Martin Weale

Simulating the transmission of wealth inequality via bequests

Answering the question of how much wealth inequality arises from inheritance inequality requires data that are unavailable and potentially uncollectable. The alternative approach taken here (from Blinder [1974, 1976] and Davies [1982]) is to simulate the transmission of inequality via bequests.

Means Testing Retirement Benefits: fostering equity or discouraging savings?*

Means testing plays an important role in the UK state pension system. We use a dynamic programming model to consider the long-term behavioural effects of a recent policy reform that reduced the marginal tax rates on private income of means tested retirement benefits from 100% to 40%. Our analysis suggests that the policy reform will encourage the poorest third of all households (based on wealth at age 65) to both save more and delay retirement, and have the opposite effects on richer households. In aggregate, the off-setting behavioural responses that we identify imply an overall delay in the timing of retirement, a fall in average savings, and a small effect on the government budget. We find that, on balance, the policy reform provides a reasonable compromise between the distortions associated with high marginal tax rates, and the costs implied by universal benefits provision.

An automatic leading indicator of economic activity: forecasting GDP growth for European countries

In the construction of a leading indicator model of economic activity, economists must select among a pool of variables which lead output growth. Usually the pool of variables is large and a selection of a subset must be carried out. This paper proposes an automatic leading indicator model which, rather than preselection, uses a dynamic factor model to summarize the information content of a pool of variables. Results using quarterly data for France, Germany, Italy and the United Kingdom show that the overall forecasting performance of the automatic leading indicator model appears better than that of more traditional VAR and BVAR models.

Education and Economic Growth

This paper provides a survey of work on the link between education and economic growth.It shows that data from the early 20th century are coherent with conclusions about education and economic growth derived from the much more recent past. It also presents an analysis of the role of education in facilitating the use of best-practice technology. It is to be published in the International Handbook on the Economics of Education edited by G and J. Johnes and published by Edward Elgar.

The net national product and exhaustible resources: The effects of foreign trade

Abstract It is the widely held view that estimates of national income should be corrected for the value of the extracted exhaustible resource stock. This correction implies the counter-intuitive result that the national income of an oil producer is unaffected by its vast oil reserves. In this paper we review the definition of national income, and discuss its relation to national welfare. We show that an extra income should be imputed to the resource-owning country based on the exportable resource stock. Part of the net adjustment for resource use is made to the income of the resource-using and not the resource-producing country.

Chapter 14 Survey Expectations

Abstract This paper focuses on survey expectations and discusses their uses for testing and modelling of expectations. Alternative models of expectations formation are reviewed and the importance of allowing for heterogeneity of expectations is emphasized. A weak form of the rational expectations hypothesis which focuses on average expectations rather than individual expectations is advanced. Other models of expectations formation, such as the adaptive expectations hypothesis, are briefly discussed. Testable implications of rational and extrapolative models of expectations are reviewed and the importance of the loss function for the interpretation of the test results is discussed. The paper then provides an account of the various surveys of expectations, reviews alternative methods of quantifying the qualitative surveys, and discusses the use of aggregate and individual survey responses in the analysis of expectations and for forecasting.

Biological age*/what is it and can it be measured?

Biological age is a concept used loosely and with little objectivity to describe a shortfall between a population cohort average life expectancy and the perceived life expectancy of an individual of the same age. Many biomarkers decline roughly linearly with age with a slope of <1% per annum. The use of a battery of 16 biomarkers is described as a method of calculating an individual biological age. They include: the concentration of prostacyclin in fibroblasts, cell membrane viscosity, the electroretinogram, baroreflex regulation of the heart rate, the concentration of lymphocytes, leucocyte density and velocity, grip strength, cells of the corneal endothelium and the buccal epithelium, neck muscle mobility, and vital capacity. Although not subjected to a prospective validation, the method might provide an objective approach to this widely used concept.

Ageing and health care expenditure in EU-15

The purpose of this paper is to investigate the relationship between ageing and the evolution of health care expenditure per capita in the EU-15 countries. A secondary purpose is to produce estimates that can be used in projections of future health care costs. Explanatory variables include economic, social, demographic and institutional variables as well as variables related to capacity and production technology in the health care sector. The study applies a co-integrated panel data regression approach to derive short-run relationships and furthermore reports long-run relationships between health care expenditure and the explanatory variables. Our findings suggest that there is a positive short-run effect of ageing on health care expenditure, but that the long-run effect of ageing is approximately zero. We find life expectancy to be a more important driver. Although the short-run effect of life expectancy on expenditure is approximately zero, we find that the long-run effect is positive, so that increasing life expectancy leads to a more than proportional, i.e. exponential, increase in health care expenditure.

Tests of Rank in Reduced Rank Regression Models

There has recently been renewed research interest in the development of tests of the rank of a matrix. This article evaluates the performance of some asymptotic tests of rank determination in reduced rank regression models together with bootstrapped versions through simulation experiments. The bootstrapped procedures significantly improve on the performance of the corresponding asymptotic tests. The article also presents a Monte Carlo exercise comparing the forecasting performance of reduced rank and unrestricted vector autoregressive (VAR) models in which the former appear superior. The tests of rank considered here are then applied to construct reduced rank VAR models for leading indicators of U.K. economic activity. These more parsimonious multivariate representations display an improvement in forecasting performance over that of unrestricted VAR models.

Testing Linear Hypotheses on National Account Data

Stock adjustment models of money demand have employed either the nominal or real adjustment process, but they have not been tested statistically due to their nonnested- ness. This paper formulates a general stock adjustment model which includes both nominal and real adjustment processes as its nested subsets. Each process is then tested against the general specification. The paper also examines the homogeneity of money demand with respect to price level and income in the general model.