This paper presents a new approach to estimation and inference in panel data models with a multifactor error structure where the unobserved common factors are (possibly) correlated with exogenously given individual-specific regressors, and the factor loadings differ over the cross section units. The basic idea behind the proposed estimation procedure is to filter the individual-specific regressors by means of (weighted) cross-section aggregates such that asymptotically as the cross-section dimension (N) tends to infinity the differential effects of unobserved common factors are eliminated. The estimation procedure has the advantage that it can be computed by OLS applied to an auxiliary regression where the observed regressors are augmented by (weighted) cross sectional averages of the dependent variable and the individual specific regressors. Two different but related problems are addressed: one that concerns the coefficients of the individual-specific regressors, and the other that focusses on the mean of the individual coefficients assumed random. In both cases appropriate estimators, referred to as common correlated effects (CCE) estimators, are proposed and their asymptotic distribution as N with T (the time-series dimension) fixed or as N and T (jointly) are derived under different regularity conditions. One important feature of the proposed CCE mean group (CCEMG) estimator is its invariance to the (unknown but fixed) number of unobserved common factors as N and T (jointly). The small sample properties of the various pooled estimators are investigated by Monte Carlo experiments that confirm the theoretical derivations and show that the pooled estimators have generally satisfactory small sample properties even for relatively small values of N and T.

Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure

A detailed review of the education sector in Australia as in the data provided by the 2006 edition of the OECD's annual publication, 'Education at a Glance' is presented. While the data has shown that in almost all OECD countries educational attainment levels are on the rise, with countries showing impressive gains in university qualifications, it also reveals that a large of share of young people still do not complete secondary school, which remains a baseline for successful entry into the labour market.

/pdf/education-at-a-glance-m5vl7o68j5.pdf

Education at a Glance

A central message of the tax competition literature is that independent governments engage in wasteful competition for scarce capital through reductions in tax rates and public expendi- ture levels. This paper discusses many of the contributions to this literature, ranging from early demonstrations of wasteful tax com- petition to more recent contributions that identify efficiency- enhancing roles for competition among governments. Such roles involve considerations not present in earlier models, including im- perfectly-competitive market structures, government commitment problems, and political economy considerations.

/pdf/theories-of-tax-competition-42jqcatw8x.pdf

Theories of Tax Competition

Is the way that people make risky choices, or tradeoffs over time, related to cognitive ability? This paper investigates whether there is a link between cognitive ability, risk aversion, and impatience, using a representative sample of the population and incentive compatible measures. We conduct choice experiments measuring risk aversion, and impatience over an annual time horizon, for a randomly drawn sample of roughly 1,000 German adults. Subjects also take part in two different tests of cognitive ability, which correspond to sub-modules of one of the most widely used IQ tests. Interviews are conducted in subjects' own homes. We find that lower cognitive ability is associated with greater risk aversion, and more pronounced impatience. These relationships are significant, and robust to controlling for personal characteristics, educational attainment, income, and measures of credit constraints. We perform a series of additional robustness checks, which help rule out other possible confounds.

/pdf/are-risk-aversion-and-impatience-related-to-cognitive-3n71ze8tmw.pdf

Are risk aversion and impatience related to cognitive ability

Measuring pro-poor growth

This paper studies second best policies for education, saving, and labour in an OLG model in which endogenous growth results from human capital accumulation. Government expenditures have to be financed by linear instruments so that growth equilibria are inefficient. The inefficiency is exacerbated if selfish individuals externalize the positive effect of education on descendents' productivity. It is shown to be second best to subsidize education even relative to the first best if the elasticity of the human capital investment function is strictly increasing. JEL-Code: H21, I28, J24.

/pdf/efficient-subsidization-of-human-capital-accumulation-with-31ck0c892m.pdf

Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth

In this paper it is shown that allowing the deduction of work-related expenses has a strictly positive effect on tax efficiency only if two conditions hold jointly: (i) The expenses should be interpretable as real cost and (ii) the expenses should be required for increasing taxable income. Otherwise deductions are inefficient, neutral or ambiguous. Thus it is argued that the cost of commuting to work should not be deductible as commuting does not increase taxable income. The efficiency enhancing effect of deducting other expenses like educational ones or expenses for housework and child care is challenged on the grounds that these expenses are largely pecuniary costs.

Efficiency Effects of Tax Deductions for Work-Related Expenses

The provision of local public goods and factors in the presence of firm and household mobility

В статье высказывается предположение о том, что при оптимальной налоговой системе должно приветствоваться предоставление тех рыночных услуг, которые являются близкими товарами-заменителями услуг, производимых домохозяйствами. Во-первых, предлагается модификация классического правила Корлетта-Хейга для оптимального налогообложения товаров. В работе показывается, что установление относительно низких ставок налогов на потребительские услуги может быть оптимальным, даже если эти услуги дополняют отдых. Во-вторых, авторы приходят к выводу о том, что товары и услуги в одинаковой степени являются заменителями отдыха, так что единое налогообложение товаров было бы оптимальным при отсутствии производства товаров и услуг самими домохозяйствами, и в таком случае оптимальная структура налоговых ставок предполагает установление относительно низких ставок налога на конечные услуги потребителям.

https://www.econstor.eu/bitstream/10419/81953/1/wp-99-12.pdf

Optimal Taxation with Household Production.

Assuming a two-period model with endogenous choices of labour, education, and saving, efficient education policy is characterized for a Ramsey-like scenario in which the government is constrained to use linear instruments. It is shown that education should be effectively subsidized if, and only if, the elasticity of the earnings function is increasing in education. The strength of second-best subsidization increases in the elasticity of the elasticity of the earnings function. This second-order elasticity rule extends the well-known Ramsey-Boiteux Inverse Elasticity Rule.

Wolfram F. Richter

Papers

Efficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth

Efficiency Effects of Tax Deductions for Work-Related Expenses

The provision of local public goods and factors in the presence of firm and household mobility

Optimal Taxation with Household Production.

Efficient Education Policy - A Second-Order Elasticity Rule