We analyse the determination of taxes on harmful goods when consumers have selfcontrol problems. We show that under mild conditions, the socially optimal tax rate exceeds the average distortion caused by self-control problems. Further, we show that in most cases the tax rate chosen in political equilibrium is below the socially optimal level. JEL Classification: H21, H30, D72.
We develop a dynamic multi-region model, with ‡uctuating regional house prices, where an owner-occupied household's location choice depends on its current wealth and its current type and involves both consumption and investment considerations.The relative strength of the consumption motive and the investment motive in the location choice determines the equilibrium pattern of residential sorting, with a strong investment (consumption) motive implying sorting according to the type (wealth). The model predicts a negative relation between the size of house price ‡uctuations and the degree of residential sorting in the type dimension. Also, movers should be more sorted than stayers in the type dimension. These predictions are consistent with evidence from US metropolitan areas when income, education and age are used as proxies for household type.
We investigate the causes of the Finnish Great Depression, 1990Depression, -1993. We find that the collapse of the overheated financial and banking sectors starting in 1989 was the trigger of the economic crisis. Foreign shocks, which include the collapse of trade with USSR in 1991, can account for at most about half of the slump, and these shocks occurred only when the economy was already in free fall. Also, the deleveraging and restructuring process of the financial system substantially prolonged the subsequent recovery.Our methodology involves estimating a structural VAR model with sign and exogeneity restrictions.Importantly, we are able to distinguish between financial shocks affecting the demand for intermediated loans and those shifting the loan supply curve. Hence we also contribute to the discussion on which financial shocks actually matter.
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