Showing posts with label Italy. Show all posts
Showing posts with label Italy. Show all posts

Wednesday, May 22, 2013

Complicated Southern European recessions

On both sides of the Atlantic, the last recession was unconventional. This has meant that the mainstream business cycle models needed to be rethought to make good sense of what is happening. By that I mean, they need to be augmented or altered, not thrown out completely, as some have claimed. In doing so, one needs to identify new channels for the transmission of shocks, and possibly new shocks as well. And because this is unconventional, it is sometimes difficult to wrap one's head around some of those models.

One good example of that is the paper by Zhen Huo and José-Víctor Ríos-Rull that tries to understand the last Southern European recessions. They are looking for a model that would explain simultaneously an increase in savings while wealth and employment are decreasing. To make it work, they need frictions in the reallocation of resources across sectors, frictions on the labor market, and some shock that increases the savings rate. The latter generates then a paradox of thrift: even though savings are up, wealth is down. This comes by in the following way: as savings go up, consumption is down in a way that reduces the number of varieties of goods that are demanded. This leads to excess capacity, an apparent decrease in total factor productivity and thus the value of firms and capital decreases.

Now, the shocks triggering this are shocks to patience. Alternatively, it works as well with shocks to financial costs. Yet, I have a hard time believing that these were the triggers of the last recessions in Southern Europe. It seems to me that wealth decreased before the savings rate went up. And the reason of the former was a sudden recall of debt by Northern savers (in particular banks) that needed to cover losses in US mortgage instruments. In other words, it may have been as simple as a negative wealth shock triggering a standard decrease in consumption that gets the ball rolling. The financial costs came after. The labor market frictions and the reallocation frictions should also be enough to prevent labor to increase.

Thursday, March 21, 2013

How much money laundering is there in Italy?

It is well known that the underground economy in Italy is substantial, and that an important share of this is due to illegal activity. Hence, there should be an important amount of money laundering going on, an amount that seems to be impossible to measure given that these activities precisely try not to get detected. But economists can be resourceful and try to pull it off, for example à la Steve Levitt.

Guerino Ardizzi, Carmelo Petraglia, Massimilano Piacenza, Friedrich Schneider and Gilberto Turati try to pull that off, reasoning that money laundering is performed by depositing cash, and that if there are more cash deposits in financial institutions of an Italian province where there is more activity from illegal syndicates, one should be able to back out how much of these deposits are due to money laundering. Concretely, they regress across provinces over four years cash deposits on a few controls, the number of detected extortion crimes and the number of drug dealing, prostitution and possession of stolen goods. One may have some qualms in using detected crimes, which may be a very poor proxy for actual crime, especially for a country that is so corrupt, but I suppose this is all we have. However, this regression assumes that those illegal syndicates stay within the confines of their province when they deposit their proceeds. Given the size of an Italian province (median inhabitants: 375,000), that seems like a real stretch. I guess we still do not know how much money laundering is going on in Italy.

Thursday, May 3, 2012

On the difficulty of targeting financial aid to students

With the cost of education continuing to rise, financial aid to student becomes more important to help those with merit but little means (or borrowing constraints). Identifying whether financial aid actually helps bright students go to university is of course the most important question.

Loris Vergolini and Nadir Zanini study this in the case of Italy, where they surveyed students before and after university entrance, in the context of a generous financial aid initiative targeted towards bright low-income students. The results are sobering. it does not appear to have motivated more students to go to university. Those who were going anyway now are willing to move farther, presumably to potentially better programs. But this program was only recently introduced and could not have an impact on the school effort of those about to graduate. One can hope that its existence will motivate younger cohorts to excel in school to be eligible and make it to university.

Friday, April 20, 2012

Is pardoning prisoners the best way to keep jail costs low?

I mentioned yesterday that we do not know whether capital punishment is a deterrent or not. What about imprisonment sentences? That is much harder to establish without very precise coding of convictions in multiple jurisdictions with different sentences for the same crime. Finding or establishing such a dataset should be very difficult. But maybe we can find some partial answers in indirect ways.

Nadia Campaniello, Theodoros Diasakos and Giovanni Mastrobuoni use an interesting natural experiment in Italy. There, the parliament occasionally decides on mass pardons to reduce jail crowding. When such proposals are being discussed, suicide rates in Italian prisons drop. That means clearly that prisoners do not like ex-post being in prison, and sufficiently to make life depend on it. If this matters also ex-ante (before they head to jail and in particular before the decide to commit a crime), we should see a deterrence effect. But this may be a big if.

Friday, March 2, 2012

How to regulate prostitution

While being the oldest profession, prostitution has always been a thorn in the eyes of authorities. The market clearly says it satisfies a demand, but it goes against some moral code. Banning it has never been an efficient solution, in particular because it leads to crime and adverse health outcomes. A better way may be to regulate it in some fashion, but how?

Giovanni Immordino and Francesco Flaviano Russo may have found how, and it involves the prohibition of buying sex, but no limit on selling it. Legalizing selling sex is interesting because it allows taxing it and makes it possible to reduce STD infection rates by applying health policies. What is striking it that the policy for prostitution is the exact opposite of the policy applies in some countries for illegal drugs: decriminalizing consumption and sometimes buying but criminalizing the sale. From what I could see, this seemed to work relatively well. While the tax aspect is the same as for prostitution, the health one is different. By making drug consumption legal, one has better access to consumer to apply health policies, while sellers are of little use in this respect (except when they cut the drug with more harmful material).

Thursday, February 23, 2012

Divorce risk is good for the savings rate

Savings rates have declined over the last decades in developed economies. Many explanations have been offered for this, including the availability of better insurance that allows to smooth out better potential risks. One other that was suggested was that the higher divorce rates and the larger number of out-of-wedlock children would lead to lower savings because economies of scale in consumption do not kick in. An old paper by Luis Cubeddu and José-Víctor Ríos-Rull dispelled this idea, showing in a model economy that the higher risk of divorce actually increases the savings rate, as people foresee the risk and accumulate precautionary savings.

You may dismiss this theoretical result on the grounds that there is no way that freshly married people foresee increased divorce risk and react by saving more. And that may be why this paper was never published. But they there is now evidence from Italy that there is some truth to this result.
Filippo Pericoli and Luigi Ventura, who do not quote the above study, find that this precautionary saving is actually quite substantial at 11% of overall savings. So there, Italians are more rational than we thought.

Thursday, November 17, 2011

The excessive taxation of married couples in Italy

In these times of fiscal austerity, governments are scrambling to find tax revenues and in particular to close loopholes and to chase tax evaders. While the goal is to raise more revenue (and be somewhat fairer, as tax evaders tend to have higher incomes), that can have the adverse effect of actually reducing tax revenue. While it is clear that the Laffer Curve is correct, there is little evidence that in aggregate any western economy is on the right side of its peak. But there there are some individual circumstances where it is.

Fabrizio Colonna and Stefania Marcassa discuss the taxation of married couples in Italy. Taxation in Italy is based on the individual, with deductions for children and the non-working spouse. As the incidence of these tax credits on the marginal tax credit decreases with the income of the first earner in a couple, typically the husband, there is a strong incentive for wifes of lower income husbands to work, full-time or part-time. This reduces the labor supply of the poor, increases poverty and increases the strain on welfare programs.

The paper estimates a complex labor choice model and runs two scenarios: the current one, and one where households can choose to file taxes individually or jointly. The latter boost women's labor force participation rate by 3 percentage points and reduces the proportion of women under some poverty threshold by half that. Others scenarios, such as gender-based taxation, are explored as well. In all scenarios, the assumption is that taxes are revenue-neutral. As poverty is reduced, the need for redistribution is reduced, something that makes the scenarios even more attractive.

Tuesday, July 12, 2011

The military draft, mortality and education

The data sometimes work in mysterious ways and provide puzzling correlations that lead to interesting research questions. One such correlation is that exemption from military service leads to lower mortality later in life.

Piero Cipollone and Alfonso Rosolia find this while looking at a natural experiment following the 1981 earthquake in Southern Italy. Boys from the affected region were exempted from military service, and they were followed, along with non-exempted neighbors, to track their life and education. By concentrating on boys both sides close to the border of the exempt region, they find that those exempt ended up being more educated. I can easily believe that, as they were not spending some of their prime learning years hiding in bushes and peeling potatoes, and they were expecting a longer work life. But the exempt also have lower mortality. This is not due to a lower incidence of military accidents, it is rather linked to the higher school completion rates. In fact, the authors conclude that raising high school completion by 10 percentage points would lower mortality by one or two percentage points in the decade thereafter. That is impressive at that age.

Monday, July 4, 2011

Do Italians trust the television or the judges?

In several countries, mass media have become, at least from my viewpoint, a dominant means of forming public opinion on just about anything. In the US it is particularly apparent that experts are less trusted by the public than media, or even less than people's prejudice. In politics, this is even more widespread, where media make or brake a politician, and politicians cater directly to the media. Imagine how things could turn when the politician owns the media. This is the current situation in Italy, where Prime Minister Silvio Berlusconi heads a formidable media empire and tries to fend off numerous accusations of corruptions and abuse of power (loosely speaking) that emanate from the judiciary.

Fabio Sabatini studies how much the Italian Prime Minister is trusted by the public. He finds that trust in television is by far the cleared determinant for trust in Berlusconi, and the second is lack in education, the third distrust in the judiciary. So much for Berlusconi claiming his empire has nothing to do with his repeated elections.

Wednesday, May 25, 2011

The demand for theater

What determines demand for theater? Theater managers should be interested in understanding their market. Beyond this, this is also important for policy as theater is frequently and substantially subsidized. This the characteristics of those who go to theater and how frequently they do so may help understand whether it is worth subsidizing it. For example, if only rich people go to theater, one could leave the state out and let the public pay higher prices, which substitute for taxes (and would then improve efficiency). If it is mostly poor people who attend theater, then it may be worth subsidizing if there is some sort of positive externality from it.

Concetta Castiglione uses micro data from Italy to find results that are not very surprising: everything is driven by education and income. Rich educated people pay more taxes and get them back in part in theater performances. This is even more pronounced than for higher education, for which forceful arguments have been made that the state should stop subsidizing it.

Of course, all this ignores consideration about the supply. but that does not matter here. Demand should be essentially the same whether theaters are subsidized or not in Italy.

Thursday, December 30, 2010

How to fight tax evasion

Tax evasion is a serious problem in developing countries because of the tiny administrative capacity of authorities and the size of the informal sector. Even in more developed economies, say, the Southern European ones, tax evasion is part of daily life. Again, administrative capacity is lacking. One could even argue it is a problem in the United States seeing the tiny auditing staff of tax authorities and the complexity of the tax code. Tax auditors have thus to define priorities.

Mirco Tonin studies the rules that Italy and Bulgaria instituted. In Italy, businesses and self-employed people reporting revenues below some level are subject to higher scrutiny. The idea is thus not to go after those who declare to be big fish, but rather those who may hide it. And making it known that there is such a threshold induces people to declare more to tax authorities. In Bulgaria, authorities are after employees and firms that declare too little in social security contributions. This is also forcing them to declare more to avoid scrutiny.

Tonin uses a model of imperfect monitoring to figure out whether such threshold rules make sense. And yes, they improve tax revenue, as those who have higher true income declare more than the threshold, and those below become more truthful. Now all you need to do is figure out where to put the threshold to equalize marginal tax revenue and marginal auditing cost, possibly adjusted by the dead-weight cost of taxation and for observable characteristics of the tax payer.

Thursday, July 15, 2010

Does regulating alcohol reduce crime?

Alcohol use has an impact on crime in many ways. Perpetrators maybe mentally impaired by alcohol abuse, may be motivated by an addiction, or venues were alcohol is consumed may give opportunities for crime. Also, being a consumer of alcohol may increase the likelihood of victimization. What economic policy means are available to reduce crime from alcohol use? Obviously, you want to reduce alcohol use and abuse, but let us for once leave the health consequences aside (assume they are already internalized by the consumer).

Christopher Carpenter and Carlos Dobkin perform a meta-analysis of the literature and find that taxing alcohol and putting age limits to its consumption are the best policies. Restricting when or where alcohol can be consumed has, however, little impact on alcohol-related crime.

Beyond what the literature says, I have always been puzzled how different cultures deal differently with alcohol. For example, Italians drink wine already as kids, yet you rarely find drunken Italians. In fact, the only drunks I have encountered in Italy where American students and British tourists. My anecdotal evidence is that the more regulated alcohol consumption is, the more people are drunk. But the causality may very well run the other way. For the current paper, though, what really matters is how alcohol consumption translates into criminal behavior. And the literature seems here counter-intuitive to me.

Friday, July 9, 2010

Are academics still dysfunctional in Italy?

Academics, at least in Economics, have been largely dysfunctional in Italy for a long time. With faculty positions centrally administrated by the Ministry of Education, competitions rigged against people coming from abroad, and newcomers have first to pay their time in the purgatory (the South or the islands), there have been very few incentives for quality people to stay or return to the country. Hence a very large diaspora of Italian economists throughout the world who even have organized themselves into a separate society to try to shake things up. Things have moved, a little bit, as universities have now more autonomy in hiring, and one can wonder whether this has done any good.

Adriano Birolo and Annalisa Rosselli provide an assessment of the quality of new hires into entry-level positions around 1985, 1995 and 2005. While the number of hires seems to have substantially increased, their quality does not seem to have. While they may publish more, they do so with substantially more co-authors. where there seems to be some change is in the topics of research. Italy has always had a very strong tradition in the history of economic thought, indeed a sixth of all publications were devoted to this in the 1980s, and this emphasis seems to dwindle to the advantage of Microeconomics, which was virtually absent. So at least in terms of research topics, Italy is becoming less of an oddball.

Tuesday, May 4, 2010

Mafia, education, and emigration

The mafia and similar organization are a tumor on an economy. They divert the effort of people to unproductive activities, they upset the rule of law and discourage entrepreneurship. But it is difficult to actually measure the impact of the mafia, because their is no measurement of its activities.

Nicola Coniglio, Giuseppe Celi and Cosimo Scagliusi use difference in the penetration of the mafia in various towns of Calabria, which they measured themselves, to tease out from the data that mafia presence decreases education and increases emigration. Intuitively this makes sense: why you want to get educated if it is not rewarded, i.e., educated people have more income and are more likely to be business owners and thus have to pay a protection fee to the mafia. The only way to avoid this is to emigrate.

More interesting than the obvious is the size of the effect. The historical presence of the mafia in a town decreases the proportion of high school graduates by two percentage points. This is not negligible, as only about a quarter of the population has such a degree.