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.

Syftet med studien är att undersöka måluppfyllelsen av etableringsreformen, som trädde i kraft den 1 december 2010, samt aktören etableringslotsens funktion inom denna reform. Detta görs utifrån de uttalade målsättningarna i regeringens proposition 2009/10:60 Nyanlända invandrares arbetsmarknadsetablering – egenansvar med professionellt stöd. Därutöver belyses vilka hinder som finns för målens uppfyllelse. Studien baseras på rapporter och andra dokument från offentliga myndigheter, vilka bland annat kompletteras med egeninsamlad data. Primärdatan bygger på intervjuer som genomförts med fyra handläggare på Arbetsförmedlingen och fyra etableringslotsar som är verksamma i Linköping och Norrköping, samt en mailintervju med Arbetsförmedlingen på central nivå. Resultaten tolkas utifrån institutionell ekonomisk teori med fokus på teorier av Douglass North.Studien visar bland annat att likvärdigheten av etableringsinsatserna har ökat över landet och att arbetsmarknadsperspektivet är tydligare med Arbetsförmedlingen som huvudansvarig istället för kommunerna. Dock lider etableringsreformen av icke-individanpassade etableringsinsatser och en hög samordningsproblematik. Detta drabbar i slutänden de nyanlända som redan möter höga barriärer vid etablering i det svenska samhället. Även externa faktorer påverkar etableringsarbetet och de möjligheter som ges till de nyanlända. Framförallt är det bostadssituationen som påverkar olika ledtider och begränsar de nyanländas möjligheter till deltagande i etableringsinsatserna.De ekonomiska incitamenten för etableringslotsarna att fylla sin tilltänkta funktion är för låga och fokus från lotsarna läggs på socialt stöd istället för arbetsförberedande insatser för den nyanlände. Innovationer från positiv konkurrens har till stora delar uteblivit. Systemet innehåller även vissa brister som tillåter oseriösa eller opportunistiska etableringslotsar att verka, vilka sänker kvaliteten på etableringsarbetet och försämrar de nyanländas möjligheter till etablering på arbetsmarknaden. / The aim of the study is to assess the compliance between the goals and the results of the Establishment reform, which entered into force on December 1st 2010, and the role of the participant called the Introduction guide. This assessment is done on the basis of the goals in the proposition from the Swedish government 2009/10:60 Nyanlända invandrares arbetsmarknadsetablering – egenansvar med professionellt stöd. In addition the obstacles to achieving the goals are highlighted. The study is based on reports and other documents from public bodies that are supplemented by, amongst others, the primary data of the study. This primary data consists of interviews with four employees at the Public Employment Service and four Introduction guides in Linköping and Norrköping as well as of mail correspondence with the Public Employment Service at a central level. The results are interpreted using New Institutional Economic Theory, focusing on the theories by Douglass North.The study shows, among other things, that the differences between various establishment activities have diminished, and that there is a stronger labour market focus now that the Public Employment Service has taken over the responsibility from the municipalities. However, the Establishment reform does suffer from a lack of individually adapted establishment activities as well from a failure in collaboration and coordination. This ultimately afflicts the new arrivals, which are already facing high barriers while trying to become a part of the Swedish society. External factors also affect the establishment process and the possibilities for new arrivals. It is foremost the living situation that is affecting different lead times and limiting the immigrants possibilities to participate in establishment activities.The economic incentives for the Introduction guides to fill their intended function are too low and the guides are primarily providing social support for the new arrivals instead of labour market oriented activities. Innovations as a result of competition are largely absent. The system contains various flaws that allow for flippant or opportunistic Introduction guides, which in turn lowers the quality of the Establishment work and worsens the new arrivals’ chances of getting established on the labour market.

This thesis consists of three independent papers. They are put in reverse chronological order according to when they were initiated. The first paper, which is a joint work with Özgür Evren, extends the standard rational choice framework with the option to postpone the act of selecting an alternative. In that paper, we propose an axiomatic model of choice over risky prospects that restricts the classical rationality axioms solely to those instances in which the decision maker does not defer. The cardinal approach we follow allows us to identify the preference relation of the decision maker over lotteries, even if the choice data is very scarce due to deferral. Moreover, we also derive the value of deferring choice from a given set of options, which turns out to be an affine utility function over choice sets. At each choice situation, the decision maker compares the utility of each available alternative with that of deferral so as to decide on opting for an alternative immediately. The second paper is a model of status quo bias with choice avoidance. It describes the choice behavior of an otherwise standard decision maker whose choices are affected by the presence of a status quo alternative. The status quo emerges as a temporary choice, which may be reversed upon arrival of new (introspective or objective) information, or upon finding new alternatives. The third paper considers the network formation problem from a matching perspective. In that paper, agents want to link with each other and each has preferences over the subsets of others. We consider various solution concepts regarding the stability of a matching between the agents, establish relations between these concepts under several preference restrictions, and provide sufficient conditions for these solutions to be nonempty. / Diss. Stockholm : Handelshögskolan i Stockholm, 2011