Melbourne Institute Working Paper Series Abstracts (1999)
Melbourne Institute Working Paper No. 26/99
Tax Models and Their Uses
by
John Creedy
December 1999-
ABSTRACT
This paper discusses alternative approaches to tax modelling, placing emphasis on the strengths and limitations of different types of model, rather than their detailed structure. Tax models come in all shapes and sizes, depending on the nature of the policy issues examined. The policy questions may concern specific problems, concerning perhaps the revenue implications of a particular tax, or they may involve an extensive analysis of the redistributive effects of a large number of taxes and transfer payments. Tax changes inevitably involve gainers and losers, so value judgements cannot be avoided. Policy advice based on tax modelling can take the form of presenting the detailed implications of tax changes so that policy-makers can make their own judgements. Alternatively, models can be used to examine the nature of policies that are suggested by the adoption of clearly specified value judgements.
Melbourne Institute Working Paper No. 25/99
Labour Supply Estimates for Married Women in Australia
by
Rosanna Scutella
December 1999-
ABSTRACT
This analysis uses a sample selection model to estimate the hours of work decision for married women in Australia using unit record data for 1995 and 1996. Hours of work are found to be positively related to the after tax wage rate and negatively related to unearned income (which includes benefits). Other characteristics of married women are also found to have an effect on the labour supply decision. Wage elasticities are calculated from the results of the labour supply estimation. These show considerable heterogeneity in married women's responsiveness to the wage rate between different demographic types.
Melbourne Institute Working Paper No. 24/99
International Capital Flows, Exchange Rates and Macroeconomic Policy
by
Don Harding
November 1999-
ABSTRACT
The failure of the 'one size fits all' policy response to the Asian economic crisis initially favored by the IMF provides timely evidence of the institutional and country specific nature of macroeconomic policy. Thus, each economy needs to choose the broad macroeconomic policy regime that is best suited to its particular circumstances. There are significant constraints on the broad macroeconomic policy regimes that are feasible. Most notably a country cannot simultaneously achieve an independent monetary policy, exchange rate stability and complete financial market integration. It can partly achieve a convex combination of these objectives or fully achieve two of the objectives. A well-developed capacity for quantitative macroeconomic analysis is required if countries are to make a well-informed choice of regime while meeting the constraints just cited. Such a capacity is also required to determine the appropriate policy settings one a regime is chosen. In this paper I present a non-technical discussion of these issues, present some tentative policy conclusions and canvas the macroeconomic issues that might occupy research agendas of Asia Pacific regional research institutes seeking to build a capacity for macroeconomic analysis.
Melbourne Institute Working Paper No. 23/99
Occupational Profiles of Men since 1947
by
Elizabeth Webster
October 1999-
ABSTRACT
The discordance between the rising demand for skilled workers and the high numbers of men with limited schooling raises concern that sections of the male labour market will become increasingly at risk economic marginalisation over coming decades. This paper is an attempt to provide more information on the male labour market by documenting the occupational career paths of several cohorts of men since the Second World War. Occupations have been divided into 10 major groupings and an attempt has been made as far as possible to keep major occupational definitions consistent over time. The dominant trend is that more recent cohorts of men are more likely to leave the labour market as they age and be unemployed or be employed in a higher skilled job rather than be employed in a middle skilled job. Relative employment in low skilled labouring jobs was relatively stable. These patterns are found among all major educational attainment groups.
Melbourne Institute Working Paper No. 22/99
Determinants of Household Saving in Australia
by
Mark N. Harris, Joanne Loundes and Elizabeth Webster
October 1999-
ABSTRACT
This paper uses a unique survey of consumers (incorporating the Melbourne Institute Household Savings Survey and the Westpac-Melbourne Institute Survey of Consumer Sentiment) to examine the determinants of Australian household saving. Unit records from 17,700 Australian households are available, which enables the incorporation of a range of household characteristics that may be important factors for saving behaviour, but which are not typically available to researchers undertaking macroeconomic analyses. An ordered probit estimation method is used, and the results support the view that current incomes are perhaps the most important determinant of saving. However, it can also be seen that demographics and householders level of economic optimism play a key role.
Melbourne Institute Working Paper No. 21/99
The Determinants of Corporate Effective Tax Rates: Evidence from Australia
by
Mark N. Harris and Simon Feeny
September 1999-
ABSTRACT
The Effective Tax Rate (ETR) paid by firms can differ from the statutory rate due to the usage of tax shields and applicable credits and rebates. This paper attempts to investigate the characteristics of large Australian firms which drive ETR's away from the standard rate of corporation tax. There is evedence to suggest that interest payments, R&D expenditure, foreign ownership, stock-market listing, and the number of subsidiaries, all have a significant effect on ETR's. The result also suggest that unobserved firm heterogeneity plays a significant role.
Melbourne Institute Working Paper No. 20/99
Market Share, Concentration and Diversification in Firm Profitability
by
Simon Feeny and Mark Rogers
September 1999-
ABSTRACT
This paper provides a review of the role of market share, concentration and diversification in firm performance. An empirical analysis of the profitability of 722 large Australian firms for the period 1993 to 1996 is also undertaken. Using simple regression techniques the analysis suggests that industry concentration (as proxied by the 4-firm concentration ratio) has a positive influence on profitability. The market share of a firm does not appear to have any significant linear association with profitability, however, a non-monotonic relationship is found to be significant. This suggests that as market share increases to around 30% (of a 3-digit ANZSIC industry) profitability declines. When market share increases above 30% profitability rises, although only 9 firms in our sample have market shares above 30%. The extent of diversification appears to have little influence on profitability although, when loss making firms are excluded from the analysis, more focused firms do appear to have higher profitability.
Melbourne Institute Working Paper No. 19/99
Labour Productivity in Australian Workplaces: Evidence from the AWIRS
by
Joanne Loundes
September 1999-
ABSTRACT
This paper provides some empirical evidence on the determinants of labour productivity in the workplace using data from the Australian Workplace Industrial Relations Survey (AWIRS). The results presented in this paper support the general conclusions reached by other authors investigating productivity, that is, workplace practicesparticularly the organisation of workmatter for labour productivity. This suggests that there are a number of issues at the workplace that management can directly address in order to improve labour productivity and workplace efficiency.
Melbourne Institute Working Paper No. 18/99
Analysing and Forecasting Business Cycles with the Aid of Economic Indicators
by
Ernst A. Boehm and Peter M. Summers
July 1999-
ABSTRACT
This paper provides a survey of the development and role of economic indicator analysis in measuring and analysing business cycles. Our major objective is to highlight the usefulness of leading and coincident indexes of economic activity, both for forecasting purposes and as an aid to macroeconomic policy. We show that the analysis of business cycles can be facilitated by distinguishing between classical cycles (which involve fluctuations in the level of aggregate economic activity) and growth cycles (recurring fluctuations in the rate of growth of economic activity around its trend). Many recent theoretical and empirical studies have concentrated on deviations from trend (that is, growth cycles) to the exclusion of classical cycles. We also argue for the use of a range of indicators, combined in a composite index, rather than using a single series such as gross domestic product as a proxy for the business cycle. We illustrate our survey with empirical evidence on the business cycles of the United States and Australia.
Melbourne Institute Working Paper No. 17/99
Household Saving Behaviour in Australia
by
Joanne Loundes
June 1999-
ABSTRACT
A paucity of reliable Australian household data means that very little is known about household saving behaviour in Australia, despite the importance of understanding saving behaviour from a policy perspective. This paper aims to contribute to our understanding of Australian household savingand saving intentionsby using the Melbourne Institute Household Saving Survey and the Westpac-Melbourne Institute Survey of Consumer Sentiment to consider the motives for Australian household saving and the form in which household savings are held. The information presented here, while relatively simple in nature, can go some way to improving our knowledge of motivations for household saving patterns. It can therefore assist in assessing the likely impact on savings of transitory (such as the economic downturn in Asia) and permanent (such as the introduction of a GST) changes in the economic circumstances facing Australian households. The evidence suggests that there are a range of motivations for saving that are in effect at any one time, ranging from a life-cycle style hypothesis, to precautionary motives and leisure.
Melbourne Institute Working Paper No. 16/99
The Effect of Labour Market Programs on Wage Inflation
by
Elizabeth Webster and Peter Summers
June 1999-
ABSTRACT
One explanation for concurrent levels of high unemployment and inflation during the 1980s and early 1990s has been the high incidence of long term unemployment. It has been argued that employers cease to regard the long-term unemployed as viable alternatives for more experienced workers and are thus more likely to grant the latter pay increases rather than hire more workers when under pressure from demand or supply. Labour market programs are recommended as policies to reverse this de-skilling effect. If employers come to consider the unemployed as substitutes for their incumbent workforce they will be less inclined voluntarily to grant wage increases. This paper aims to test whether Australian labour market programs have affected wage inflation since 1989, by applying pooled cross-sectional time series data to a general bargaining model. We find that a doubling of labour market program participants per employee leads, at most, to a 1 per cent reduction in nominal wages.
Melbourne Institute Working Paper No. 15/99
Managed Competition: The Policy Context
by
Richard Scotton
June 1999-
ABSTRACT
Among OECD countries, there has been a growing advocacy of health system reforms involving a greater use of market and quasi-market relationships and incentives, in order to introduce a degree of self-regulating capacity within health care systems. This advocacy (and the corresponding reforms) are framed in the context of universal national programs offering a guaranteed package of care, in general financed publicly through taxation or earmarked social security contributions. The central question considered in this paper is whether, and to what extent, a model of this kind would have advantages in the Australian context. The managed competition model offers a framework within which the objective of increased efficiency could be pursued without sacrificing the goal of universal access and without the impairment of health outcomes and social cohesion which the abandonment of this access would involve. It would do this by removing the present multitude of structural impediments to rational decision making and allocating to governments and markets the functions which they perform best.
Melbourne Institute Working Paper No. 14/99
Take-Up of Means-Tested Benefits with Labour Supply Variations
by
John Creedy
May 1999-
ABSTRACT
This paper examines take-up rates in a simple model in which there is a single means-tested benefit involving a 'taper rate' at which benefits are withdrawn as earnings increase. There is a fixed cost of applving for benefits. The model involves a joint decision regarding both laboilr supply and the take-up of the benefit. It is found that take-up increases as the level of the taper rate increases, and the value of benefits increases. The achievement of 100 per cent take-up is associated with labour supply responses whereby there are few, if any, individuals who are both working and eligible for benefits. The results have implications for the effects of lowering the taper rate on the costs and effective targeting of benefits.
Melbourne Institute Working Paper No. 13/99
Dissecting the Cycle
by
Don Harding and Adrian Pagan
May 1999-
ABSTRACT
Macroeconomics has a long tradition of inspecting and interpreting patterns in graphs of aggregate data. However, the move towards more precise quantification of macroeconomic phenomena has seen academics shift away from a study of turning points, which are a natural and obvious way of summarizing business cycles, towards measures of co-movement in detrended series. This shift arise from several developments, but an important one was the belief among academics that Burns and Mitchell's methods lacked the statistical basis and, hence, the precision required in modern macroeconomics.
We adopt the older perspective that business cycles are to be defined in terms of the turning points in the level of economic activity. We show that such turning points can be associated with a well defined sequence of outcomes and can therefore be precisely analyzed. In turn this enables us to explore how various parametric models of aggregate output generate a cycle through the interaction of trend movements in activity with the volatility and serial correlation in growth rates.
One of the strongest points in the rhetoric of modern business cycle theory is that trend and cycles should not be divorced. Consequently, any definition of the business cycle in terms of the co-movement of detrended data has to find the task of integration a difficult one. In contrast, we show that a return to the older tradition of studying the classical cycle in the level of economic activity produces a natural interpretation of the origin of the cycle in terms of the interaction of trend and the second moments of growth rates. This seems a critical advantage for the approach taken in this paper.
An important issue that has also been debated in the literature is whether non-linear models are required to make a business cycle. Using the techniques developed in this paper we dissect the cycle of a number of countries and find little evidence that non-linearities, of the type investigated in the literature, are important in accounting for the broad features of the average cycle.
Melbourne Institute Working Paper No. 12/99
Knowing the Cycle
by
Don Harding and Adrian Pagan
May 1999-
ABSTRACT
Policy makers are primarily interested in fluctuations in the level of activity - the classical cycle. Academics have in recent times focused their efforts on studying fluctuations and co-movement in aggregate variables that have been rendered stationary after some appropriate transformation. That is academics focus on the growth cycle. One reason for this shift in focus was the impression among academics that Burns and Mitchell's work lacked the precision required in modern macroeconomics. In this paper we show that pattern recognition algorithms which emulate Burns and Mitchell's approach to the cycle can be constructed and used to collect precise information on the classical cycle. The information so marshaled comprises the duration, amplitude, and cumulative movements of output within business cycle phases. We show that this information can be used to assess a range of business cycle models that have been proposed in the literature.
Melbourne Institute Working Paper No. 11/99
Close Equals and Estimation of the Vertical, Horizontal and Reranking Effects of Taxation
by
Justin van de Ven, John Creedy and Peter J. Lambert
April 1999-
ABSTRACT
This paper re-examines the Gini-based method proposed by Lambert and Aronson (1994) to decompose the redistributive effect of taxation into vertical, horizontal, and re-ranking components. A problem is shown to arise because of the practical need to band proximate pre-tax income units into groups of 'close equals'. When applied to banded data, the horizontal component does not measure the desired effect. However, the situation can be retrieved by a simple change involving decomposing the welfare premium from progression rather than its redistribution. The consequences of different bandwidth choices for the estimation are discussed, and two opposing forces are identified which militate against choosing a very small or large bandwidth. These effects are illustrated using simulation, and it is concluded that the best procedure is to use the bandwidth which maximises the estimated vertical component, compute the reranking component exactly as a sample statistic and obtain the horizontal effect by subtraction.
Melbourne Institute Working Paper No. 10/99
Welfare, Non-Linear Budget Constraints and Behavioural Microsimulation
by
John Creedy and Alan Duncan
April 1999-
ABSTRACT
This paper provides a technical survey of recent developments in behavioural microsimulation. We discuss the criteria by which models of labour supply may be chosen for application to behavioural microsimulation, and consider how such models may be augmented to control for fixed costs, child-related work costs, preference heterogeneity and endogeneity in wages. We describe methods by which nonlinear budget constraints may be accommodated in estimation, in policy simulations and in welfare analysis, and discuss how stochastic terms may be factored into the simulation of behavioural responses to some policy shock.
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Melbourne Institute Working Paper No. 9/99
The Growth of Enterprise Intangible Investment
by
Elizabeth Webster
March 1999-
ABSTRACT
Firms can invest in two types of capital good: tangible commodities such as plant and equipment and intangible commodities such as training and staff development, innovation, marketing, management expertise and workplace relations. Compared with the former, the analysis and measurement of the latter has been relatively neglected. This paper is an attempt to measure the relative growth in aggregate intangible capital and investment since the 1950s. One of the measures calculated suggests that intangible enterprise capital as a ratio of all enterprise capital has grown at an average annual rate of 1.3 per cent over the 50 years to 1998.
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Melbourne Institute Working Paper No. 8/99
Costs of Children and Living Standards in Australian Households
by
Maria Rebecca Valenzuela
March 1999-
ABSTRACT
Measuring the costs of children is of immense practical importance in a whole range of economic and social policy areas. In this paper, a new econometric procedure that improves on existing methods for obtaining estimates of such costs using the demand system approach is introduced. The study is based on the use of an extended linear expenditure system and develops an iterative maximum likelihood estimator that overcomes possible estimation problems that arise from the 2-step estimation procedures employed by the earlier authors. We also allow for a more general assumption about the equation "errors", that of non-zero correlation between the errors for different commodities in the same household. Another important contribution is the development of an estimation procedure for sets of seemingly unrelated regressions where the different sets of equations are linked by some common parameters. The proposed procedure is applied to the 1984, 1988-89 and 1993-94 Australian Household Expenditure Survey and results obtained update estimates of both the commodity-specific and general scales previously obtained for Australia
Melbourne Institute Working Paper No. 7/99
Population Ageing and the Growth of Social Expenditure
by
John Creedy
February 1999-
ABSTRACT
This paper considers the possible implications of population ageing for social expenditure. The paper begins by briefly examining the role of demographic transitions in generating a shift from family (inter-generational) support systems towards the use of social insurance. Factors affecting the substantial growth in social expenditure during the 20th century are discussed in order to place the role of ageing in perspective. Projections of the ratio of social expenditure to gross domestic product in Australia are then presented for alternative assumptions about migration. The limitations of such projections are stressed, particularly regarding their sensitivity to changes in crucial variables and the likely interdependencies among the many elements.
Melbourne Institute Working Paper No. 6/99
Modelling Indirect Tax Reform in Australia: Should Tax Rates Be Uniform?
by
John Creedy
February 1999-
ABSTRACT
This paper examines the question of whether indirect tax rates should be uniform, using four different modelling strategies. First, marginal tax reform is examined. This is concerned with the optimal direction of small changes in effective indirect tax rates, and requires considerably less information than the calculation of optimal rates. Second, the welfare effects of a partial shift from the current indirect tax system in Australia towards a goods and services tax (GST) are considered, with particular emphasis on differences between household types and the role of exemptions. The third approach examines the extent of horizontal inequity and reranking that can arise when there are non-uniform tax rates. These inequities arise essentially because of preference heterogeneity. Fourth, in view of the stress on a distributional role for exemptions of certain goods from a GST, the potential limits to such redistribution are considered.
Melbourne Institute Working Paper No. 5/99
Comparing Tax and Transfer Systems: Can Incentive Effects Make a Difference?
by
John Creedy and Peter Dawkins
February 1999-
ABSTRACT
This paper involves an examination of the labour supply effects of a stylised version of a Basic Income Flat Tax system (BI/FT) compared with a Means Tested Graduated Tax system (MT/GT). A highly simplified simulation model is developed in which individuals are homogeneous except for the wage they face, and there is a single means-tested benefit. It is concluded that there are reasons to believe that moving towards universality could increase labour force participation and that such effects could outweigh the labour supply reductions of taxpayers already in work. The number of losers is found to be quite small relative to the number of winners. Even if a fully universal system is not adopted, a move towards it by reducing the taper on means tested benefits at the expense of a higher tax rate, can lead to significant winners without losers. These findings do not appear to be very sensitive to assumptions about the individuals utility function defined over income and leisure. This confirms that there are good reasons to be interested in reforms to the tax-transfer system that aims to reduce effective marginal tax rates.
Melbourne Institute Working Paper No. 4/99
Unobserved Heterogeneity and Inter-Industry Wage Premiums
by
Mark N. Harris and Joanne Loundes
February 1999-
ABSTRACT
In the majority of applied work on the determinants of individual wages, the existence of significant industry wage differentials is typically used as evidence against competitive wage theories. The contention of this paper is that such inter-industry wage premiums are generally a manifestation of unobserved individual heterogeneity. We control for individual heterogeneity by utilising a sample selection panel model, that is, a model that allows for endogenous employment outcomes whilst controlling for unobserved heterogeneity. Estimation of such a selectivity-corrected wage equation using panel data is more computationally demanding than the standard Heckman (1979) cross-section case. As a consequence, there are few empirical examples in the literature.
Melbourne Institute Working Paper No. 3/99
Innovation in Australian Workplaces: An Empirical Analysis Using AWIRS 1990 and 1995
by
Mark Rogers
February 1999-
ABSTRACT
This paper investigates the determinants of innovation in a panel of 698 Australian workplaces. Innovation activity is proxied by four types of workplace change. Data on these workplace changes comes from the 1990 and 1995 AWIRS. Workplaces are allocated into one of three innovation groups - dynamic, periodic or infrequent - depending on whether they (a) reported the change in both the 1990 and 1995 surveys, (b) reported the change in only one year, or (c) never reported the change. Various workplace characteristics and environmental factors are investigated using both cross tabulations and an ordered probit model. The results suggest that better employee-management communications are associated with more change, and that workplaces with higher levels of training undergo more change.
Melbourne Institute Working Paper No. 2/99
The Performance of Large Private Australian Enterprises
by
Simon Feeny and Mark Rogers
January 1999-
ABSTRACT
This paper provides an overview of the performance of large Australian-based private companies using a data set of 653 companies for the period 1993 to 1996. Four aspects of performance are considered: profitability, growth of revenue, export intensity and innovation. In addition, two important company characteristics - the debt to equity ratio and Tobin's Q - are considered.
Melbourne Institute Working Paper No. 1/99
The Performance of Small and Medium Enterprises: An Overview Using the Growth and Performance Survey
by
Mark Rogers
January 1999-
ABSTRACT
This paper provides an overview of the performance of small and medium private enterprises (SMEs) using the growth and Performance Survey. Three aspects of performance are considered: profitability, productivity and innovation. SMEs are defined as enterprises with less than 100 employees and their performance is contrasted with the performance of firms with more than 100 employees. Comparisons are made at the 2 digit ANZSIC level. SMEs as a group tend to have higher median profitability (than large firms) in manufacturing. SMEs tend have lower median labour productivity and higher median capital productivity than large firms. This reflects the fact that SMEs have lower capital to labour ratios. In addition, SMEs seem to rely more on leased capital.