Latest STICERD Papers

SPECIFICATION FOR LATTICE PROCESSES

Javier Hidalgo, Myung Hwan Seo

EM/2013/562. May 2013.

We consider an omnibus test for the correct speci…cation of the dynamics of a sequence fx (t)gt2Zd in a lattice. As it happens with causal models and d = 1, its asymptotic distribution is not pivotal and depends on the estimator of the unknown parameters of the model under the null hypothesis. One of our main goals of the paper is to provide a transformation to obtain an asymptotic distribution that is free of nuisance parameters. Secondly, we propose a bootstrap analogue of the transformation and show its validity. Third, we discuss the results when fx (t)gt2Zd are the errors of a parametric regression model. As a by product, we also discuss the asymptotic normality of the least squares estimators under very mild conditions. Finally, we present a small Monte Carlo experiment to shed some light on the …nite sample behaviour of our test.

Full article: http://sticerd.lse.ac.uk/dps/em/em562.pdf

The Distribution of Local Government Finance by Local Authority-Level Deprivation

Alex Fenton, Amanda Fitzgerald, Ruth Lupton

SPCCRN005. April 2013.

Full article: http://sticerd.lse.ac.uk/dps/case/spcc/rn005.pdf

Re-visiting the conceptual framework for public/private boundaries in welfare

Tania Burchardt

SPCCRN002. April 2013.

Full article: http://sticerd.lse.ac.uk/dps/case/spcc/rn002.pdf

Social Policy in a Cold Climate: A Framework for Analysing the Effects of Social Policy

Tania Burchardt, John Hills, Ruth Lupton, Kitty Stewart, Polly Vizard

SPCCRN001. April 2013.

Full article: http://sticerd.lse.ac.uk/dps/case/spcc/RN001.pdf

Mobility in China

Yi Chen, Frank A Cowell

PEP 18. April 2013.

We examine the evidence on rank and income mobility in China during the decades immediately preceding and immediately following the millennium using panel data from the China Health and Nutrition Survey. We show that rank mobility changed markedly over the period: in this respect China is becoming markedly more rigid. By contrast income mobility has carried on increasing; so has income inequality.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep18.pdf

Do We Value Mobility?

PEP 17. April 2013.

Is there a trade-o between people's preference for income equality and income mobility? Testing for the existence of such a trade-o is dicult because mobility is a multifaceted concept. We analyse results from a questionnaire experiment based on simple precise concepts of income inequality and income mobility. We nd no direct trade-o in preference between mobility and equality, but an indirect trade-o, applying when more income mobility can only be obtained at the expense of some income inequality. Mobility preference but not equality preference appears to be driven by personal experience of mobility.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep17.pdf

Can Basic Entrepreneurship Transform the Economic Lives of the Poor?

EOPP 43. April 2013.

The world’s poorest people lack capital and skills and toil for others in occupations that others shun. Using a large-scale and long-term randomized control trial in Bangladesh this paper demonstrates that sizable transfers of assets and skills enable the poorest women to shift out of agricultural labor and into running small businesses. This shift, which persists and strengthens after assistance is withdrawn, leads to a 38% increase in earnings. Inculcating basic entrepreneurship, where severely disadvantaged women take on occupations which were the preserve of non-poor women, is shown to be a powerful means of transforming the economic lives of the poor.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp43.pdf

How best to measure pension adequacy

Aaron George Grech

CASE/172. April 2013.

Though the main benchmark used to assess pension reforms continues to be the expected resulting fall in future government spending, the impact of policy changes on pension adequacy is increasingly coming to the fore. As yet, there does not seem to be a broad consensus in policymaking circles and academic literature on what constitutes the best measure of pension adequacy. While various indicators have been developed and utilised, no single measure appears to offer a clear indication of the extent to which reforms will impact on the achievement of pension system goals. Many indicators appear ill-suited to study the effective impact of reforms, particularly those that change the nature of the pension system from defined benefit to defined contribution. Existing measures are frequently hard to interpret as they do not have an underlying benchmark which allows their current or projected value to be assessed as adequate or inadequate. Currently used pension adequacy indicators tend to be point-in-time measures which ignore the impact of benefit indexation rules. They also are unaffected by very important factors, such as changes in the pension age and in life expectancy. This tends to make existing indicators minimise the impact of systemic reforms on the poverty alleviation and income replacement functions of pension systems. The emphasis on assumptions which are very unrepresentative of real-life labour market conditions also makes current indicators deceptive, particularly in relation to outcomes for women and those on low incomes. This paper posits that these defects can be remedied by using adequacy indicators based on estimates of pension wealth (i.e. the total projected flow of pension benefits through retirement) calculated using more realistic labour market assumptions. These measures are used to give a better indication of the effective impact of pension reforms enacted since the 1990s in ten major European countries. They suggest that these reforms have decreased generosity significantly, but that the poverty alleviation function remains strong in those countries where minimum pensions were improved. However, moves to link benefits to contributions have raised clear adequacy concerns for women and for those on low incomes which policymakers should consider and tackle.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/casepaper172.pdf

Motivating Knowledge Agents: Can Incentive Pay Overcome Social Distance?

Erlend Berg, Maitreesh Ghatak, R Manjula, D Rajasekhar, Sanchari Roy

EOPP 42. March 2013.

This paper studies the interaction of incentive pay and social distance in the dissemination of information. We analyse theoretically as well as empirically the effect of incentive pay when agents have pro-social objectives, but also preferences over dealing with one social group relative to another. In a randomised field experiment undertaken across 151 villages in South India, local agents were hired to spread information about a public health insurance programme. Relative to at pay, incentive pay improves knowledge transmission to households that are socially distant from the agent, but not to households similar to the agent.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp42.pdf

Equal access to high quality early education and care? Evidence from England and lessons from other countries

Ludovica Gambaro, Kitty Stewart, Jane Waldfogel

CASEbrief 32. March 2013.

Full article: http://sticerd.lse.ac.uk/dps/case/cb/CASEbrief32.pdf

A question of quality: Do children from disadvantaged backgrounds receive lower quality early years education and care in England?

Ludovica Gambaro, Kitty Stewart, Jane Waldfogel

CASE/171. March 2013.

This paper examines how the quality of formal early childhood education and care is associated with children’s background. By using different indicators of quality, the research also explored how the relationship varies depending on the way quality is measured. The analysis combines information from three administrative datasets – the Early Years Census, the Schools Census and the Office for Standards in Education, Children’s Services and Skills (Ofsted) dataset on inspections (2010-11). The results suggest that children from disadvantaged background have access to better qualified staff. However, services catering for more disadvantaged children are more segregated and receive poorer quality ratings from Ofsted, the national inspectorate.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper171.pdf

What Gives? Household Consumption Patterns and the 'Big Trade Off' with Public Consumption

Francesca Bastagli, John Hills

CASE/170. March 2013.

At the centre of politics in Britain and other countries is what is sometimes called 'the big trade-off'- where to strike the balance between private consumption and collective goods and social spending – and hence the sacrifices that would be entailed by the higher taxation required to fund otherwise desirable forms of social provision. In this paper we use aggregate national accounts data to compare the composition of household consumption between otherwise similar countries with higher and lower levels of public consumption. We concentrate in particular on spending patterns in ten countries where ‘total potential consumption’ (the sum of public and household consumption and household saving) is similar to that in the UK, using data from 2005. While the strengths of the inferences that can be drawn from a small number of countries are limited, overall these results suggest that there is a hierarchy in the forms of consumption that citizens of different countries sacrifice when they have greater government consumption (and so higher taxes). The trade-off at the margin is not with all kinds of consumption equally, but particularly with consumption of particular kinds – such as spending on restaurants and hotels, vehicle purchase, household furnishings, or clothing and footwear. But there are also items, such as education, where government spending may act as a substitute for what private households would have to spend. Such findings could colour our views of what the ‘big trade-off’ between public and private consumption really entails.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper170.pdf

The relationship between EU indicators of persistent and current poverty

Stephen P Jenkins, Philippe Van Kerm

CASE/169. March 2013.

The current poverty rate and the persistent poverty rate are both included in the EU’s portfolio of primary indicators of social inclusion. We show that there is a near-linear relationship between these two indicators across EU countries drawing on empirical analysis of EU-SILC and ECHP data. Using a prototypical model of poverty dynamics, we explain how the near-linear relationship arises and show how the model can be used to predict persistent poverty rates from current poverty information. In the light of the results, we discuss whether the EU’s persistent poverty measure and the design of EU-SILC longitudinal data collection require modification.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper169.pdf

Accounting for cross-country differences in wealth inequality

Frank A Cowell, Eleni Karagiannaki, Abigail McKnight

CASE/168. March 2013.

This paper adopts a counterfactual decomposition analysis to analyse cross-country differences in the size of household wealth and levels of household wealth inequality. The findings of the paper suggest that the biggest share of cross-country differences is not due to differences in the distribution of household demographic and economic characteristics but rather reflect strong unobserved country effects.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper168.pdf

ON TESTABILITY OF COMPLEMENTARITY IN MODELS WITH MULTIPLE EQUILIBRIA

Taisuke Otsu, Yoshiyasu Rai

EM/2013/560. February 2013.

This paper revisits testability of complementarity in economic models with multiple equilibria studied by Echenique and Komunjer (2009). We find that Echenique and Komunjer’s (2009) testable implications on extreme quantiles can be implied by a weaker version of their tail condition without complementarity, and on the other hand, a slightly stronger version of complementarity implies their testable implications without the tail condition.

Full article: http://sticerd.lse.ac.uk/dps/seminarpapers/em05022013.pdf

Taxation and Development

Timothy Besley, Torsten Persson

EOPP 41. January 2013.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp41.pdf

On 'Consistent' Poverty

Rod Hick

CASE/167. December 2012.

The measurement of poverty as ‘consistent’ poverty offers a solution to one of the primary problems of poverty measurement within Social Policy of the last three decades. Often treated as if they were synonymous, ‘indirect’ measures of poverty, such as low income measures, and ‘direct’ measures, such as indices of material deprivation, identify surprisingly different people as being poor. In response to this mismatch, a team of Irish researchers put forward a measure which identified respondents in as being in poverty when they experienced both a low standard of living, as measured by deprivation indicators, and a lack of resources, as measured by a low income line. Importantly, they argued that the two measures required an equal weight. In this paper, I present a reconsideration of the consistent poverty measure from both conceptual and empirical perspectives. In particular, I examine the claim that low income and material deprivation measures should be given an ‘equal weight’. I argue that, from a conceptual perspective, the nature of the indicators at hand means that a deprivation-led measurement approach might be understood to align with the definition of poverty which Nolan and Whelan outline and, from an empirical perspective, that it is the material deprivation measure – and not the low income measure – which is particularly effective in identifying individuals at risk of multiple forms of deprivation.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper167.pdf

Wealth accumulation in Great Britain 1995-2005: The role of house prices and the life cycle

Francesca Bastagli, John Hills

CASE/166. December 2012.

This paper examines trends in the distribution of household wealth in Great Britain from 1995 to 2005 using the British Household Panel Survey (BHPS). The data show that wealth is very unevenly distributed and reveal a widening absolute gap over the period between wealthier households and those with no or negative wealth. However, in relative terms, wealth grew fastest for households in the middle of the distribution and inequality measured by the Gini coefficient decreased. This mainly reflected housing wealth becoming a greater share of total net worth, more equally distributed, and the highest percentage increase in housing wealth taking place in the middle of the distribution. To estimate the distributional impact of the remarkable rise in house prices which defined this period, we simulate the distribution of net 2005 wealth in the hypothetical scenario in which house prices remained at their 1995 levels in real terms and find that the reduction in wealth inequality is almost entirely accounted for by changes in house prices. The paper also finds that, controlling for factors such as age, households that gained most from the house price boom were mortgagors, in particular those that were initially wealthier, and were advantaged in other ways such as by level of educational qualification.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper166.pdf

Mapping and measuring the distribution of household wealth: A cross-country analysis

Frank A Cowell, Eleni Karagiannaki, Abigail McKnight

CASE/165. November 2012.

In this paper we compare the level, composition and distribution of household wealth in five industrial countries: the UK, US, Italy, Finland and Sweden. We exploit the harmonized data within the Luxembourg Wealth Study, which we have extended to allow us to examine trends in the UK and the US between the mid-1990s and the mid-2000s. Remaining differences between surveys, variable definitions and coverage are highlighted to the extent that they impact on cross-country comparisons. We find that the Nordic countries have lower average wealth holdings, smaller absolute gaps between low wealth and high wealth households but high relative measures of wealth inequality. Italian households hold very little debt and are much more likely to own their homes outright, leading to relatively high median levels of wealth. In contrast American households tend to hold much more housing debt well into retirement. Increases in owner occupation and house prices 2000-05 in the UK has led to substantial increases in wealth, particularly median wealth holdings and this had led to falls in relative measures of wealth inequality such as the Gini coefficient even though absolute gaps between high and low wealth households have grown substantially. We show that there are underlying country differences in terms of distributions of age, household composition, educational attainment and income as well as wealth and debt portfolios. Educational loans are increasing in their size and prevalence in some countries and look set to create some marked differences in the distribution of wealth for different age cohorts.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper165.pdf

High Rise Hope

Katie Bates, Laura Lane, Anne Power

CASEreport 75. October 2012.

Full article: http://sticerd.lse.ac.uk/dps/case/cr/CASEreport75.pdf

Market Structure and Borrower Welfare in Microfinance

Thiemo Fetzer, Maitreesh Ghatak, Jonathan de Quidt

EOPP 40. September 2012.

Motivated by recent controversies surrounding the role of commercial lenders in microfinance, we analyze borrower welfare under different market structures,considering a benevolent non-profit lender, a for-profit monopolist, and a competitive credit market. To understand the magnitude of the effects analyzed, we simulate the model with parameters estimated from the MIX Market database. Our results suggest that market power can have severe implications for borrower welfare, while despite possible information frictions competition typically delivers similar borrower welfare to non-profit lending. In addition, for-profit lenders are less likely to use joint liability than non-profits.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp40.pdf

Testing for Structural Stability in the Whole Sample

Javier Hidalgo, Myung Hwan Seo

EM/2013/561. September 2012.

The paper examines a Lagrange Multiplier type test for the constancy of the parameter in general models with dependent data without imposing any arti…cial choice of the possible location of the break. In order to prove the asymptotic behaviour of the test, we extend a strong approximation result for partial sums of a sequence of random variables. We also present a Monte-Carlo experiment to examine the …nite sample performance of the test and how it compares with tests which assume some knowledge of the possible location of the break.

Full article: http://sticerd.lse.ac.uk/dps/em/em561.pdf

Pre-Colonial Political Centralization and Contemporary Development in Uganda

Sanghamitra Bandyopadhyay, Elliott Green

EOPP 039. August 2012.

The importance of pre-colonial history on contemporary African development has become an important .eld of study within development economics in recent years. In particular Gennaioli and Rainer (2007) suggest that pre-colonial political centralization has had an impact on con- temporary levels of development within Africa at the country level. We test the Gennaioli and Rainer (2007) hypothesis at the sub-national level with evidence from Uganda. Using a variety of datasets we obtain results which are striking in two ways. First, we con.rm the Gennaioli and Rainer (2007) hypothesis that pre-colonial centralization is highly correlated with modern- day development outcomes such as GDP, asset ownership and poverty levels, and that these correlations hold at the district, sub-county and individual levels. We also use an instrumental variable approach to con.rm this .nding using the distance from ancient capital of Mubende as an instrument. However, our second .nding is that public goods like immunization coverage and primary school enrolment are not correlated with pre-colonial centralization. These .ndings are thus consistent with a correlation between pre-colonial centralization and private rather than public goods, thereby suggesting the persistence of poverty and wealth from the pre-colonial period to the present.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp39.pdf

The effect of parental wealth on children’s outcomes in early adulthood

Eleni Karagiannaki

CASE/164. August 2012.

This paper presents the first UK estimates of the association between parental wealth during adolescence and a range of children’s outcomes in early adulthood. Parental wealth is positively associated with all outcomes examined (which include educational attainment, employment, earnings and homeownership). The estimated associations are found to operate over and above parental education and income and in many cases are stronger than them. For labour market outcomes a small share of the association reflects the indirect effect of parental wealth on children’s education whereas for homeownership the estimated association appear to mainly reflect the effect of parental wealth transfers. Further analysis by wealth component shows that degree attainment is more strongly associated with housing wealth than financial wealth. However, important effects are also estimated for financial wealth indicating the existence of financial constraints for low wealth-financial indebted households. For homeownership and earnings the estimated association are stronger for financial wealth.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper164.pdf

Using play to help families learn: Evaluation of Trafford Hall’s Playing 2 Learn Programme 2008-11

Laura Lane, Liz Richardson

CASE/162. August 2012.

The report describes the results of a three-year evaluation by LSE Housing and Communities of a family learning programme called Playing 2 Learn. The Playing 2 Learn programme was open to vulnerable families from low income communities across England. It was delivered by a charity, Trafford Hall, home of the National Communities Resource Centre between 2008 and 2011. It consisted of 26 residential weekend events with 795 adult and child family members from a total of 205 families attending. The weekends used creative, low cost play activities to promote play-based learning. The evaluation used baseline data collected by the programme, self-reported short-, medium- and longer-term outcomes based on written feedback from 62% of participating families, in-depth interviews with the purposive sample of 20 families, assessments from referral agencies, interviews with delivery staff, and observations of the residential events. It finds that the families participating in the programme experienced a series of pressures that undermined their ability to engage positively and spend time with their children at home, including family breakdown and formation, pressures of low-incomes, health and behavioural issues. Outcomes for families from the programme were assessed under four themes. First, there was improved family interaction over the short-, medium- and longer-terms, for example reading together and doing messy play. Second, parents’ and carers’ attitudes towards and input into children’s opportunities for play were also improved, including getting new ideas for affordable play activities and continuing to use them up to two years after attending the weekends. To the extent that the evaluation was able to measure, the impacts on younger children’s ability to learn were much more limited. Fourthly, there were positive impacts on parents’ and carers’ participation in the community for around a quarter of respondents, and wider impacts on parents’ and carers’ self-esteem and confidence, primarily through the support of meeting other families in similar situations. The report concludes that the value of the residential setting was to help families to experience new challenges. The experiential hands-on approach helped to generate long-lasting impacts. Many of the families on the programme were going through tough times that play alone could not resolve. The Programme succeeded in its goals to be a ‘snapshot removed from the everyday’, on which families could draw for inspiration when they return to their often challenging daily lives.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper162.pdf

Assessing theWelfare Effects of Unemployment Benefits Using the Regression Kink Design

Camille Landais

PEP 16. July 2012.

I investigate in this paper partial equilibrium labor supply responses to unemployment insurance (UI) in the US. I use administrative data on the universe of unemployment spells in five states from 1976 to 1984, and non-parametrically identify the effect of both benefit level and potential duration in the regression kink (RK) design using kinks in the schedule of UI benefits. I provide many tests for the robustness of the RK design, and demonstrate its validity to overcome the traditional issue of endogeneity in UI benefit variations on US data. I also show how one can use the weighted difference between the behavioral response to an increase in potential duration and to an increase in benefit level to identify the pure moral hazard effect of UI. I then use these estimates to calibrate the welfare effects of an increase in UI benefit level and in UI potential duration.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep16.pdf

Decentralization of Health and Education in Developing Countries: A Quality-Adjusted Review of the Empirical Literature

Anila Channa, Jean-Paul Faguet

EOPP 038. July 2012.

We review empirical evidence on the ability of decentralization to enhance preference matching and technical efficiency in the provision of health and education in developing countries. Many influential surveys have found that the empirical evidence of decentralization’s effects on service delivery is weak, incomplete and often contradictory. Our own unweighted reading of the literature concurs. But when we organize the evidence first by substantive theme, and then – crucially – by empirical quality and the credibility of its identification strategy, clear patterns emerge. Higher quality evidence indicates that decentralization increases technical efficiency across a variety of public services, from student test scores to infant mortality rates. Decentralization also improves preference matching in education, and can do so in health under certain conditions, although there is less evidence for both. We discuss individual studies in some detail. Weighting by quality is especially important when evidence informs policy-making. Firmer conclusions will require an increased focus on research design, and a deeper examination into the prerequisites and mechanisms of successful reforms.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp38.pdf

Measuring Inequality: Autonomy The degree of empowerment in decisions about one’s own life

Tania Burchardt, Martin Evans, Holly Holder

CASEreport 74. July 2012.

Full article: http://sticerd.lse.ac.uk/dps/case/cr/CASEreport74.pdf

Migrants, Landlords and their Uneven Experiences of the Beijing Olympic Games

Bingqin Li, Hyun Bang Shin

CASE/163. July 2012.

Hosting of mega-events such as the Olympic Games tends to be accompanied by voluminous media coverage on the negative social impact of the Games, and the people in the affected areas are often considered to be one victim group sharing similar experiences. The research in this paper tries to unpack the heterogeneous groups in a particular sector of the housing market, and gain a better understanding of how the Olympic Games affects different resident groups. We take the example of the Beijing Summer Olympic Games and resort to empirical findings in an attempt to critically examine the experience of migrant tenants and Beijing citizens (landlords in particular) in ‘villages-in-the-city’ (known as cheongzhongcun) by delivering their own first-hand accounts of city-wide preparation for the 2008 Beijing Summer Olympiad and the pervasive demolition threats to their neighbourhoods. The paper argues that the Beijing Summer Olympiad produced uneven, often exclusionary, Games experiences for a certain segment of urban population.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper163.pdf

Binary Choice Models with Discrete Regressors: Identification and Misspecification

Tatiana Komarova

EM/2012/559. May 2012.

In semiparametric binary response models, support conditions on the regressors are required to guarantee point identification of the parameter of interest. For example,one regressor is usually assumed to have continuous support conditional on the other regressors. In some instances, such conditions have precluded the use of these models; in others, practitioners have failed to consider whether the conditions are satisfied in their data. This paper explores the inferential question in these semiparametric models when the continuous support condition is not satisfied and all regressors have discrete support. I suggest a recursive procedure that finds sharp bounds on the components of the parameter of interest and outline several applications, focusing mainly on the models under the conditional median restriction, as in Manski (1985). After deriving closed-form bounds on the components of the parameter, I show how these formulas can help analyze cases where one regressor’s support becomes increasingly dense. Furthermore, I investigate asymptotic properties of estimators of the identification set. I describe a relation between the maximum score estimation and support vector machines and also propose several approaches to address the problem of empty identification sets when a model is misspecified. Finally, I present a Monte Carlo experiment and an empirical illustration to compare several estimation techniques.

Full article: http://sticerd.lse.ac.uk/dps/seminarpapers/em24052012.pdf

CASE Annual Report 2011

CASEreport 73. May 2012.

Full article: http://sticerd.lse.ac.uk/dps/case/cr/CASEreport73.pdf

Evaluating the possible impact of pension reforms on future living standards in Europe

Aaron George Grech

CASE/161. May 2012.

Successive reforms enacted since the 1990s have dramatically changed Europe’s pensions landscape. This paper tries to assess the impact of recent reforms on the ability of systems to alleviate poverty and maintain living standards, using estimates of pension wealth for a number of hypothetical cases. By focusing on all prospective pension transfers rather than just those at the point of retirement, this approach can provide additional insights on the efficacy of pension systems in the light of increasing longevity. Our estimates indicate that while reforms have decreased generosity significantly, in most countries poverty alleviation remains strong. However, moves to link benefits to contributions have made some systems less progressive, raising adequacy concerns for certain groups. In particular, unless the labour market outcomes of women and of lower-income individuals change substantially over the coming decades, state pension transfers will prove inadequate, particularly in Eastern European countries. Similarly while the generosity of minimum pensions appears to have either been safeguarded by pension reforms, or improved in some cases, these transfers generally remain inadequate to maintain individuals above the 60% relative poverty threshold throughout retirement. Our simulations suggest that the gradual negative impact of price indexation on the relative adequacy of state pensions is becoming even more substantial in view of the lengthening of the time spent in receipt of retirement benefits. The consumption smoothing function of state pensions has declined noticeably, strengthening the need for longer careers and additional private saving. When pressed, policymakers, particularly in Western Europe, seem to have been more willing to sacrifice the income smoothing function of pensions rather than its poverty alleviation function. Policymakers in some counties, notably Germany, France and the UK, have sought to refocus state pension systems towards generating better outcomes for people in the bottom half of the income distribution, probably with the insight that middle- to high-income individuals are possibly in a better position to accommodate the effect of state pension reforms by increasing their private saving. However in some cases, notably in Eastern Europe, results suggest that policymakers may not have fully considered the full impact of their policies on those on low incomes, on those with incomplete careers and on women.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper161.pdf

Localisation and the means test: A case study of support for English students from Autumn 2012

John Hills, Ben Richards

CASE/160. May 2012.

The combination of spending cuts, efforts to protect the poorest from some of their effects, and ‘localised’ decision-making are leading to an increase in the numbers of means tests designed by lower level institutions. This paper examines a case study of the effects of this, looking at the means-tested support which has been offered to English students applying to go to 52 universities from Autumn 2012, designed partly to offset the rise in general fees to or towards £9,000. 27 of these universities are offering significant levels of means-tested support through bursaries or fee reductions depending on parental income. Although using a common income definition, each university has designed its own system with widely varying criteria. Taken with the national maintenance grant system, these imply substantially different levels of support for students from lower and higher-income families. Nearly all of them involve significant downward steps or ‘cliff edges’ in support at particular income levels, often involving a drop of several thousand pounds. Just looking at student support by itself, this implies typical marginal withdrawal rates exceeding 40 per cent and even 100 per cent over particular income ranges. Taken together with the effects of other parts of the tax and benefit system that would have affected family income, the effect is marginal effective tax rates on family resources that exceed 50 per cent for the entire income range up to £43,000. They typically reach 180 per cent for £1,000 income variations around income of £25,000. For the most generous case, Oxford University, the £13,050 reduction in subsequent means-tested student support is equivalent to nearly the whole of the £13,250 net income difference between two-child families that earned £17,000 and £44,000 in 2010-11. As well as introducing extra complexity and questions of equity in treatment within student finance, this kind of development runs counter to other parts of government policy, such as Universal Credit, intended to smooth out and simplify means-tests. As localisation is pushed further, and more agencies become responsible for designing their own mean tests, the lack of a system to take an overview of their overlapping effects, and to avoid undesirable design features will become an increasing problem across social policy, not just in this particular area.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper160.pdf

The Political Economy of Deforestation in the Tropics

Robin Burgess, Matthew Hansen, Benjamin Olken, Peter Potapov, Stefanie Sieber,

EOPP 037. April 2012.

Tropical deforestation accounts for almost one-…fifth of greenhouse gas emissions worldwide and threatens the world’s most diverse ecosystems. The prevalence of illegal forest extraction in the tropics suggests that understanding the incentives of local bureaucrats and politicians who enforce forest policy may be critical to combating tropical deforestation. We …find support for this thesis using a novel satellite-based dataset that tracks annual changes in forest cover across eight years of institutional change in post-Soeharto Indonesia. Increases in the numbers of political jurisdictions are associated with increased deforestation and with lower prices in local wood markets, consistent with a model of Cournot competition between jurisdictions. We also show that illegal logging and rents from unevenly distributed oil and gas revenues are short run substitutes, but this effect disappears over time as political turnover occurs. The results illustrate how incentives faced by local government officials affect deforestation,and provide an example of how standard economic theories can explain illegal behavior.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp37.pdf

Deliberative research as a tool to make value judgements

Tania Burchardt

CASE/159. April 2012.

The ‘deliberative turn’ in democratic theory has generated a wealth of deliberative experiments. The purpose of deliberation as a research technique (as opposed to policymaking or public consultation) is distinctive: to uncover the public’s informed, considered, and collective view on a normative question. In the social science context, this often arises in relation to research on poverty, well-being and inequality, where there is a need to define and justify the thresholds and concepts adopted on a deeper basis than convention alone can offer. This paper compares deliberative research to more traditional methods of studying the values of the general public, such as in-depth interviewing, attitudinal surveys, and participatory approaches, and reveals that deliberative designs involve a number of assumptions, including a strong fact/value distinction, an emphasis on ‘outsider’ expertise, and a view of participants as essentially similar to each other rather than defined by socio-demographic differences. Normative decisions permeate the design and implementation of deliberative research, so while it has the potential to provide uniquely considered, insightful and well-justified answers to the problem of defining a collective position on key questions in social science, transparency at all stages of the process is essential.

Full article: http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper159.pdf

Final report of the Hills Independent Fuel Poverty Review: Getting the Measure of Fuel Poverty

John Hills

CASEreport 72. March 2012.

The review confirms that fuel poverty is a serious national problem and shows that it is set to rise rapidly. It affects people with low incomes and energy costs above typical levels. It proposes a new way of measuring the problem, focused both on the number of people affected and the severity of the problem they face. Using the proposed measure: Nearly 8 million people in England, within 2.7 million households, both had low incomes and faced high energy costs in 2009 (the most recent year with available data). These households faced costs to keep warm that added up to £1.1 billion more than middle or higher income people with typical costs. The review’s central projection is that this “fuel poverty gap” – already three-quarters higher than in 2003 – will rise by a further half, to £1.7 billion by 2016. This means fuel poor households will face costs nearly £600 a year higher on average than better-off households with typical costs. The report also argues that: Fuel poverty exacerbates other hardship faced by those on low incomes, has serious health effects (including contributing to extra deaths every winter), and acts as a block to efforts to cut carbon emissions. The current official way of measuring it, based on whether a household would need to spend more than 10 per cent of its income on energy, is flawed, giving a misleading impression of trends, excluding some affected by the problem at some times and including people with high incomes at others. Interventions targeted on the core of the problem – especially those that improve the energy efficiency of homes lived in by people with low incomes – can make a substantial difference, but the impact of those planned to be in place by 2016 is only to reduce the problem by a tenth.

Full article: http://sticerd.lse.ac.uk/dps/case/cr/CASEreport72.pdf

Getting the measure of fuel poverty: Executive summary

John Hills

CASEbrief 31. March 2012.

Abstract

Full article: http://sticerd.lse.ac.uk/dps/case/cb/CASEBrief31.pdf

Conscience Accounting: Emotional Dynamics and Social Behavior

Uri Gneezy, Alex Imas, Kristóf Madarász

TE/2012/563. February 2012.

We develop a dynamic model where people decide in the presence of moral constraints and test the predictions of the model through two experiments. Norm violations induce a temporal feeling of guilt that depreciates with time. Due to such fluctuations of guilt, people exhibit an endogenous temporal inconsistency in social preferences—a behavior we term conscience accounting. In our experiments people first have to make an ethical decision, and subsequently decide whether to donate to charity. We find that those who chose unethically were more likely to donate than those who did not. As predicted, donation rates were higher when the opportunity to donate came sooner after the unethical choice than later. Combined, our theoretical and empirical findings suggest a mechanism by which prosocial behavior is likely to occur within temporal brackets following an unethical choice.

Full article: http://sticerd.lse.ac.uk/dps/te/te563.pdf

Taxation and International Migration of Superstars: Evidence from the European Football Market

Henrik Kleven, Camille Landais, Emmanuel Saez

PEP 14. February 2012.

This paper analyzes the effects of top earnings tax rates on the international migration of top football players in Europe. We construct a panel data set of top earnings tax rates, football player careers, and club performances in the first leagues of 14 European countries since 1985. We identify the effects of top earnings tax rates on migration using a number of tax and institutional changes: (a) the 1995 Bosman ruling which liberalized the European football market, (b) top tax rate reforms within countries, and (c) special tax schemes offering preferential tax rates to immigrant football players. We start by presenting reduced-form graphical evidence showing large and compelling migration responses to country-specific tax reforms and labor market regulation. We then set out a theoretical model of taxation and migration, which is tested using all sources of tax variation simultaneously. Our results show that (i) the overall location elasticity with respect to the net-of-tax rate is positive and large, (ii) location elasticities are extremely large at the top of the ability distribution but negative at the bottom due to ability sorting effects, and (iii) cross-tax effects of foreign players on domestic players (and vice versa) are negative and quite strong due to displacement effects. Finally, we estimate tax revenue maximizing rates and draw policy conclusions.d2.asp

Full article: http://sticerd.lse.ac.uk/dps/pep/pep14.pdf

Estimating Taxable Income Responses using Danish Tax Reforms

Henrik Kleven, Esben Anton Schultz

PEP 13. February 2012.

This paper presents evidence on taxable income responses using administrative data that link tax return information to detailed socioeconomic information for the full Danish population over 25 years. The identifying variation is provided by a series of tax reforms that create large tax variation across individuals, income forms, and over time. It is argued that the unique tax variation and data in Denmark makes it possible to control for the biases from non-tax changes in the income distribution and mean reversion that plague much of the existing literature. Using a very large and salient tax reform in the 1980s, we present compelling graphical evidence of taxable income responses by comparing treatment and control groups that experience very similar pre-reform income trends but face very different tax rate changes due to the reform. We then turn to panel regressions using the full population and all reforms over time, which produces the following main findings: (i ) Labor income elasticities are modest overall, around 0.05 for wage earners and 0.10 for self-employed individuals. (ii ) Capital income elasticities are two-three times larger than labor income elasticities. (iii ) Behavioral elasticities are much larger when estimated from large tax reform changes than from small tax reform changes, consistent with the idea that responses to small tax changes are attenuated by optimization frictions such as adjustment costs and inattention. (iv) Cross-tax effects between labor and capital income– for example due to income shifting–are in general small. (v) All of our findings are extremely robust to specification (such as pre-reform income controls), suggesting that we have controlled in a sufficiently rich way for non-tax factors impacting on taxable income.

Full article: http://sticerd.lse.ac.uk/dps/pep/pep13.pdf

The Legacy of Historical Conflict Evidence from Africa

Timothy Besley, Marta Reynal-Querol

EOPP 036. February 2012.

There is a great deal of interest in the causes and consequences of conflict in Africa, one of the poorest areas of the world where only modest economic progress has been made. This paper asks whether post-colonial conflict is, at least in part, a legacy of historical conflict by examining the empirical relationship between conflict in Africa since independence with recorded conflicts in the period 1400 to1700. We find evidence of a legacy of historical conflicts using between-country and withincountry evidence. The latter is found by dividing the continent into 120km_120km grids and measuring the distance from 91 documented historical conflicts. We also provide evidence that historical conflict is correlated with lower levels of trust, a stronger sense of ethnic identity and a weaker sense of national identity.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp36.pdf

No Margin, no Mission? A Field Experiment on Incentives for Pro-Social Tasks

Nava Ashraf, Oriana Bandiera, Kelsey Jack

EOPP 035. January 2012.

A substantial body of research investigates the design of incentives in firms, yet less is known about incentives in organizations that hire individuals to perform tasks with positive social spillovers. We conduct a field experiment in which agents hired by a public health organization are randomly allocated to four groups. Agents in the control group receive a standard volunteer contract often offered for this type of task, whereas agents in the three treatment groups receive small financial rewards, large financial rewards, and non-financial rewards, respectively. The analysis yields three main findings. First, non-financial rewards are more effective at eliciting effort than either financial rewards or the volunteer contract. The effect of financial rewards, both large and small, is much smaller and not significantly different from zero. Second, non-financial rewards elicit effort both by leveraging intrinsic motivation for the cause and by facilitating social comparison among agents. Third, contrary to existing laboratory evidence, financial incentives do not crowd out intrinsic motivation in this setting. <

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp35.pdf

LEFT, RIGHT, LEFT: INCOME DYNAMICS AND THE EVOLVING POLITICAL PREFERENCES OF FORWARD-LOOKING BAYESIAN VOTERS

Michael Carter, John Morrow

EOPP 034. January 2012.

The political left turn in Latin America, which lagged its transition to liberalized market economies by a decade or more, challenges conventional economic explanations of voting behavior. While the implications of upward mobility for the political preferences of forward-looking voters have been studied, neither the upward mobility model nor conventional myopic median voter models are well equipped to explain Latin America’s political transformation. This paper generalizes the forward-looking voter model to consider a broad range of dynamic processes. When voters have full information on the nature of income dynamics in a transition economy, we show that strong support for redistributive policies will materialize rapidly if income dynamics offer few prospects of upward mobility for key sections of the electorate. In contrast, when voters have imperfect information, our model predicts a slow and politically polarizing shift toward redistributive voter preferences under these same non-concave income dynamics. Simulation using fitted income dynamics for two Latin American economies suggests that the imperfect information model better accounts for the observed shift back to the left in Latin America, and that this generalized, forward-looking voter approach may offer additional insights about political dynamics in other transition economies.

Full article: http://sticerd.lse.ac.uk/dps/eopp/eopp34.pdf