Emin Gahramanov

Hunting the unobservables for optimal social security: a general equilibrium approach

We study the optimal size of a pay-as-you-go social security program for an economy composed of both permanent-income and hand-to-mouth consumers. While previous work on this topic is framed within a two-period partial equilibrium setup, we study this issue in a life-cycle general equilibrium model. Because this type of welfare analysis depends critically on unobservable preference parameters, we methodically consider all parameterizations of the unobservables that are both feasible and reasonable—all parameterizations that can mimic key features of macro data (feasible) while still being consistent with micro evidence and convention (reasonable). The baseline model predicts that the optimal tax rate is between 6 percent and 15 percent of wage income.

A Growth Model with Income Tax Evasion: Some Implications for Australia†

We develop an endogenous growth model a la Barro (1990), augmented with income tax evasion. Unlike many traditional rational choice models of tax evasion, the numerical simulations of our model do not produce counter-intuitive results. Further, we show that: (i) accounting for evasion costs (while capturing the full risk associated with the tax evasion process) is important for obtaining realistic relationships between key model variables; (ii) productive government expenditures explicitly affect the economys tax evasion rate; (iii) Barros natural efficiency condition for setting the optimal statutory tax rate holds even in the presence of tax evasion; (iv) given realistic estimates of the public expenditure externality, the average marginal income tax rate in Australia is not too far away from the optimal one; and (v) differences in tax evasion opportunities aggravate inequality over time.

WHY DO CHILDREN TAKE CARE OF THEIR ELDERLY PARENTS? ARE THE JAPANESE ANY DIFFERENT?: WHY DO CHILDREN TAKE CARE?

We conduct a theoretical and empirical analysis of why children live with (or near) their parents and provide care and assistance to them using microdata from a Japanese household survey, the Osaka University Preference Parameter Study. We find that the Japanese are more likely to live with (or near) their elderly parents and/or to provide care and attention to them if they expect to receive a bequest from them, which constitutes strong support for the strategic bequest motive, but that their caregiving behavior is also heavily influenced by the strength of their altruism toward their parents and social norms.

Should We Refinance Unfunded Social Security

Within a continuous-time overlapping generations model, featuring endogenous intensive margin of the labour supply and retirement decision, we analyse the issue of passing the burden of payroll revenues onto consumption or capital. We find that large long-run welfare gains occur when pension benefits are refinanced by consumption taxes. However, the transition to the new steady state is very painful for a large fraction of existing cohorts. On the other hand, the capital base is too small to sustain pension benefits but could be made larger if capital taxes are raised. Yet that would entail significant welfare losses.

Hedonic Valuation of Land Protection Methods: Implications for Cluster Development

This study estimates a generalized spatial hedonic pricing model to assess how residential property values are impacted by inclusion within cluster developments and by proximity to various types of protected land. The estimated model simultaneously controls for the spatial dependence of residential housing prices and for the presence of spatial autocorrelation. The sample includes 4,008 single-family housing sales transactions within the non-urban portions of Larimer County in northern Colorado. The empirical framework accounts for topographical diversity across the study region, as well as distinguishing between several distinct types of publicly and privately protected land. The key findings of the study are: (i) proximity to national or state park land and to city or county open space has a significant positive impact on property values, while proximity to national forest land or to privately conserved land exhibits no significant effects; and, (ii) inclusion of a property within a cluster development decreases its value by 17 to 26 %. These findings are robust to different estimation techniques and model specifications, which suggests important considerations for policymakers who design development rules and alternative land protection measures aimed at preserving open space in non-urban areas.

Parental Transfers, Intra-household Bargaining and Fertility Decision

Abstract This paper examines the role of parental transfers on family size. We introduce a simple theoretical model of fertility decision where preferences towards children may differ between female and male spouses. Parental transfers increase both the household income and the bargaining power of the recipient spouse. Therefore, transfers from wife’s and husband’s parents may have dissimilar effects on the number of children. Our empirical result, based on a unique household-level data for Japan, supports this hypothesis. In particular, received transfers from the wife’s parents are negatively associated with the demand for children. In contrast, both received and expected transfers from the husband’s parents are positively associated with the demand for children. These results hold important policy implications.

Impatient in Experiments, but Patient in Simulations: A Challenge to the Heckman‐Type Model

Intertemporal labour–leisure choice models typically assume agents have a very low degree of impatience. Yet there is a lot of empirical evidence indicating a high degree of impatience. Using a life-cycle model of consumption–saving and labour–leisure choice, we show that even if an agent displays a relatively moderate degree of impatience, his labour supply choice delivers highly counterfactual patterns. We resolve this counterfactual finding by augmenting the standard model with a time-dependent marginal utility of leisure assumption that is consistent with some recent evidences from leisure studies. We also introduce various extensions and discuss their relative importance and associated challenges.

On the Demographics and the Severity of the Social Security Crisis

Abstract Changing demographics across the world threatens the sustainability of pension benefits. Yet there is widespread sentiment among some business and policy analysts that in the presence of population ageing, more elderly people would mean more old-age consumption and robust business opportunities across all spending dimensions. In this paper we look at a micro-level analysis of intertemporal consumption/saving behavior, and find that in the presence of notable heterogeneity with respect to the consumer impatience and rationality degree, different demographic challenges and likely policy responses would imply greatly varying and significant consumption changes at old age. We also touch upon the associated issues of welfare analysis and transitional effects and discuss various complexities and challenges for policy implications and economic projections.