Towson University Department of Economics Working Paper Series

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    Violence against children in Nyarugusu Refugees Camp: reporting and perceptions across generations
    (Towson University. Department of Economics, 2018-03) Fletcher, Erin K.; Gitter, Seth R.; Wilhelm, Savannah; Towson University. Department of Economics
    There are over two million displaced children worldwide living in established refugee camps. Many of these children have escaped violent conflict in their country, but still are victims of violence in camps. Yet, little is known about this violence and how camp residents subsequently react to it. We examine the issue of reporting violence using a sample of over 300 child-parent pairs of Burundian and Congolese refugees residing in Nyarugusu camp in Tanzania. To elicit social norms around reporting violence against children we use fictional vignettes of violent situations with randomized characteristics against a hypothetical child to measure parents’ and children’s perceptions of when children will report violence. Parents and children have similar beliefs that the vignette victims are more likely to report violence in school than in other locations. One contrast is that parents believe victims are more likely to report sexual violence than other types of violence while children do not. Additionally, we find a strong relationship between a parent and their child’s beliefs of when the hypothetical victim would report violence.
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    Annuity markets and capital accumulation
    (Towson University. Department of Economics, 2018-04) Bagchi, Shantanu; Feigenbaum, James; Towson University. Department of Economics
    We examine how the absence of annuities in financial markets affects capital accumulation in a two-period overlapping generations model. Our findings indicate that the effect on capital is ambiguous in general equilibrium, because there are two competing mechanisms at work. On the one hand, the absence of annuities increases the price of old-age consumption relative to the price of early-life consumption. This induces a substitution effect that reduces saving and capital, and an income effect that has the opposite effect as households want to consume less when young, causing them to save more. On the other hand, accidental bequests originate from the assets of the deceased under missing annuity markets. The bequest received in early life always has a positive income effect on saving, but the bequest received in old age, conditional on survival, is effectively a partial annuity with both substitution and income effects. We find that when the desire to smooth consumption is high, the income effects dominate, so the capital stock always increases when annuity markets are missing. However, when the desire to smooth consumption is low, the substitution effects dominate, and the capital stock decreases with missing annuity markets.
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    Inflation expectations in India: learning from household tendency surveys
    (Towson University. Department of Economics, 2018-08) Das, Abhiman; Lahiri, Kajal; Zhao, Yongchen; Towson University. Department of Economics
    Using a large household survey conducted by the Reserve Bank of India since 2005, we estimate the dynamics of aggregate inflation expectations over a volatile inflation regime. A simple average of the quantitative responses produces biased estimates of the official inflation data. We therefore estimate expectations by quantifying the reported directional responses. For quantification, we use the Hierarchical Ordered Probit model, in addition to the balance statistic. We find that the quantified expectations from qualitative forecasts track the actual inflation rate better than the averages of the quantitative forecasts, highlighting the filtering role of qualitative tendency surveys. We also report estimates of disagreement among households. The proposed approach is particularly suitable in emerging economies where inflation tends to be high and volatile.
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    International propagation of shocks: a dynamic factor model using survey forecasts
    (Towson University. Department of Economics, 2018-09) Lahiri, Kajal; Zhao, Yongchen; Towson University. Department of Economics
    This paper studies the pathways for the propagation of shocks across G7 and major Asia-Pacific countries using multi-horizon forecasts of real GDP growth from 1995 to 2017. We show that if the forecasts are efficient in the long run, results obtained using the forecasts are comparable to those obtained from the actual outturns. We measure global business cycle connectedness and study the impact of country- specific shocks as well as common international shocks using a panel factor structural VAR model. Our results suggest strong convergence of business cycles within the group of industrialized countries and the group of developing economies during non-recessionary periods. In particular, we find increased decoupling between the industrialized and developing economies after the 2008 recession. However, the direction of shock spillovers during recessions and other crisis periods are varied, depending on the nature and origin of the episode.
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    A macroeconomic analysis of energy subsidies in a small open economy
    (Towson University. Department of Economics, 2013) Glomm, Gerhard; Jung, Juergen; Towson University. Department of Economics
    We construct a dynamic model of a small open economy to analyze the effects of large energy subsidies. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. Our main results for a 15 percent cut in energy subsidies are: (i) Steady state GDP drops in most of our experiments as less energy is used in production. (ii) Steady state consumption rises in most of our experiments. (iii) Welfare can rise by as much as 0.6 percent in consumption equivalent terms. (iv) The largest gains in terms of output and of welfare can be obtained when savings from energy subsidy cuts are used to fund additional infrastructure investment.
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    Transfers and labor market behavior of the elderly in developing countries: theory and evidence from Vietnam
    (Towson University. Department of Economics, 2009-08-28) Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    In this paper we argue that the strategic interaction between the labor supply decision of the elderly and private transfers from their children lowers the opportunity cost of leisure of the elderly. This in turn magnifies the crowding-out effect of public pensions on the labor supply of the elderly. We show that this mechanism has implications for evaluating the crowding-out effect of public pensions in developing countries. That is, a misspecified econometric model that does not control for the endogeneity of private transfers leads to a biased estimate of the crowding-out effect of public pensions. Using data from a household survey in Vietnam we find that the effect of public pensions on the probability of retirement is 2.5 times larger when explicitly accounting for the interaction between private transfers and the labor supply decision of elderly individuals.
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    Global social interactions with sequential binary decisions: the case of marriage, divorce, and stigma
    (Towson University. Department of Economics, 2010-01-23) Christensen, Finn; Jung, Juergen; Towson University. Department of Economics
    This paper studies global social interactions in a stylized model of marriage and divorce with complementarities across agents. The key point of departure from traditional models of social interactions is that actions are interrelated and sequential. We establish existence and uniqueness results akin to those in traditional models. In contrast to these models, however, we show that the presence of strategic complementarities is no longer sufficient to generate a social multiplier that exceeds one in this environment. Self-fulfilling conformity, whereby a greater desire to conform at the individual level leads to greater homogeneity of choices in the aggregate, is not retained either. Some empirical implications are also discussed.
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    Health care financing over the life cycle, universal medical vouchers and welfare
    (Towson University. Department of Economics, 2010-01) Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program.
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    Does the availability of parental health insurance affect the college enrollment decision of young Americans?
    (Towson University. Department of Economics, 2010-06) Hall, Diane M. Harnek; Jung, Juergen; Rhoads, Thomas; Towson University. Department of Economics
    The present study examines whether the college enrollment decision of young individuals (student full-time, student part-time, non-student) depends on health insurance coverage via a parent’s family health plan. Our findings indicate that the availability of parental health insurance has significant effects on the probability that a young individual enrolls as a full-time student. A young individual who has access to health insurance via a parent is up to 22 percent more likely to enroll as a full-time student than an individual without parental health insurance. After controlling for unobserved heterogeneity this probability drops to 5.5-6.5 percent but is still highly significant. We also find that the marginal effect of the availability of parental health insurance has a larger effect on older students between ages 21-23. We provide a brief discussion about possible implications of the Affordable Care Act of 2010 in this context.
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    Subjective health expectations
    (Towson University. Department of Economics, 2010) Jung, Juergen; Huynh, Kim P.; Towson University. Department of Economics
    Subjective health expectations are derived using data from the Health and Retirement Study (HRS). We first use a Bayesian updating mechanism to correct for focal point responses and reporting errors of the original health expectations variable. We then test the quality of the health expectations measure and describe its correlation with various health indicators and other individual characteristics. Our results indicate that subjective health expectations do contain additional information that is not incorporated in subjective mortality expectations and that the rational expectations assumption cannot be rejected for subjective health expectations. Finally, the data suggest that individuals younger than 70 years of age seem to be more pessimistic about their health than individuals in their 70’s.
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    Medical consumption over the life cycle: facts from a U.S. medical expenditure panel survey
    (Towson University. Department of Economics, 2010) Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    We investigate the association between age and medical spending in the U.S. using data from the Medical Expenditure Panel Survey (MEPS). We estimate a partial linear seminonparametric model and construct “pure” life-cycle profiles of health spending simultaneously controlling for time effects (i.e. institutional changes and business cycles effects) and cohort effects (i.e. generation specific conditions). We find that time and cohort effects introduce a significant estimation bias into predictions of health expenditures per age group, especially for individuals older than 60 years. The estimation biases introduced by cohort effects increase monotonically with age while time effects are non-monotone. Overall, cohort effect biases dominate time effect biases in magnitude for high age groups.
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    The macroeconomics of heath savings accounts
    (Towson University. Department of Economics, 2010) Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    We analyze whether the introduction of Health Savings Accounts (HSAs), which is a health insurance reform coupled with a capital tax reform, can reduce health care expenditures in the United States, while simultaneously increasing the fraction of insured individuals. Unlike previous studies on HSAs, our analysis relies on a general equilibrium framework and therefore fully accounts for feedback effects from general equilibrium price adjustments. Our results from numerical simulations indicate that the introduction of HSAs increases the percentage of the working age population with health insurance in the long run but fails to curtail spending on health care. These results depend critically on the interaction of general equilibrium effects and the annual contribution limits to HSAs. Finally, the long-run tax revenue loss due to the introduction of HSAs is substantial and can amount to up to 5 percent of GDP.
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    Does health insurance decrease health expenditure risk in developing countries? the case of China
    (Towson University. Department of Economics, 2011) Jung, Juergen; Liu, Jialu; Towson University. Department of Economics
    This paper studies the impact of health insurance on individual out-of-pocket health expenditures in China. Using China Health and Nutrition Survey data between 1991 and 2006, we apply two-part and sample selection models to address issues caused by censored data and selection on unobservables. We find that, although the probability of accessing health care increases with the availability of health insurance, the level of out-of-pocket health expenditure decreases. Our results from a selection model with instrumental variables suggest that having health insurance reduces the expected out-of-pocket health expenditure of an individual by 29.42 percent unconditionally. Meanwhile, conditional on being subjected to positive health expenditure, health insurance helps reduce out-of-pocket spending by 44.38 percent. This beneficial effect of health insurance weakens over time, which may be attributable to increases in the coinsurance rates of health insurances in China.
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    The extension of social security coverage in developing countries
    (Towson University. Department of Economics, 2011-11-08) Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    We study the dynamic general equilibrium effects of introducing a social pension pro- gram to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risk. To this end, we formulate a stochastic dynamic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal social security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.
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    Regulatory enforcement, politics, and institutional distance: OSHA inspections 1990-2010
    (Towson University. Department of Economics, 2013-04-25) Jung, Juergen; Makowsky, Michael D.; Towson University. Department of Economics
    We explore the determinants of inspection outcomes across 1.6 million Occupational Safety and Health Agency audits from 1990 through 2010. We find that discretion in enforcement differs in state and federally conducted inspections. State agencies are more sensitive to local economic conditions, finding fewer standard violations and fewer serious violations as unemployment increases. Larger companies receive greater lenience in multiple dimensions. Inspector issued fines and final fines, after negotiated reductions, are both smaller during Republican presidencies. Quantile regression analysis reveals that Presidential and Congressional party affiliations have their greatest impact on the largest negotiated reductions in fines.
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    Fiscal austerity measures: spending cuts vs. tax increases
    (Towson University. Department of Economics, 2013-08-19) Glomm, Gerhard; Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    We formulate an overlapping generations model with skill heterogeneity and productive and non-productive government programs to study the macroeconomic and intergenera- tional welfare effects caused by risk premium shocks and government debt reductions. We demonstrate that in a small open economy with a high level of debt-to-GDP ratio a small increase in the risk premium leads to substantial output contraction and negative welfare ef- fects. Next, we quantify the effects of reducing the debt-to-GDP ratio using a wide range of fiscal austerity measures. These reforms result in trade-offs between short-run contractions and long-run expansions in aggregate output. In addition, the spending-based austerity reform is dominated by the tax-based reform in terms of income in the short run, but be- comes dominant in the long run. The welfare effects vary significantly across generations, depending on fiscal austerity measures, skills and working sector. The current old and middle age generations experience welfare losses while current young workers and future generations are beneficiaries of the reforms. A mixed reform results in the largest welfare effects.
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    A macroeconomic analysis of the fiscal system in Egypt
    (Towson University. Department of Economics, 2010-10-27) Glomm, Gerhard; Jung, Juergen; Towson University. Department of Economics
    We construct a dynamic general equilibrium model to analyze the fiscal situ- ation of Egypt. We model Egypt as a small open economy that takes real interest rates and world prices of fuel as given. Since a large component of the government budget consists of pensions payments, we use an overlapping generations struc- ture. The model contains descriptions of the public and private sector, as well as descriptions of the production sectors for a public good such as infrastructure, energy, and a final aggregate consumption good. The model pays special atten- tion to the energy sector. We then calibrate the model to data from Egypt. The following policy reforms are considered: (i) reductions in pensions to public sector workers, (ii) reductions in pensions to private sector workers, (iii) reductions in the public sector pay premiums, (iv) decreases of the energy subsidies, and (v) a decrease of the public sector workforce. In each case we reduce the “expenditure” by 15 percent. For each of the reforms we adjust consumption taxes, labor taxes, “capital taxes”, or public investments in infrastructure to satisfy the government budget constraint. We calculate the new steady states, the transition paths to the new steady states, and the size of the welfare gains or losses for all reforms. We find that due to the modest nature of the reforms, the effect of the policy reforms on GDP and consumption are modest. Often these gains are in the neighborhood of 1 percent. We find that welfare gains or losses can be sizeable and that the largest gains from the reforms are attained when the freed up resources are used for infrastructure investments or for lowering the tax on company profits.
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    Market inefficiency, insurance mandate and welfare: U.S. health care reform 2010
    (Towson University. Department of Economics, 2014-09) Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    We quantify the effects of the Affordable Care Act (ACA) using a stochastic general equilibrium overlapping generations model with endogenous health capital accumulation calibrated to match U.S. data on health spending and insurance take-up over the lifecycle. We find that the introduction of an insurance mandate and the expansion of Medicaid which are at the core of the ACA increase the insurance take-up rate of workers to almost universal coverage but decrease capital accumulation, labor supply and aggregate output. Penalties for not having insurance as well as subsidies to assist low income individuals’ purchase of insurance via health insurance market places do reduce the adverse selection problem in private health insurance markets and do counteract the crowding-out effect of the Medicaid expansion. The redistributional measures embedded in the ACA result in welfare gains for low income individuals in poor health and welfare losses for high income individuals in good health. The overall welfare effect depends on the size of the ex-post moral hazard effect, tax distortions and general equilibrium price adjustments.
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    Social health insurance: a quantitative exploration
    (Towson University. Department of Economics, 2016-06) Jung, Juergen; Tran, Chung; Towson University. Department of Economics
    We quantify the welfare implications of three alternative approaches to providing health insurance: (i) a US-style mix of private and public health insurance, (ii) compulsory univer- sal public health insurance (UPHI) and (iii) private health insurance for workers combined with government subsidies and price regulation. We use a Bewley-Grossman lifecycle model calibrated to match the lifecycle structure of earnings and health risks in the US. For all three systems we find that welfare gains triggered by a combination of improvements in risk sharing and wealth redistribution dominate welfare losses caused by tax distortions and ex-post moral hazard effects. Overall, the UPHI system outperforms the other two systems in terms of welfare gains if the coinsurance rate is properly designed. A direct comparison between the US system to a well-designed UPHI system reveals that large welfare gains are possible in the long-run. However, such a radical reform faces political impediments due to opposing welfare effects across different income groups.
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    Aging and health financing in the U.S.: a general equilibrium analysis
    (Towson University. Department of Economics, 2016) Jung, Juergen; Tran, Chung; Chambers, Matthew; Towson University. Department of Economics
    We quantify the effects of population aging on the U.S. healthcare system. Our analysis is based on a stochastic general equilibrium overlapping generations model of endogenous health accumulation calibrated to match pre-2010 U.S. data. We find that population aging not only leads to large increases in medical spending but also a large shift in the relative size of private vs. public insurance. Without the Affordable Care Act (ACA), aging by itself leads to a 40 percent increase in health expenditures by 2060 and a 9.6 percent increase in GDP which is mainly driven by the increase of the fraction of older higher-risk individuals in the economy as well as behavioral responses to aging and the subsequent expansion of the healthcare sector. Aging increases the premium in group-based health insurance (GHI) markets and enrollment in GHI decreases, while the individual-based health insurance (IHI) market, Medicaid and Medicare expand significantly. The size of Medicare will double by 2060 as the elderly dependency ratio increases. Additional funds equivalent to roughly 2.8 percent of GDP are required to finance Medicare and Medicaid. The introduction of the ACA increases the fraction of insured workers to almost 100 percent by 2060, compared to 82 percent without the ACA. This increase is driven by the stabilization of GHI markets and the further expansions of Medicaid and the IHI market. The ACA mitigates the increase of healthcare costs by reducing the number of the uninsured who pay the highest market price for healthcare services. Overall, the ACA adds to the fiscal cost of population aging mainly via the Medicaid expansion. Our findings demonstrate the importance of accounting for behavioral responses, structural changes in the healthcare sector and general equilibrium adjustments when assessing the economy-wide effects of aging.