Francesco Menoncin

The Johansson-Samuelson Theorem in General Equilibrium: A Rebuttal

The well-known Johansson-Samuelson Theorem proves that, in partial equilibrium, comprehensive income taxation with a uniform tax rate is neutral in terms of investment decisions, if fiscal depreciation allowances coincide with economic depreciation. In this article we show that this result does not hold in general equilibrium, unless fairly restrictive conditions are met.

A Note on Optimal Tax Evasion in the Presence of Merit Goods

In a recent article Davidson, Lawrence and Wilson propose a model showing that, in the presence of distortionary taxations and goods of different quality, tax evasion can be an optimal device. Here, we show that this result, although quite interesting, cannot be generalised to a framework where Government activity consists of supplying merit goods and levying taxes to finance their provision.

Optimal asset allocation for pension funds under mortality risk during the accumulation and decumulation phases

In a financial market with one riskless asset and n risky assets whose prices are lognormal, we solve in a closed form the problem of a pension fund maximizing the expected CRRA utility of its surplus till the (stochastic) death time of a representative agent. We consider a unique asset allocation problem for both accumulation and decumulation phases. The optimal investment in the risky assets must decrease during the first phase and increase during the second one. We accordingly suggest it is not optimal to manage the two phases separately, and outsourcing of allocation decisions should be avoided in both phases.

Soft budget constraints in health care: evidence from Italy

The reforms that have reshaped the public health care systems have often been coupled with devolution. However, this process has frequently been accompanied by widespread soft budget constraint policies. In this paper we argue that the soft budget constraint arises from a cooperative game between local authorities that force Central Government to bail them out. Our theoretical model is tested using data for Italian regions for the period 2002–2006 and our hypothesis is verified. Although the model uses Italy as a benchmark, we believe that the framework we propose could be extended to other federal contexts where resources are distributed unevenly and preferences are asymmetric.

Optimal asset management for pension funds

Purpose – The purpose of this paper is to study the asset allocation problem for a pension fund which maximizes the expected present value of its wealth augmented by the prospective mathematical reserve at the death time of a representative member. Design/methodology/approach - The paper applies the stochastic optimization technique in continuous time. In order to present an explicit solution it considers the case of both deterministic interest rate and market price of risk. Findings - The paper demonstrates that the optimal portfolio is always less risky than the Mertons (1969-1971) one. In particular, the asset allocation is less and less risky until the pension date while, after retirement of the funds representative member, it becomes riskier and riskier. Practical implications - The paper shows the best way for managing a pension fund portfolio during both the accumulation and the decumulation phases. Originality/value - The paper fills a gap in the optimal portfolio literature about the joint analysis of both the actuarial and the financial framework. In particular, it shows that the actuarial part strongly affects the behaviour of the optimal asset allocation.

Fiscal Federalism, Patient Mobility and Soft Budget Constraint in Italy

In some countries the reform of public health care provision has been accompanied by a parallel process of devolution that has also entailed the organisation of health care becoming a regional competence. However, the application of fiscal federalism in the context of the provision of health care is not so straightforward due to the nature of the services involved. In this paper we will concentrate on the soft budget constraint policy which involves local authorities persistently running into a deficit. In our paper we explain such behaviour as the result of a game among local authorities where the more efficient one wants to increase its production beyond local needs; to do so it induces the less efficient one to make patient receive services outside their region in exchange for a reduction in the local tax rate. The lack of coordination between local objectives and total welfare means that this policy is optimal at local level, but inefficient at Central Government level. The outcome of such game is a welfare loss.

Portfolio Optimisation with Jumps: Illustration with a Pension Accumulation Scheme

In this paper, we address portfolio optimisation when stock prices follow general Levy processes in the context of a pension accumulation scheme. The optimal portfolio weights are obtained in quasi-closed form and the optimal consumption in closed form. To solve the optimisation problem, we show how to switch back and forth between the stochastic differential and standard exponentials of the Levy processes. We apply this procedure to both the Variance Gamma process and a Levy process whose arrival rate of jumps exponentially decreases with size. We show through a numerical example that when jumps, and therefore asymmetry and leptokurtosis, are suitably taken into account, then the optimal portfolio share of the risky asset is around half that obtained in the Gaussian framework.

Health care expenditure decisions in the presence of devolution and equalisation grants

In a model where health care provision, its regional distribution and the equalisation grant are the result of a utilitarian bargaining between a (relatively) rich region and a poor one, a First Best solution can be reached only if the two Regions have the same bargaining power. From a policy point of view, our model may explain the observed cross-national differences in the redistributive power of health care expenditure and it suggests that to equalise resources across Regions an income based equalisation grant may be preferred because it causes less distortions than an expenditure based one.

An Approximate Solution for Optimal Portfolio in Incomplete Markets

In an incomplete financial market where an investor maximizes the expected constant relative risk aversion utility of his terminal wealth, we present an approximate solution for the optimal portfolio. We take into account a set of assets and a set of state variables, all of them described by general diffusion processes. Finally, we supply an easy test for checking the goodness of the approximate result.

Paternalistic Goods to Improve Income Distribution: A Political Economy Approach

In this article we show that when the provision of paternalistic goods is entwined with income distribution, the political decision process may prevent welfare maximisation. We model the decision process from a political economy perspective by assuming that the quantity of a paternalistic good to be produced, its regional distribution, and the equalisation grant are the result of a utilitarian bargaining process between a (relatively) rich Region and a poor one. Two cases are considered: a unitary and a federal State. The solution for a unitary State shows that First Best can be achieved only if the two Regions have the same bargaining power. In this case the level of income distribution is negatively correlated with the power of the rich Region. For a federal State we show that the result of the bargaining process always implies underprovision of the paternalistic good. Our model may explain the observed cross-national differences in the redistributive power of public policies.