Damba Lkhagvasuren

Productivity insurance: the role of unemployment benefits in a multi-sector model

We construct a multi-sector search and matching model where the unemployed receives idiosyncratic productivity shocks that make working in certain sectors more productive than in the others. Agents must decide which sector to search in and face moving costs when leaving their current sector for another. In this environment, unemployment is associated with an additional risk: low future wages if mobility costs preclude search in the appropriate sector. This introduces a new role for unemployment benefits – productivity insurance while unemployed. For plausible parameterizations unemployment benefits increase per-worker productivity. In addition, the welfare-maximizing benefit level decreases as moving costs increase.

Calibration and simulation of DSGE models

Many interesting macroeconomic models are either sufficiently complex that they must be solved computationally, or the questions being asked are inherently quantitative and so they should be solved computationally. The first group includes almost any empirically relevant version of the neoclassical growth model. The second group includes such basic questions as business cycle fluctuations: How well does the the neoclassical growth model do in producing variation in macroaggregates (like output, consumption, investment and hours worked) that “look like” those seen in the data. These are quantitative questions for which qualitative answers are insufficient. Calibration is an effective tool for imposing discipline on the choice of parameter values that arise in such models, taking what would otherwise be a numerical example into the realm of an empirically relevant exercise with parameters tightly pinned ∗We received helpful comments from Stephane Auray and David Fuller. The research assistance of Saeed Zaman is gratefully acknowledged. Gomme received financial support from Fonds de Recherche Societe et Culture Quebec. Except in very special cases, the neoclassical growth model does not allow for closed-form solutions (that is, ones that can be worked out by hand). Perhaps the best known of these is when utility is logarithmic in consumption, separable between consumption and hours worked, the production function is Cobb-Douglas, and depreciation is 100%. These restrictions are very special, and in the case of depreciation, clearly at odds with the data.

The Impact of Income and Taxation in a Price-Tiered Cigarette Market – findings from the ITC Bangladesh Surveys

Background Taxing tobacco is among the most effective measures of tobacco control. However, in a tiered market structure where multiple tiers of taxes coexist, the anticipated impact of tobacco taxes on consumption is complex. This paper investigates changing smoking behaviour in lieu of changing prices and changing income. The objective of the paper is to evaluate the effectiveness of change in prices (through taxes) and change in income in a price-tiered cigarette market. Method A panel dataset from the International Tobacco Control Bangladesh surveys is used for analysis. For preliminary analysis transition matrices are developed. Next, probit and multinomial logit regression models are used to identify the effects of changes in prices and changes in income along with other control variables. Findings Transition matrices show significant movement of smokers across price tiers from one wave to another. Regression results show that higher income raises the probability to up-trade and decreases the probability to down-trade. Results also show that higher prices raises the probability to up-trade and reduces the probability to down-trade. Although not significant, there exists a negative relationship between the probability to down-trade and the probability to intend to quit. Conclusion It is evident from the results that a price-tiered market provides smokers more opportunities to accommodate their smoking behaviour when faced with price and income change. Therefore, tiered structure of the tax system should be replaced with uniform taxes. Moreover, overall cigarette taxes need to be raised to an extent so that it off-sets any positive effects of income growth.