Search and Taxation in a Model of Underground Economic Activities

We develop a simple model of an economy with underground production and trade. Because of the furtive nature of underground activities, information about trading opportunities in the irregular sector is less than perfect—hence, agents devote some time to locate trading partners in the black economy and then bargain over the terms of trade. The model stresses how individual involvement in underground economic activities is related to earnings capacity. It also highlights how taxes and tax enforcement are natural policy complements. Both results are argued to be useful when interpreting micro- and aggregate-level data on underground economic activities. (JEL H26 , H21 , D72 , D83 )     

Real Balance Effects and Monetary Policy

This article presents a dynamic stochastic new Keynesian model with real balance effects. I find a number of results that would not appear in the traditional framework. It is shown that the real balance effect makes the so-called Taylor principle not necessary for determinacy of rational expectations equilibrium and that "passive" monetary rules may be feasible. In addition, within a class of policy rules constrained to be a linear function of state variables, "active" interest rate rules are more likely to be optimal under commitment rather than under discretion. (JEL E52 , E58 )     

To Farm or Not to Farm: Rural Dilemma in Russia and Ukraine

Abstract Employing primary data collected in the summer of 1991 in a representative survey of two farming areas in the territory of the republics of Russia and Ukraine, this study addresses the issue of the future involvement of collective and state-farm workers in private farming. Through the use of a LISREL model, it is argued that those who have been involved in small-scale private farming show no interest in expanding their farm operations or in buying or leasing additional land for farming. Moreover, it is maintained that those who intend to become farmers in privately owned and operated farms are more likely to be young, educated, and to some extent, ideologically committed to the free market system. A combination of structural constraints and a lack of knowledge regarding what to expect in the future can be viewed as possible explanations of the answers provided by respondents.     

WORKING "OVER-TIME":

This article examines the reasons working-class retirees give for their continued labor activity and discusses these in relation to the present socioeconomic situation. Through the use of primary qualitative data supplemented by others' empirical work, it is argued that working-class retirees engage in labor because they lack the economic resources to survive, desire to maintain their previous status, and experience threats to the status of their families and communities. Their experience differs from that commonly anticipated by society. Their labor is an important component of the U.S. economic recovery in recent years. Working-class retirees' labor involvement thus is not a solution, but a problem.     

Tax avoidance and the endogenous formation of social norms

We analyse a model of income tax avoidance with heterogenous agents who face monetary as well as psychic costs in order to successfully hide their income from the fisc. We argue that, in general, the stigmatisation of tax dodging is motivated by the desire to make redistribution more effective. In this context, we demonstrate two results. First, we study the policy preferences of the agents, identify a median-agent political equilibrium, and show that the psychic cost of tax dodging leads to a highly progressive income tax. Second, we model the endogenous formation of stigma as a “conformism game”, and argue that, since high levels of stigma are favoured by the low-income agents, a society-wide condemnation of tax dodging will be established only in robust democracies where these agents possess enough social influence.     

Luck or cheating? A field experiment on honesty with children

We run an experiment to study the relationship between honesty, age and self-control. We focus on children aged between 5 and 15 as the literature suggests that self-control develops within such age range. We ask each child to toss a fair coin in private and to record the outcome (white or black) on a paper sheet. We only reward children who report white. Although we are unable to tell whether each child was honest or not, we speculate about the proportion of reported white outcomes. Children report the prize-winning outcome at rates statistically above 50% but below 100%. Moreover, the probability of cheating is uniform across groups based on child’s characteristics, in particular age. In a second treatment we explicitly tell children not to cheat. This request has a dampening effect on their tendency to over-report the prize-winning outcome, especially in girls. Furthermore, while this effect in boys is constant with age, in girls it tends to decrease with age.     

Asymmetric monitoring of multivariate data with nonlinear dynamics

We consider asymmetric change detection by generalizing the one-sided MEWMA control chart. In particular, we revise and extend the one-sided MEWMA algorithm to cope with mixed alternatives where some coordinates are allowed to increase and others may change in any direction. The motivating application is related to massive brake-disk production for the automotive industry. We consider monitoring of seven geometrical and dimensional parameters and show how the proposed method discriminates between geometrical deformation and dimensional shifts. As often happens in complex industrial processes, these data are nonlinear serially correlated. Therefore, we compute the thresholds of the one-sided MEWMA control charts using the semi-parametric stationary block bootstrap.     

Is there such a thing as a family constitution? A test based on credit rationing

The paper tests the hypothesis that private transfers can be explained by the existence of self-enforcing family constitutions prescribing the minimum level at which a person in middle life should support her young children and elderly parents. The test is based on the effect of a binding credit ration on the probability of making a money transfer, which can be positive only in the presence of family constitutions. Allowing for the possible endogeneity of the credit ration, we find that rationing has a positive effect on the probability of giving money if the potential giver is under the age of retirement, but no significant effect if the person is already retired. This appears to reject the hypothesis that transfer behavior is the outcome of unfettered individual optimization on the part of either altruistic or exchange motivated agents, but not the one that individuals optimize subject to a self-enforcing family constitution. The policy implications are briefly discussed.