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The Incidence of Tobacco Taxation: Evidence from Geographic Micro-Level Data

September 1, 2008

This paper uses a recent increase in the state of Wisconsin's tobacco tax as a natural experiment to measure the economic incidence of tobacco taxation. We estimate the economic incidence of tobacco taxation using micro level data on cigarette prices collected from retail locations in Wisconsin and states that share its border. We find that Wisconsin's $1.00 increase in tobacco tax was over-shifted to consumers; they pay the entire amount of the tax as well as a premium of between $0.08 and $0.17 per pack of cigarettes. We use geo-coded data to test if the incidence of the tobacco tax in Wisconsin is different for retail locations near another state's border (where taxation is different). We find that retail locations near another state's border still pass along the entire amount of the tax to consumers, but the premium charged over the amount of the tax is reduced by between 13 and 54 percent depending on the distance in question and the econometric specification. Working Paper 08-30

Coalition Decisions and Simple Majority Rule

August 1, 2008

We study simple majority rule from a perspective of coalitional decision makings. Four attractive properties each linking decisions by a group to decisions by its various coalitions are introduced, and are used for characterizing simple majority rule. Our characterization result provides an alternative to that of May (1952). Working Paper 08-14

Estimation of Sample Selection Models with Spatial Dependence

August 1, 2008

We consider the estimation of sample selection (type II Tobit) models that exhibit spatial error dependence or spatial autoregressive errors (SAE). The method considered is motivated by a two-step strategy analogous to the popular heckit model. The first step of estimation is based on a spatial probate model following a methodology proposed by Pinkse and Slade (1998) that yields consistent estimates. The consistent estimates of the selection equation are used to estimate the inverse Mills ratio (IMR) to be included as a regressor in the estimation of the outcome equation (second step). Since the appropriate IMR turns out to depend on a parameter from the second step under SAE, we propose to estimate the two steps jointly within a generalized method of moments (GMM) framework. We explore the finite sample properties of the proposed estimator using a Monte Carlo experiment; discuss the importance of the spatial sample selection model in applied work, and illustrate the application of our method by estimating the spatial production within a fishery with data that is censored for reasons of confidentiality. Working Paper 08-31

On Dominance and Context-dependence in Multi-attribute Decisions

August 1, 2008

Neoclassical economists, using a competitive demand/supply model of labor markets, typically conclude a legislated minimum wage is harmful to economic efficiency and social welfare. The major theoretical counter-attack by proponents of a minimum wage is to argue that low-wage labor markets are better modeled as monopsonistic. This paper develops and formalizes a second theoretical defense for a legal minimum wage law. This defense rests on the concept of the social cost of labor, as originally popularized by Sidney and Beatrice Webb and then further developed by American institutional economists. This analysis is unique in that it continues to use the competitive demand/supply model but nonetheless demonstrates that a legislated minimum wage often simultaneously increases both economic efficiency and fairness, unlike the neoclassical prediction. Working Paper 08-13

Jacob Mincer's Contribution to Modern Labor Economics: A Review Essay

July 1, 2008

One of the key figures in the development of modern labor economics is Jacob Mincer (1922- 2006). His contributions have recently been highlighted and assessed in two books. The most indepth and substantive of these volumes is by Portuguese economist Pedro Teixeira, entitled Jacob Mincer: A Founding Father of Modern Labor Economics (2007). Also valuable and well done is an edited volume by Shoshana Grossbard, Jacob Mincer: A Pioneer of Modern Labor Economics (2006). It is composed of a number of short remembrances by Mincer's colleagues and students, an oral history interview with Mincer by Teixeira, several larger review chapters on important parts of Mincer's research program, and several speeches and short articles by Mincer. In this review essay I provide a brief summary and evaluation of Mincer's research contributions and place in the history of thought in labor economics, drawing largely on these two books but with some of my own observations and perspectives interspersed. Working Paper 08-29

The Property Tax Exemption for Nonprofits

July 1, 2008

This paper reviews the existing literature on the property tax exemption for nonprofit organizations and identifies gaps to be addressed in future research. We start by examining justifications and existing eligibility criteria for the property tax exemption, followed by studies of the magnitude of the revenue loss from the exemption. We focus on theoretical and empirical studies of the economic effects of the exemption. We consider the effect of the tax advantage on nonprofit decisions about inputs, outputs and organizational form, decisions to rent or own, location decision, market share, and the effect of the exemption on neighboring property values. Finally, we evaluate research about the use of PILOTs and the implications of their possible expansion. We conclude that future studies need to examine further the magnitude of the revenues forgone, the advantages and disadvantages of PILOTs, and other solutions for distributing more evenly the burden of the exemption. Further studies are also needed to understand the economic effects of the property tax exemption, with opportunities for theoretical and empirical contributions. Working Paper 08-15

The Maturity Structure of Bank Credit: Determinants and Effects on Economic Growth

April 1, 2008

We investigate a new data set on the maturity of bank credit to the private sector in 74 countries. We show that credit maturity is longer in countries with strong institutions, low inflation, large financial markets, and where banks share information about borrowers. Furthermore, we extend the finance and growth literature by showing that credit maturity matters for economic growth. Economic growth is enhanced in countries where agents have access to long-term financing. Therefore, weak institutions, high inflation and other variables that reduce credit maturity have an impact on economic growth via their influence on credit maturity. The estimated effects are substantial in size. Working Paper 08-12

Wages, Rents and Heterogeneous Moving Costs (second version)

February 1, 2008

The model of compensating differentials in regional labor and land markets was formalized by Roback (1982). The model interprets regional differences in constant quality wages and rents as compensating firms and residents for inter-regional differences in amenities. While the model assumes that the costs of relocating to a new city are zero, the results hold in the presence of moving costs for the marginal migrant. This paper extends the Roback model to allow for moving costs which vary among a city's residents and businesses. This modification of the model generates new interpretations of regional differences in rents and wages. The theoretical results suggests that the interpretation of inter-city rent and wage differentials as compensating is misguided, that such differentials are inappropriate as weights in QOL comparisons and stresses the importance of local housing and labor market parameters in the determination of these differentials. The importance of amenities is retained, but housing supply becomes the main other determinant of regional rents. Housing supply was ignored in the literature following on Roback's initial insight. The new perspective also provides a bridge between the neoclassical perspective implicit in Roback's approach and the newer literature on agglomeration economies. Working Paper 08-06

Wage Gaps Large and Small

February 1, 2008

The law of one wage does not strictly hold, nor should it be expected to hold, in contemporary labor markets. The law of one wage, however, provides a surprisingly good first approximation of the structure of U.S. wages. This generalization is drawn from research on a diverse set of topics: the Mincerian wage equation and earnings imputation, union wage differentials, product market regulation and the labor market, wages in male and female jobs, the wage effects of military service, and inter-area wages and cost of living. Working Paper 08-11

Housing the Aging Baby Boomers: Implications for Local Policy

January 1, 2008

Most elderly want to age in place. Yet, most elderly live in suburban and rural communities ill-suited to meet the changing aging-related demands. This paper discusses various issues communities need to address when balancing the demands of aging baby boomers against those of younger households. Accommodating changes in life stage needs requires revising building and zoning codes to permit mixed use and mixed density development incorporating greater varieties of housing units and easier accessibility. Developing support arrangements for naturally occurring retirement communities will become important for state and local governments. A significant number of aging adults will move to locales with natural and augmented civic amenities. Such migration is double-edged; features that attract "gray gold" also attract needy elderly. Finally, affordable housing will be an issue for a growing number of elderly, calling for targeted tax and financial assistance policies for lower income elderly homeowners. Working Paper 08-01

Assessing the Welfare Impact of the 2001 Tax Reform on Dual-earner Families

December 1, 2007

The welfare impact of the 2001 income tax reform is assessed across dual-earner families with different characteristics. A household labor supply model is estimated to account for variable behavioral responses by family type. It was found that while higher education families received a larger share of the welfare gain generated from lower marginal tax rates, it was the lower education families that provided the bulk of the additional labor supply motivated by the tax reform. Differing welfare gains across families with different numbers of children were also found, highlighting the importance of allowing responses to vary across family characteristics when assessing the welfare impact of a policy change. Working Paper 07-38