Alessandra Pelloni

The 60s Turnaround as a Test on the Causal Relationship between Sociability and Happiness

The nexus between social leisure and life satisfaction is riddled with endogeneity problems. In investigating the causal relationship going from the first to the second variable we start from considering that retirement is an event after which the time investable in (the outside job) relational life increases. We instrument social leisure with the probability of retirement of the three and four years younger cohorts. With such approach we document that social leisure has a positive and significant effect on life satisfaction. Our findings shed some light on the age-happiness pattern. Policy implications are also discussed.

Stability properties of a growth model

The inclusion of a labour/leisure choice in endogenous growth models has interesting and somewhat counter-intuitive effects. In existing one sector models, a condition for indeterminacy is that labour demand is upward-sloping, which is difficult to reconcile with the evidence. In this paper we give conditions for indeterminacy in a one sector model with decreasing returns to labour. We show that this requires that consumption and leisure are both highly intertemporally substitutable while the factors of production are highly complementary.

Is Volatility Good for Growth? Evidence from the G7

We provide empirical support for an analytical DSGE model with nominal wage stickiness where growth is driven by learning-by-doing and money shocks and their variance are allowed to impact on long-run output growth. In our theoretical model the variance of monetary shocks has a negative effect on growth, while output volatility is good for growth as a positive relationship exists. Using a bivariate GARCH-M model we test the empirical conditional mean and variance relationships of nominal money and production growth rates in the G7 countries. We corroborate the theoretical model predictions with evidence from Bonferroni multiple tests across the G7.

Public Financing of Education and Research in a Model of Endogenous Growth

We propose a two factor endogenous growth model in which the government intervenes in the economy by financing research and/or education. We allow technology in public production to be different from technology in private production, so that public spending has a direct effect on the rental prices of factors. We characterize both the unique balanced growth path and the transitional dynamics of the model showing the steady state equilibrium to be a saddle point. We also show that while income taxation is distortive, in general, a Pareto optimal outcome can be reached by means of a consumption tax in the decentralized setting. Copyright Fondazione Giacomo Brodolini and Blackwell Publishers Ltd 1997.

Long-Term Growth and Short-Term Volatility: The Labour Market Nexus

We study the relationship between growth and variability in a DSGE model with nominal rigidities and growth driven by learning-by-doing. We show that this relationship may be positive or negative depending on the impulse source of fluctuations A key role is also played by the Frisch elasticity of labour supply and by institutional features of the labour market. Our general findings are that monetary shocks volatility will generally have a negative effect on growth, while the opposite tends to be true for fiscal and productivity shocks. These findings are somehow consistent with the existing empirical evidence: data show, in fact, a somewhat ambiguous relationship between output growth and real variability, but a generally negative relationship between output growth and nominal variability.

Children, Happiness and Taxation

Empirical analyses on the determinants of life satisfaction often include the impact of the number of children variable among controls without fully discriminating between its two (socio-relational and pecuniary) components. In our empirical analysis on the German Socioeconomic Panel we show that, when introducing household income without correction for the number of members, the pecuniary effect prevails and the sign is negative while, when we equivalise income with the most commonly adopted equivalence scales, the non pecuniary (socio-relational) effect emerges and the impact of the variable is positive and significant above a minimal scale elasticity threshold. We further reject slope homogeneity and show that the positive relational effect is stronger for males, below median income households and East Germans. We interpret these subsample split results as driven by heterogeneous opportunity costs. Our empirical results give rise to a paradox: why people have children if the overall (pecuniary plus relational) effect on life satisfaction is negative? We provide in the paper some interpretations consistent with our findings. Some of them are based on motivational complexity. This implies that demographic policies and the paradox are strictly connected. Effectiveness of tax/subsidies impacting on fertility crucially depends on whether the children paradox may be solved within the self-interested rationality paradigm.

Productivity growth and volatility: how important are wage and price rigidities?

We study the implications of having different sources of nominal rigidities on the relationship between productivity growth and shocks volatility in a model with procyclical R&D and imperfect competition in goods and labour markets. We show that the effects of uncertainty on long-term growth not only depends on the source of fluctuations, as recent literature shows, but also, and crucially, on whether prices and/or wages are rigid.

Relational goods and happiness data

A fundamental question for economic analysis is how successful an economy is at delivering welfare for its members. According to virtually all cultural traditions, non-instrumental social relations, which we refer to as relational goods, are indeed necessary for a good life. However, relational goods are quintessentially gratuitous and cannot therefore be exchanged through markets or produced by the State. For these reasons their social value cannot enter GDP calculations and risks being ignored in our public discourse. In the past the quantitative evaluation of the impact of relational goods on welfare was just impossible. This is no longer true thanks to the increasing availability of data on subjective well-being (and on social activities themselves). Findings from these data strongly confirm the importance of social ties for our welfare and urge us to give up the anthropological reductionism still characterizing much of economic research.

Factor income taxation in a horizontal innovation model

We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. In the model there are externalities both to working and to saving, due to market power by firms, incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures. Redistributing the tax burden from labor to capital will increase employment but, in most cases, reduce the rate of growth, with conflicting effects on the deadweight loss from the externalities. Under plausible calibrations of the model, the optimal tax rate on capital will be sizable.

Innovation, Growth and Optimal Monetary Policy

This paper examines how the mechanism driving growth in the economy is likely to affect the optimal monetary policy response to shocks. We consider the Ramsey policy in a New Keynesian model in which growth is sustained by the creation of new patented technologies through R&D and we compare the results obtained with those arising when growth is exogenous. We find that optimal monetary policy must be counter-cyclical in face of both technology and public spending shocks, but the intensity of the reaction crucially depends on the underlying growth mechanism.