The NEP-LTV Blog

September 27, 2010

This blog is an experiment to explore the feasibility of scientific discussion on an Economics blog. NEP-LTV disseminates every week new working papers in the field of Unemployment, Inequality & Poverty. Among them, the NEP-LTV editor selects one to be discussed. Everyone is invited to comment. Try to stay civil, or your comments will be removed. And encourage others to read or join in the discussion.


Religion and the European Union

May 17, 2018
By: Benito Arruñada ; Matthias Krapf
We review a recent literature on cultural differences across euro member states.We point out that this literature fails to address cultural differences between Protestants and Catholics, which are likely a major underlying reason for cross-country differences. We argue that confessional culture explains why Catholic countries tend to have weaker institutions but are more open to economic and political integration. EU policies after the economic crisis looked clumsy and failed to address all concerns, but were viable, caused only a manageable amount of serious backlash and tied in well with Europe’s cultural diversity, also providing scope for learning and adaption.
Keywords: European Union, religion, values, culture.
JEL: Z12 F15

Immigration and the Future of the Welfare State in Europe

May 17, 2018
By: Alberto Alesina (Harvard University [Cambridge], IGIER) ; Johann Harnoss (UP1 – Université Panthéon-Sorbonne) ; Hillel Rapoport (PJSE – Paris Jourdan Sciences Economiques – UP1 – Université Panthéon-Sorbonne – ENS Paris – École normale supérieure – Paris – INRA – Institut National de la Recherche Agronomique – EHESS – École des hautes études en sciences sociales – ENPC – École des Ponts ParisTech – CNRS – Centre National de la Recherche Scientifique, PSE – Paris School of Economics)
We analyze the effect of immigration on attitudes to redistribution in Europe. Using data for 28 European countries from the European Social Survey, we .nd that native workers lower their support for redistribution if the share of immigration in their country is high. This effect is larger for individuals who hold negative views regarding immigration but is smaller when immigrants are culturally closer to natives and come from richer origin countries. The effect also varies with native workers’ and immigrants’ education. In particular, more educated natives (in terms of formal education but also job-specic human capital and ocupation task skill intensity) support more redistribution if immigrants are also relatively educated. To address endogeneity concerns, we restrict identification to within country and within country-occupation variation and also instrument immigration using a gravity model. Overall, our results show that the negative .First-order effect of immigration on attitudes to redistribution is relatively small and counterbalanced among skilled natives by positive second-order effects for the quality and diversity of immigration.

The Welfare Implications of Addictive Substances: A Longitudinal Study of Life Satisfaction of Drug Users

May 17, 2018
By: Julie Moschion (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne) ; Nattavudh Powdthavee (Warwick Business School; and Centre for Economic Performance, London School of Economics)
This paper provides an empirical test of the rational addiction model, used in economics to model individuals’ consumption of addictive substances, versus the utility misprediction model, used in psychology to explain the discrepancy between people’s decision and their subsequent experiences. By exploiting a unique data set of disadvantaged Australians, we provide longitudinal evidence that a drop in life satisfaction tends to precede the use of illegal/street drugs. We also find that the abuse of alcohol, the daily use of cannabis and the weekly use of illegal/street drugs in the past 6 months relate to lower current levels of life satisfaction. This provides empirical support for the utility misprediction model. Further, we find that the decrease in life satisfaction following the consumption of illegal/street drugs persists 6 months to a year after use. In contrast, the consumption of cigarettes is unrelated to life satisfaction in the close past or the near future. Our results, though only illustrative, suggest that measures of individual’s subjective wellbeing should be examined together with data on revealed preferences when testing models of rational decision-making.
Keywords: Life satisfaction, rational addiction, drugs, homeless, Australia, happiness
JEL: D03 I12 I18 I30

Evaluating intergenerational persistence of economic preferences: A large scale experiment with families in Bangladesh

May 17, 2018
By: Chowdhury, Shyamal (University of Sydney, and IZA Bonn) ; Sutter, Matthias (Max Planck Institute for Research on Collective Goods Bonn, and University of Cologne) ; Zimmermann, Klaus F. (UNU-MERIT)
Economic preferences – like time, risk and social preferences – have been shown to be very influential for real-life outcomes, such as educational achievements, labour market outcomes, or health status. We contribute to the recent literature that has examined how and when economic preferences are formed, putting particular emphasis on the role of intergenerational transmission of economic preferences within families. Our paper is the first to run incentivized experiments with fathers and mothers and their children by drawing on a unique dataset of 1,999 members of Bangladeshi families, including 911 children, aged 6-17 years, and 544 pairs of mothers and fathers. We find a large degree of intergenerational persistence as the economic preferences of mothers and fathers are significantly positively related to their children’s economic preferences. Importantly, we find that socio-economic status of a family has no explanatory power as soon as we control for parents’ economic preferences. A series of robustness checks deals with the role of older siblings, the similarity of parental preferences, and the average preferences within a child’s village.
Keywords: Intergenerational transmission of preferences, time preferences, risk preferences, social preferences, children, parents, Bangladesh, socio-economic status, experiment
JEL: C90 D90 D81 D64 J13 J24 J62

Explaining cross-state earnings inequality differentials in India: An RIF decomposition approach

May 17, 2018
By: Carlos Gradín
Despite the relevance of geographical disparities in India, earnings inequality occurs mostly within states, but with a broad range of variability in its levels. We investigate the sources of such variability using RIF decompositions of the inequality gaps between most populous states and India. Our results point to substantial compositional effects associated with cross-state variability in the extent of high-skilled formal employment outside the farm and construction sectors, and along the degree of urbanization and some demographic factors. Cross-state differences in conditional earnings structures, however, turn out to be crucial, especially regarding the different degree of earnings stratification by caste in each state.

Revisiting Gender Differences in Ultimatum Bargaining: Experimental Evidence from the US and China

May 17, 2018
By: Shuwen Li (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University) ; Xiandong Qin (Department of Applied Economics, Shanghai Jiao Tong University) ; Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
We report results from a replication of Solnick (2001), which finds using an ultimatum game that, in relation to males, more is demanded from female proposers and less is offered to female responders. We conduct Solnick’s (2001) game using participants from a large US university and a large Chinese university. We find little evidence of gender differences across proposer and responder decisions in both locations. We do however find that, in comparison to Chinese participants, US proposers are more generous, while US responders are more demanding.
Keywords: gender differences, cultural differences, laboratory experiment, ultimatum game, bargaining
JEL: C78 C92 J16 Z10

Welfare Analysis and Redistributive Policies

May 17, 2018
By: Bargain, Olivier
Applied welfare analyses of redistributive systems nowadays benefit from powerful tax benefit microsimulation programs combined with administrative data. Arguably, most of the distributional studies of that kind focus on social welfare defined as a function – typically inequality or poverty indices – of household equivalized income. In parallel, economic research has made considerable progress in the measurement of welfare along several dimensions. Distinct but related branches of the literature have attempted (i) to model different behaviour (in a way that matter for incidence and redistribution of tax benefit policies), (ii) to go beyond income, (iii) to better define and estimate equivalence scales, (iv) to open the household black box and measure welfare at the individual level. I suggest a general framework to critically review these streams of literatures and to discuss whether recent advances in each of these fields have been or could be readily operationalized in welfare analyses and policy simulations.