Please read the abstract in the section 00front of this document / Thesis (D Com (Econometrics))--University of Pretoria, 2007. / Economics / unrestricted

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We use survey findings to analyse the effects of the Austrian income tax reform 2015/2016 on private consumption differentiated by income classes. Using survey data, we also estimate the corresponding average marginal propensities to consume and compare them to applied average marginal propensities to consume in economic models used to analyse the previous two income tax reforms in Austria. The estimated average marginal propensity to consume amounts to approximately 0.46, whereby in tendency increasing from the lowest income class (0.42-0.43) to the highest income class (0.48-0.50). Our estimated average marginal propensity to consume across all income classes basically corresponds to those used in economic models to evaluate the income tax reform 2015/2016. However, our estimated marginal propensities to consume by income classes fundamentally differ from those used in the economic models. / Series: Department of Economics Working Paper Series

The aim of this thesis is to examine whether repo rates have any impact on private consumption in Sweden. After the financial crisis in 2008, the repo rates in some periods become negative. Whether negative repo rates have impact on private consumption is an additional analysis in the thesis. In the theoretical framework the IS-LM model and some explicit hypothesis are derived. In the empirical part, data for repo rate, income, inflation and saving in Sweden are collected from 1995 to 2019 with a time unit of quarterly data. With the collected data one multiple linear regression is estimated and one additional test where the same model is modified with a dummy variable that isolates the periods with negative repo rates. In line with the theoretical prediction, the first multiple linear regression result exhibits that the repo rate has statistically significant negative impact on private consumption. The second multiple linear regression with the dummy variable shows that the impact of negative repo rates is not different from positive repo rate. Limitations and shortcomings are discussed in the section limitations and weaknesses.

This thesis investigates if the tax rate on dividend income has a significant effect on private consumption expenditure. This is done through a panel study on 36 OECD countries during the period 2000-2019. Regressions using differenced data and several control variables are used. The results are to some extent in line with previous empirical work studying the effects of tax changes on consumption. The results indicate that the taxation of capital income in the form of the overall tax rate on dividend income does not have a significant effect on private consumption expenditure. The theoretical mechanism deemed most likely to be in effect is tax planning since contradictory results are obtained regarding the effects of other tax rates in the form of taxes on labour income and VAT on private consumption expenditure.

This dissertation consists of five separate essays (and a short introductory chapter) that analyze the effects of debt policy on private consumption. Essay 1: Government Debt and Private Consumption: Theory and Evidence. The Ricardian equivalence theorem has been widely debated since (at least) the seventies. The theorem states that households should not change their consumption path in response to changed timing of taxes, given the path of government consumption. In this essay, theoretical models giving rise to the equivalence result as well as models predicting deviations from debt neutrality are presented. In general, the Ricardian models are based on unrealistic assumptions, such as infinite horizons, perfect capital markets and lump-sum taxes. The issue of Ricardian equivalence is thus perhaps better viewed as a question concerning to what extent the equivalence hypothesis is a reasonable approximation of the real world. This could only be established by empirical studies. To formulate a test of Ricardian equivalence, it is however vital to extend the standard analysis in deterministic models to stochastic models. In a stochastic model we need to incorporate the fact that agents have to make predictions about future levels of government consumption, and that public debt might be a useful predictor for that purpose. It is therefore necessary that an empirical study distinguishes between debt as a potential source of net wealth, which is the concern of the equivalence proposition, and debt's role as a signal of future levels of government consumption, which is due to the stochastic nature of the world. It is argued that there are few empirical studies that make this distinction, and in case the distinction is made, the evidence is in favor of the Ricardian equivalence proposition, namely that public debt is not net wealth to households. Changing the timing of taxes will therefore not change private consumption. In other words, although the Ricardian equivalence hypothesis is burdened with unrealistic assumptions, it seems (historically) to provide a reasonable approximation of actual data. Essay 2: An Investigation of Ricardian Equivalence in a Common Trends Model. A common trends model for gross national income, private consumption, government consumption and net taxes is estimated on US data. The system has two cointegrating vectors and thus two common stochastic trends, interpreted as a technology trend and a public sector trend. The two temporary shocks are interpreted as a private demand and government financing shock, respectively. Theoretical models suggest that the two cointegrating vectors could be due to the private and public sectors' intertemporal budget constraints. We find two co-integrating vectors, as predicted by no-Ponzi game constraints on the sectors. However, a stronger version of the no-Ponzi game constraint is a solvency condition, which implies particular co-integrating vectors. These cointegration vectors are both rejected for the sample period, indicating that the public sector will not be able to repay its debt if the current policy is maintained. However, the private sector is at the same time accumulating wealth, which is consistent with predictions from a Ricardian model. Further, the equivalence theorem predicts that private consumption should be unaffected by financing shocks. Data, however, indicate that there is a significant short run effect on both income and private consumption from the financing shock, but the effect indicates that increasing taxes is accompanied by increasing private consumption, contrary to both standard Ricardian and Keynesian models. In the theoretical world, this type of pattern could be generated in models with risk averse individuals and uncertainty about future taxes. Essay 3: Risky Taxes, Budget Balance Preserving Spreads and Precautionary Savings. This essay analyzes the effects on consumption from changes in the riskiness of taxes. It starts by reinterpreting the Sandmo [1970] paper on general capital income risk to the case of risky capital taxation. In his framework the concept of a mean preserving spread (MPS) is used for the risk analysis. In connection with risky taxes it is however possible to explicitly connect the tax risk with the government's budget constraint. In this essay the concept of a budget balance preserving spread (BBPS) is developed and used for the analysis of stochastic taxes. The essay is concluded with a comparison of the effects that a MPS and a BBPS has on consumption decisions. It is shown that the comparative statics results for a BBPS could be different from the results obtained with a MPS. Essay 4: Budget Deficits, Tax Risk and Consumption. This essay analyzes the effects of budget deficits on consumption when individual taxes are stochastic. It is shown that the co-movements between budget deficits and private consumption will depend on how risk averse individuals are. In the case of lump-sum taxes, it is sufficient to assume that individuals have a precautionary savings motive to obtain the result that consumption today will decrease with increased disposable income today. Furthermore, if we use a time separable iso-elastic utility funcition, the standard analysis of capital income risk predicts (precautionary) savings to increase with increased risk if the coefficient of relative risk aversion is greater than one. This is no longer sufficient when the risk is due to uncertain capital income taxes. In general, the coefficient must be greater than one to obtain precautionary savings in response to the greater risk implied by a budget deficit. The results in the paper are consistent with Ricardian equivalence only for some specific utility function, but not in general. However, in the same way, the results are consistent with standard Keynesian models that display a positive relation between debt and private consumption only for certain utility functions, and could equally well generate the opposite result for individuals that are enough risk averse or prudent, without changing the expected value of government consumption. In other words, if future taxes are uncertain, increased disposable income in the present period will decrease present consumption, if households are prudent enough. Essay 5: Budget Deficits, Stochastic Population Size and Consumption. This paper analyzes the effects on present consumption of budget deficits under different assumptions regarding demographics. In the first part, birth and death rates are deterministic, and in the second part, birth rates are assumed to be stochastic. In the case of a deterministic population size, an increase in public debt raises present consumption, if the (deterministic) birth rate is greater than zero, while with a zero birth rate we obtain debt neutrality. This is consistent with the results in Blanchard [1985] and Buiter [1988]. However, for the case of stochastic birth rates, it is shown that we can obtain the result that present consumption will decrease when public debt is increased, both when we have a zero expected birth rate, and when the expected population size is assumed to be constant, so that the expected birth rate is positive and equal to the death rate. The explanation is that with an uncertain birth rate, the future tax base is uncertain, which makes per capita taxes uncertain in the future. Shifting taxes to the future thus implies greater uncertainty about future net income, and induces precautionary savings. / Diss. Stockholm : Handelshögsk.

Contribuições recentes em teoria econômica têm sugerido que os efeitos do gasto do governo sobre o consumo privado dependem da interação entre agentes otimizadores e não-otimizadores, dada a restrição de liquidez dos últimos. Este trabalho analisa empiricamente tal hipótese estimando modelos de correção de erros em painel uniequacionais (P-ECM) e multiequacionais (P-VECM) para um painel com 48 países, assumindo uma estrutura de dependência de corte transversal e utilizando alguns dos mais recentes procedimentos de cointegração em painel. Sob a hipótese de que em países em desenvolvimento existe uma maior fração de agentes não-otimizadores (restritos ao crédito), analisa-se a existência de efeitos distintos entre países desenvolvidos e em desenvolvimento. Os resultados indicam que o gasto do governo crowds in o consumo privado agregado no longo prazo, sugerindo que o gasto do governo e o consumo privado podem ser descritos como bens complementares, e que os efeitos são duas vezes maiores nos países em desenvolvimento relativamente aos desenvolvidos, dando suporte às hipóteses testadas. / Recent contributions in economic theory have proposed that the observed effects of government spending on private consumption depend on the interaction between optimizing and non-optimizing agents, i.e., those who are liquidity constrained. This dissertation empirically analyzes this hypothesis by estimating panel error-correction models both uniequational (P-ECM) and multiequational (P-VECM) in a panel of 48 countries, assuming cross-sectional dependence structure and applying some of most recently developed methodologies on panel cointegration. Under the hypothesis that developing countries have a higher fraction of non-optimizing agents (with credit constraints), the dissertation analizes the existence of different effects on developed and developing countries. The results show that government spending crowds in private consumption in the long run, suggesting that government spending and private consumption can be described as complementary goods, and that the effects are two times as larger in developing countries as in developed ones, supporting the tested hypothesis.

Contribuições recentes em teoria econômica têm sugerido que os efeitos do gasto do governo sobre o consumo privado dependem da interação entre agentes otimizadores e não-otimizadores, dada a restrição de liquidez dos últimos. Este trabalho analisa empiricamente tal hipótese estimando modelos de correção de erros em painel uniequacionais (P-ECM) e multiequacionais (P-VECM) para um painel com 48 países, assumindo uma estrutura de dependência de corte transversal e utilizando alguns dos mais recentes procedimentos de cointegração em painel. Sob a hipótese de que em países em desenvolvimento existe uma maior fração de agentes não-otimizadores (restritos ao crédito), analisa-se a existência de efeitos distintos entre países desenvolvidos e em desenvolvimento. Os resultados indicam que o gasto do governo crowds in o consumo privado agregado no longo prazo, sugerindo que o gasto do governo e o consumo privado podem ser descritos como bens complementares, e que os efeitos são duas vezes maiores nos países em desenvolvimento relativamente aos desenvolvidos, dando suporte às hipóteses testadas. / Recent contributions in economic theory have proposed that the observed effects of government spending on private consumption depend on the interaction between optimizing and non-optimizing agents, i.e., those who are liquidity constrained. This dissertation empirically analyzes this hypothesis by estimating panel error-correction models both uniequational (P-ECM) and multiequational (P-VECM) in a panel of 48 countries, assuming cross-sectional dependence structure and applying some of most recently developed methodologies on panel cointegration. Under the hypothesis that developing countries have a higher fraction of non-optimizing agents (with credit constraints), the dissertation analizes the existence of different effects on developed and developing countries. The results show that government spending crowds in private consumption in the long run, suggesting that government spending and private consumption can be described as complementary goods, and that the effects are two times as larger in developing countries as in developed ones, supporting the tested hypothesis.

Financial integration has been at the centre of a wide debate, especially with respect to its effects on stability, inequality and welfare. This thesis presents an empirical investigation on the relationship between financial integration and macroeconomic volatility. The present study takes advantage of the publication of a new database on integration in the banking industry, and estimates its effects on the volatility of output and consumption, on a set of 136 countries over the years 1996 to 2009, using regions and country fixed effects. The analysis focuses on the effect of foreign bank presence on macroeconomic volatility, and as a further application, on the effect of foreign bank assets on macroeconomic volatility. Furthermore, the present study will determine whether the findings change for Central and Eastern European Countries and the countries of the Commonwealth of Independent States. The main finding is that foreign bank presence is significantly related to the volatility of output, but it is not related to the volatility of private consumption growth. The original contribution of this paper is to empirically analyse data on foreign bank presence as proxies for financial integration, and to relate them to the volatility of output and consumption.

This dissertation consists of three essays. In the first one (Chapter three), "Gains and Losses from Household Formation," I introduce a general equilibrium model, wherein a household may consist of more than one member, each with their own preferences and endowments. In these models at first, individuals form households. Then, collective decisions (or bargaining) within the household specifies the consumption plans of household members. Finally, competition across households determines a feasible allocation of resources. I consider a model with two types of individuals and pure group externalities. I investigate the competitive equilibrium allocation and stability of the equilibrium in that setting. Specifically, I show that under a certain set of assumptions a competitive equilibrium with free exit is also a competitive equilibrium with free household formation. Similar results are obtained for a special case of consumption externality. Illustrative examples, where prices may change as household structures change, are used to show how general equilibrium model with variable household structure works and some interesting results are discussed at the end of the first essay. In the second essay (Chapter four), “Effects of the Price System on Household Labor Supply,” I introduce leisure and labor into the two-type economy framework that was constructed in the first essay. The main objective of this essay is to investigate the effects of exogenous prices on the labor supply decisions, and completely analyze the partial equilibrium model outcomes in a two-type economy setting. I assume a wage gap and explore the effect of that gap on labor supply. The main content of the second essay is the analysis of the effect of change in wages, price of the private good, power of each individual in the household, relative importance of private consumption compared to leisure, and the level of altruism on individual's decisions about how much private good or leisure he/she wants to consume. The effect of a relative price change on labor supply, private consumption and utility level is also investigated. Moreover, one of the variations of Spence's signaling model is borrowed to explain why higher education of women in Iran does not necessarily translate into higher female labor force participation. Finally, fixed point theorem is used to calculate the power (or alternatively labor supply) of individuals in the household endogenously for the two-type economy with labor at the end of this essay. In the third essay (Chapter five), “Dynamics of Poverty in Iran: What Are the Determinants of the Probability of Being Poor?,” I explore the characteristics of the households who fall below the poverty line and stay there as well as those who climb up later. I decompose poverty in Iran into chronic and transient poverty, and investigate the relation of each component of poverty with certain characteristics of households. I also study mobility and the main characteristics of growth in expenditure of households. One of the main issues in economic policy making nowadays is the evaluation of effectiveness of anti-poverty programs. In order to achieve this goal one should be able to track down a household for a period of time. In this essay, I am going to investigate the dynamics of poverty in Iran during 1992-95. I am especially interested in finding the characteristics of the households that fall below the poverty line and stay there in addition to those that climb up later. Obviously, if policy-makers want to have efficient policies to reduce poverty, they should target the former group. I decompose poverty in Iran into chronic and transient poverty, and investigate the relation of each component of poverty with certain characteristics of households. I also study mobility in this period with an emphasis on mobility in and out of poverty and review the main characteristics of the growth in expenditure of households. / Ph. D.