is a critical issue to many countries and regions. This paper presents a comparative economic welfare analysis on typical social security systems from the viewpoints of “all-generation welfare” and “each-generation welfare,” respectively. The analysis shows that the fact that one social security system is better or worse than another is not absolute and that it depends on some specific parameter conditions. In the paper, we provide these parameter conditions and also show a “paradox of social security system design” based on the analysis. At the end of the paper, two further research-worthy questions are raised.

A Comparative Welfare Analysis of Social Security System Selection

The design of a comprehensive social security system is a critical issue to many countries and regions. This paper presents a comparative economic welfare analysis on typical social security systems from the viewpoints of “all-generation welfare” and “each-generation welfare,” respectively. The analysis shows that the fact that one social security system is better or worse than another is not absolute and that it depends on some specific parameter conditions. In the paper, we provide these parameter conditions and also show a “paradox of social security system design” based on the analysis. At the end of the paper, two further research-worthy questions are raised.

Technology Transfer, Merger and Joint Venture : A Comparative Welfare Analysis*

We consider a framework where initially a foreign firm and a few domestic firms are competing in a homogenous product local market. The foreign firm has a lower marginal cost of production relative to the domestic firms. We study then possibility of a bilateral agreement between the foreign firm and a local firm on each of technology transfer, merger and joint venture. Given the optimal behavior of the foreign firm, the paper also examines welfare implica - tions of each such collaborative deal. Depending on cost asymmetry it is always profitable for the foreign firm to go for the one or the other deal. But the local government generally encourages new firm joint venture formation. The degree of cost asymmetry and the number of firms in the market play an impor - tant role in this analysis.

On the welfare analysis of a cross-border merger

We provide a comparative welfare analysis of domestic and cross-national mergers. We focus, in particular, on the importance of possible synergies in mergers, the existing market structure and the bargaining power of the merging firms (in the case of a cross-border merger).

Finance, Investment, and Firm Value in Germany and the US: A Comparative Analysis

Germany and the United States are generally seen as the two competing systems of corporate governance. In search for a comparative welfare analysis of the financial systems, we are interested in (i) the aggregate value-added of corporate investments in the two countries and in (ii) the interaction of investment and financing decisions. This paper investigates the impact of financing, investment, and dividend decisions on the value of stock corporations in Germany and the US. The methodology is based on a cross-sectional approach proposed by Fama and French. In general, the evidence shows that relations for the German firms are statistically similar to those found for their US counterparts. In both countries, corporate investment creates value in excess of cost, but the US industrial sector seems to be more efficient in making value-enhancing investments. Robust statistical methods are applied to verify the results. They do not change the main conclusions.

Alternative Forms of Government Expenditure Financing: A Comparative Welfare Analysis

This paper derives criteria for evaluating the impact of an increase in government expenditure on both the time path of instantaneous utility and overall welfare, under alternative forms of tax financing. These consist of three factors. The first is the direct crowding-out effect, which reflects the utility differential between the government expenditure being undertaken and the private consumption it is displacing. The second describes the intertemporal trade-off between the effect on the short-run rate of capital accumulation and the resulting change in the the long-run capital stock. The final term is due to the distortion arising from the pre-existence of a tax on wage income. Copyright 1992 by The London School of Economics and Political Science.