Volume 12, Issue 1

A counterexample is presented to show that the sufficient condition for one transformation dominating another by the second degree stochastic dominance, proposed by Theorem 5 of Levy ( Stochastic dominance and expected utility: Survey and analysis , 1992), does not hold. Then, by restricting the monotone property of the dominating transformation, a revised exact sufficient condition for one transformation dominating another is given. Next, the stochastic dominance criteria, proposed by Meyer ( Stochastic dominance and transformations of random variables , 1989) and developed by Levy (1992), are extended to the most general transformations. Moreover, such criteria are further generalized to transformations on discrete random variables. Finally, the authors employ this method to analyze the transformations resulting from holding a stock with the corresponding call option.

The UK national minimum wage (NMW) is age-specific with the most important threshold at the age of 22 (lowered to 21 from 2010 onwards) when workers become eligible for the adult rate. The authors estimate the impact of this threshold on employment by means of a regression discontinuity analysis. Because this threshold is known in advance, they investigate the presence of discontinuities in both the level and the slope of employment probabilities at different ages around the threshold. Their results indicate that turning 22 does not significantly change the employment probability. However, they find a significant change in the slope of the probability of being employed around one year before, suggesting a smooth deterioration of employment probability before turning 22 rather than a sudden change at a particular age. This finding is confirmed by a differencein- difference analysis. However, no such effect can be found during the period preceding the introduction of the NMW.

In this paper, the authors analyze the differences in piracy rates from one country to another. Like previous papers on the topic, they find that more developed countries have lower incentives for pirating. Unlike previous papers, they find that the piracy rate is positively correlated with the tax burden rate but negatively correlated with the domestic market size and exports over GDP. The authors also separate the impacts of education and R&D on piracy, and find two effects with opposite signs. Moreover, they find that those countries with smaller, more efficient bureaucracies are likely to protect intellectual property more effectively. Finally, they show that the spread of access to the Internet is negatively correlated with the software piracy rate.

Imagine a region suffering from a widening income gap that becomes eligible for a generous transfer programme (the treatment). Imagine difference-in-differences analysis (DD) — a before-and-after comparison of the income-level difference — shows that the handicap has risen. Most observers would conclude to the policy’s inefficiency. But second thoughts are needed, because DD rests heavily on the validity of a key assumption: parallel paths in the absence of treatment; an assumption that is often violated. To cope with this problem, economists traditionally include polynomial (linear, quadratic…) trends among the regressors, and estimate the treatment effect as a once-in-a-time trend shift. In practice that strategy does not work very well, because inter alia the estimation of the trend uses post-treatment data. What is needed is a method that i) uses pre-treatment observations to capture linear or non-linear trend differences, and ii) extrapolates these to compute the treatment effect. This paper shows how this can be achieved using a fully-flexible version of the canonical DD equation. It also contains an illustration using data on a 1994–2006 EU programme that was implemented in the Belgian province of Hainaut.

Over the last three decades, Spanish female labor force participation (LFP) has tremendously increased, particularly, that of married women. At the same time, the income tax structure, the fiscal treatment of families, policies to reconcile family and work, and the education distribution of married couples have substantially changed. By contrast, the gender wage gap has remained quite stable. In this paper the author investigates the relevance of these factors in accounting for the growth in Spanish married women labor force participation from 1994 to 2008. For that purpose, she uses Kaygusuz’ model of household labor market participation, and data from Eurostat to calibrate the model and evaluate its performance. The model successfully accounts for the rise in aggregate female labor force participation, and matches hours worked by males and females. The model is also able to replicate the pattern of female labor force participation by age and education. From this analysis we can conclude that changes in tax rates and in the education distribution are the main factors behind the increase in female LFP during the late nineties, while changes in child care costs and earning profiles are mainly responsible for the subsequent growth in the 2000s.

This empirical study is based on nationally representative cross-sectional survey data gathered to investigate the effect of ethnic diversity on personal and family incomes in Bosnia and Herzegovina (BiH), a post-conflict society. The 1992–1995 conflict was harmful for ethnic diversity. Yet, two decades later, where it still exists, ethnic diversity gives rise to positive economic consequences. After controlling for other influences, the authors find lower probabilities of respondents in ethnically diverse neighbourhoods being in the lowest income categories but higher probabilities of being in medium and higher income categories. The largest effects are the reduced probabilities of respondents reporting no income, and are thus particularly relevant to poverty reduction. At the limit, their estimates imply an income gap of more than 20 per cent between a counter-factual completely heterogenous environment and a counter-factual completely homogenous environment. Policy makers in this post-conflict country, and in similar environments elsewhere, should take into consideration the economic costs of policies supporting ethnic homogeneity over diversity.

In this paper the authors set out to date-stamp periods of US housing price explosivity for the period 1830–2013. They make use of several robust techniques that allow them to identify such periods by determining when prices start to exhibit explosivity with respect to its past behaviour and when it recedes to long term stable prices. The first technique used is the Generalized supADF (GSADF) test procedure developed by Phillips et al. ( Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500 , 2011a), which allows the recursive identification of multiple periods of price explosivity. The second approach makes use of Robinson’s test statistic ( Efficient tests of nonstationary hypotheses , 1994), comparing the null of a unit root process against the alternative of specified orders of fractional integration. The analysis date-stamps several periods of US house price explosivity, allowing the authors to contextualize its historic relevance.

In this paper, the author argues that democracies increase tax revenues, based on the hypothesis that democracies increase direct and indirect taxes due to increased taxpayers’ compliance, diffusion of taxes between democracies and because voters in poor democracies are in favour of import taxes. The author tests this hypothesis using data on 74 countries from 1993 to 2012. His explanatory variable is a dichotomous democracy measure, but he alters his analysis from previous research by assuming that democracy is not an exogenous variable. Instead, he uses the theory of Huntington ( The third wave: Democratization in the late twentieth century , 1991) and the methodology of Acemoglu et al. ( Democracy does cause growth , 2014) about democratization waves. According to this theory, democratizations occur in regional waves; consequently, diffusion of demand for or discontent with a political system is easier to happen in neighbouring countries due to economic, political and historical similarities. This measure shows us that demand for or discontent with a given political system in a geographical area, influences a country’s political system and its tax choices. Using a 2SLS fixed effects model the author finds that democratization waves positively affect democracy, and in turn democracy increases direct and indirect taxes. These results remain the same using several robustness tests.

This article analyzes the sources of bank efficiency in Colombia over the period 2000–2011. To perform this research, the authors propose a score of bank efficiency using the directional distance function, which was estimated using data envelopment analysis. Additionally, they use an ordered probit panel regression to explore the effects of some market-related and bank-specific factors on efficiency. The results show that the noninclusion of non-performing loans (NPLs) leads to higher bank inefficiency indicators, which are significantly different from those obtained when NPLs are included. Further, they find that economic growth, capital risk, foreign and national banks, and account liquidity risk explain, in part, the efficiency of Colombian banks.

Given the agreed urgency of decarbonizing electricity and the need to guide decentralized private decisions, an adequate and credible carbon price appears essential. The paper models and quantifies the break-even carbon price for mature zero-carbon electricity investments. It appears an attractive alternative given the difficulty of measuring the social cost of carbon, but modelling shows it extremely sensitive to projected fuel prices, the rate of interest, and the capital cost of generation options, all of which are very uncertain. This has important implications, and justifies combining a carbon price floor with suitable long-term contracts for electricity investments.

Inspired by the extensive criticisms against the textbook fractional reserve theory, this paper revisits the mechanics of money creation process and complements the traditional focus on the reserve requirement by elaborating on the roles of three prudential regulations proposed in the Basel III accord. In particular, the authors consider such conditions where the financial markets are imperfect and suffer from various frictions that the commercial bank cannot readily modulate their liquidity and capital buffers, especially at an aggregate level or within a short period. Meanwhile, as a result of maturity mismatch and fundamental uncertainty, the credit and money creation activities inevitably add to the liquidity and insolvency risks faced by the bank. Under the assumptions that the levels of bank reserves, capital and government bonds are exogenously given, and that the concerned prudential regulations are always binding, the authors examine the determinants of the broad money aggregate and the money multiplier. Specifically, they find that 1) the money multiplier under Basel III is not constant but a decreasing function of the monetary base; 2) the determinants of the bank’s money creation capacity are regulation specific; 3) when multiple regulations are imposed simultaneously, the effective binding regulation and the corresponding money multiplier will vary across different economic states and bank balance sheet conditions.

Despite rising popularity of subjective well-being (SWB) as a proxy for utility, its relationship with income is still unresolved. Against the background of debates around the ‘Easterlin paradox’, this paper seeks a compromise between two positions: one that insists on individual relative income, and one that finds similarity between individual and aggregate levels. Proposing a model which puts the emphasis on the interaction between individual and aggregate-level factors, it argues that the effect of relative income on SWB varies across countries as a function of average income, in addition to a relatively small direct effect of the latter, in partial agreement with the two major positions. The model is tested crosssectionally on the data from the latest wave of World Values Survey. The results from hierarchical mixed-effect models confirm the main argument. But further examination reveals that there is still unaccounted variation especially in middle-income economies.

Historically, global urbanization has been an essential ingredient for national economic growth and beneficial social transformation. However, with the global urban population currently generating two-thirds of all carbon emissions, global policymakers are urging mayors and regional leaders to make difficult decisions to reduce the negative impacts of urbanization on the environment. The authors begin their examination of the implications of local and regional factors by applying the Dynamic Spatial Durbin Panel Data Model to empirically examine aspects of developing low-carbon strategies for the rapidly expanding size and number of the world’s urban areas. The results indicate that the contribution of urbanization to carbon emissions can be positively affected when regional policy makers collaborate to focus on spillover effects to simultaneously manage the scope, diversity, and complexity of economic and environmental issues from the perspective of creating a balance between rapid urbanization and relevant regional factors. Regional leaders can make a difference by creating both short-term goals and long-term strategies for maintaining low-carbon urbanization, nurturing regional coordination, monitoring and managing eco-friendly regional spillover effects, supporting low-carbon technology innovations, and maintaining optimal city size.

There have been attempts to resurrect the fiscal theory of the price revel (FTPL). The original FTPL rests on a fundamental compounded fallacy: confusing the intertemporal budget constraint (IBC) of the State, holding with equality and with sovereign bonds priced at their contractual values, with a misspecified equilibrium nominal bond pricing equation, and the ‘double use’ of this IBC. This generates a number of internal inconsistencies and anomalies. The FTPL is not about endogenous money issuance guaranteeing solvency of the State when public spending and taxes are exogenous. The problem is not about empirical content or the realism of the assumptions, but about flawed internal logic. The issue is not just of academic interest. If fiscal authorities were to take the FTPL seriously, costly policy accidents, including sovereign default and hyperinflation, could result. Interpreting the FTPL as an equilibrium selection mechanism in models with multiple equilibria does not help. Attempts by Sims to extend the FTPL to models with nominal price rigidities fail. The attempted resurrection of the FTPL fails.

Almost stochastic dominance is a relaxation of stochastic dominance, which allows small violations of stochastic dominance rules to avoid situations where most decision makers prefer one alternative to another but stochastic dominance cannot rank them. The authors first discuss the relations between almost first-degree stochastic dominance (AFSD) and the second-degree stochastic dominance (SSD), and demonstrate that the AFSD criterion is helpful to narrow down the SSD efficient set. Since the existing AFSD criterion is not convenient to rank transformations of random variables due to its relying heavily on cumulative distribution functions, the authors propose the AFSD criterion for transformations of random variables by means of transformation functions and the probability function of the original random variable. Moreover, they employ this method to analyze the transformations resulting from insurance and option strategy.

This paper uses information on all export transactions of goods by German firms with countries outside the European Union from 2009 to 2014 to document for the first time the patterns of export participation at the firm-good-destination level over time and to investigate the link between the duration of export patterns and characteristics of destination countries. It turns out that only 6.5 percent of all combinations were recorded in each year, while more than half of all patterns are only observed once. In line with theoretical hypotheses, the likelihood of permanent trade patterns increases within a firm with proximity and market size of destination countries.

This paper provides some elements to explain the observed takeover in some urban areas of a new kind of elite associated with new economy jobs, also known as “bourgeois bohème” (bobos). This takeover has been associated with greater investment in urban amenities and “clean” means of transport, with adverse effects on commuting time. The model allows us to explain those developments by productivity growth in the new economy, and by the differences in production processes between the new and old economies. The consequences of bobo takeover for house prices and employment of unskilled service workers are also discussed. A bunkerized equilibrium in which skilled workers in the old economy no longer reside in the city and have been replaced by service workers is studied. In such an equilibrium urban amenities are at their maximum and commuting flows have been eliminated. For some parameter values, bobos are better-off under bunkerization, in which case they may gain by favoring it with a “diversity” subsidy for unskilled workers to reside in the city.

This paper investigates profit-shifting behavior among multinational corporations (MNCs) in China. The authors exploit the flat-rate structure of China’s corporate income tax, along with its system of targeted, preferential rates, to estimate the relationship between profits and tax rates. Their sample consists of approximately 60,000 observations of foreign-owned MNCs from the years 2005–2009. Using the traditional approach of regressing before-tax profits on tax rates, the authors find evidence consistent with profit-shifting. However, this approach is suspect because the nature of China’s tax preferences makes it especially vulnerable to omitted variable bias. Accordingly, the authors employ finite mixture modelling to search for the existence of a group of profitshifting MNCs. While their analysis identifies two types of firms, subsequent investigation failed to produce any evidence linking these to profit-shifting behavior. Robustness checks exploiting the panel nature of the dataset, along with further investigation of investmenttax elasticities, confirm the authors´ null finding of profit-shifting. One reason for the lack of profit-shifting among Chinese MNCs may be that corporate tax rates were relatively low during this period.

The authors solve the IS puzzle for the G7 countries. They find that five of the G7 countries have the expected significant negative relationship between the output gap and the realrate gap; the time series of the remaining two show material deviation from expected IScurve behavior. The authors show that the observed time dependence of the interaction between the output and real-rate gaps can be represented in a parsimonious and practical manner using the theory of anelasticity that unifies partial-adjustment specifications of the IS curve.

Empirical studies have pointed out that monetary policy may significantly affect income and wealth inequality. To investigate the distributive properties of monetary policy the authors resort to an agent-based macroeconomic model where firms, households and one bank interact on the basis of limited information and adaptive rules-of-thumb. Simulations show that the model can replicate fairly well a number of stylized facts, especially those relative to the business cycle. The authors address the issue using three types of computational experiments, including a global sensitivity analysis carried out through a novel methodology which greatly reduces the computational burden of simulations. The result emerges that a more restrictive monetary policy increases inequality, even though this effect may differ across groups of households. In addition, it appears to be attenuated if the bank’s willingness to lend is lower. The overall analysis suggests that inequality can constitute valuable information also for central banks.

This article presents a dynamic pricing model of a retailer selling an inventory, accounting for consumer behavior. The authors propose an optimal control model, maximizing the intertemporal profit with consumers sensitive to the selling price and to a reference price. The optimal dynamic pricing policy is solved with Pontryagin’s maximum principle with a structural (general) demand function. The authors obtain an original pricing rule, which explicitly accounts for the impact of price and inventory on future profits. The dynamics of price do not have to imitate the dynamics of the reference price. Instead, the dynamics of price are tied to opposing effects linked to this reference price. The authors also discuss managerial implications with regards to behavioral pricing policies.

In a developing economy, the availability of storage infrastructure is considered essential for two purposes; the reduction of post-harvest losses resulting in food shortage, and allowing for gains from inter-temporal trade due to potential arbitrage opportunities arising out of volatility in food grain prices. This paper provides empirical evidence on a lesser studied impact of storage infrastructure, viz, agricultural yield. The author exploits potentially exogenous variation generated by the intensity of access to a capital investment subsidy program for construction and renovation of rural godowns in India to identify causal effects of better storage on yield. He finds that the program led to an increase in rice yield by 0.3 tons per hectare, approximately a 20% increase compared to the baseline. A potential mediating channel for such an effect would be reduced storage costs facilitating better investments in productive inputs. As supportive evidence, the author finds that fertilizer consumption increased by 21% in response to the intervention.

The aim of this paper is to analyse how Spanish taxpayers responded to the introduction of the dual personal income tax model in 2007. The authors estimate the elasticity of taxable income (ETI) with respect to the marginal net tax rate for different groups of taxpayers by sex, marital status and age, separating the substitution effect from the income effect. For the empirical analysis, the authors use microdata from the Spanish personal income tax return panel disseminated by the Spanish Institute of Fiscal Studies. The main results show that the 2007 tax reform resulted in a range of elasticity values from 0.41 to 0.43, while the estimated income effect yields a negative value of –0.18. The results for the different taxpayer groups are as follows: the removal of retired people from the sample significantly reduces the ETI; elasticity is higher for women than for men; single people have a considerably higher elasticity than married taxpayers; and the ETI decreases with age. Additionally, the authors find that the marginal cost of public funds increased after the reform, and the top marginal tax rate is above optimal.

Understanding what moves the Phillips curve is important to monetary policy. Because the Phillips curve has experienced over time movements similar to those characterizing the Beveridge curve, the authors jointly analyze the two phenomena. They do that through an agent-based macro model based on adaptive micro-foundations, which works fairly well in replicating a number of stylized facts, including the Beveridge curve, the Phillips curve and the Okun curve. By Monte Carlo experiments they explore the mechanisms behind the movements of the Beveridge curve and the Phillips curve. They discovered that shifts of the Beveridge curve are best explained by the intensity of worker reallocation. Reallocation also shifts the Phillips curve in the same direction, suggesting that it may be the reason behind the similarity of the patterns historically recorded for these two curves. This finding may shed new light on what moves the Phillips curve and might have direct implications for the conduction of monetary policy.

The extensive harm caused by the financial crisis raises the question of whether policymakers could have done more to prevent the build-up of financial imbalances. This paper aims to contribute to the field of regulatory impact assessment by taking up the revived debate on whether central banks should use the interest rate to directly respond to the build-up of financial sector imbalances, i.e. ‘lean against the wind’ or not. Currently, there is no consensus on whether monetary policy is, in general, able to support the resilience of the financial system or if this task should better be left to the macroprudential approach of financial regulation. The author aims to shed light on this issue by analyzing distinct policy regimes within an agent-based computational macro-model with endogenous money. He finds that policies that make use of their comparative advantage lead to superior outcomes concerning their respective intended objectives. In particular, he shows that ‘leaning against the wind’ should only serve as first line of defense in the absence of a prudential regulatory regime and that price stability does not necessarily mean financial stability. Moreover, macroprudential regulation as unburdened policy instrument is able to dampen the build-up of financial imbalances by restricting credit to the unsustainable high-leveraged part of the real economy.

The aggregate saving indicator does not directly reflect changes in individuals’ microeconomic behavior. From the official statistics’ point of view, households choose between spending, which generates additional income and consumption in the economy, and setting money aside, which does not. Formally, households may not (if the authors disregard housing investment) choose to save, because the aggregate saving statistical indicator is a residual concept defined as the ensuing difference between aggregate disposable income and consumption. It measures the change in net worth, which, in a closed economy, may only be generated by the production of capital goods and an increase in inventories. Using an agent-based model, the authors show that shocks unrelated to structural changes in households’ behavior may generate positively correlated fluctuations in the aggregate saving rate, productivity growth and lending. Meanwhile, a genuine increase in the average individual propensity to save is not necessarily associated with a higher aggregate saving rate.

Which level of inflation should Central Banks be targeting? The authors investigate this issue in the context of a simplified Agent Based Model of the economy. Depending on the value of the parameters that describe the behaviour of agents (in particular inflation anticipations), they find a rich variety of behaviour at the macro-level. Without any active monetary policy, our ABM economy can be in a high inflation/high output state, or in a low inflation/low output state. Hyper-inflation, deflation and “business cycles” between coexisting states are also found. The authors then introduce a Central Bank with a Taylor rule-based inflation target, and study the resulting aggregate variables. The main result is that too-low inflation targets are in general detrimental to a CB-monitored economy. One symptom is a persistent under-realization of inflation, perhaps similar to the current macroeconomic situation. Higher inflation targets are found to improve both unemployment and negative interest rate episodes. The results are compared with the predictions of the standard DSGE model.

This paper presents a simulative model of a financial market, based on a fully operating order book with limit and market orders. The heterogeneity of traders is characterized not only with regards to their trading rules, but also by introducing a behavioral individual risk aversion and a learning ability influencing the process of expectations formation. Results show that individual learning may play a role in stabilizing the aggregate market dynamics, whereas the risk aversion has, counterintuitively, the opposite effect.

Various phenomena related to socio-economic aspects of our daily life exhibit equilibrium densities characterized by a power law decay. Maybe the most known example of this property is concerned with wealth distribution in a western society. In this case the polynomial decay at infinity is referred to as Pareto tails phenomenon (Pareto, Cours d’économie politique , 1964). In this paper, the authors discuss a possible source of this behavior by resorting to the powerful approach of statistical mechanics, which enlightens the analogies with the classical kinetic theory of rarefied gases. Among other examples, the distribution of populations in towns and cities is illustrated and discussed.

In this paper the authors extend the macroeconomic agent-based model described in Delli Gatti, D., Desiderio, S., Gaffeo, E., Cirillo, P. and Gallegati, M. (Macroeconomics from the bottom-up , 2011) with the inclusion of a bank-bank network that mimics real-world dynamics of interbank markets. They also introduce a public sector and other modifications in order to carry out different policy experiments. More specifically, they test the implementation of a monetary policy by means of a standard Taylor rule, an unconventional monetary policy (i.e. helicopter drop) and a set of macroprudential regulations. The authors explore the properties of the model for such different scenarios. The results shed some light on the effectiveness of monetary and macroprudential policies in an economy with an interbank market during times of crises.

Although European economic history provides essentially no support for the view that education of the general population has a positive causal effect on economic growth, a recent paper by Becker, Hornung and Woessmann ( Education and Catch-Up in the Industrial Revolution , 2011) claims that such education had a significant impact on Prussian industrialisation. The author shows that the instrumental variable BHW use to identify the causal effect of education is correlated with variables that influenced industrialisation but were omitted from their regression models. When this specification error is corrected, and a systematic model selection procedure is used, the evidence shows that education of the general population had, if anything, a negative causal impact on industrialisation in Prussia.

This study uses Monte Carlo experiments to produce new evidence on the performance of a wide range of panel data estimators. It focuses on estimators that are readily available in statistical software packages such as Stata and Eviews, and for which the number of cross-sectional units (N) and time periods (T) are small to moderate in size. The goal is to develop practical guidelines that will enable researchers to select the best estimator for a given type of data. It extends a previous study on the subject (Reed and Ye, Which panel data estimator should I use? 2011), and modifies their recommendations. The new recommendations provide a (virtually) complete decision tree: When it comes to choosing an estimator for efficiency, it uses the size of the panel dataset (N and T) to guide the researcher to the best estimator. When it comes to choosing an estimator for hypothesis testing, it identifies one estimator as superior across all the data scenarios included in the study. An unusual finding is that researchers should use different estimators for estimating coefficients and testing hypotheses. The authors present evidence that bootstrapping allows one to use the same estimator for both.

In this paper the author analyzes the behavior of exchange rates expectations for four currencies, by considering a re-calculation and an extension of Resende and Zeidan (Expectations and chaotic dynamics: empirical evidence on exchange rates, Economics Letters , 2008). Considering Lyapunov exponent-based tests results, they are not supportive of chaos in exchange rates expectations, although the so-called 0–1 test strongly supports the chaos hypothesis.

President Trump’s actions on trade have not quite matched his rhetoric, but the worst may be to come. Though the political opposition to his protectionism is formidable, so are his conviction and determination and he possesses a wide array of instruments to pursue his goals. The trade doctrine he has espoused makes for trade policy instability both at home and abroad. It may lead to a large deterioration in the operating environment of international business. America’s trade-dependent industries and her trading partners should not wait. They need to anticipate and deter the administration’s actions. Policies must be adjusted to minimize the damage to world trade.

The ongoing transformation of the world’s energy systems requires an international monitoring to evaluate the transformation processes and to identify transferable leading practice policies. For this purpose, an independent scientific expert commission should be established for the G20. By actively involving political decision-makers in the discussion of the final results a broad basis of support can be ensured. The Climate and Energy Action Plan for Growth agreed at the G20 Summit in Hamburg recognizes explicitly the main proposals of this paper. The paper provides a broader discussion how to assist the G20’s energy transformation processes and describes steps towards implementation.

The authors recommend that the G20 target innovative green-technology SMEs as an opportunity to promote financial de-risking while addressing Paris Agreement commitments and UN Sustainable Development Goals. This should be achieved by creating signals for private investors through: (1) a reporting system that can help monitor the scale-up of green-technology SMEs; (2) the use of public funds to signal innovative green-technology SMEs to investors; and (3) the inclusion of SMEs in the design of green finance platforms. By implementing these recommendations, the G20 will ensure that innovative, low-carbon SMEs become attractive, low(er)-risk investment opportunities for the private sector.

The world is economically integrated, but socially fragmented. Thus economic progress can become decoupled from social progress. As long as social progress is closely linked to and flows from economic progress, it is appropriate for government to focus attention on economic policy to promote economic growth. Indeed, for at least the first four decades of the postwar period, there are good reasons to believe that this was broadly the case for most developed economies. Then, starting in the 1980s and accelerating after the financial crisis of 2008, we argue that social progress in these countries became progressively decoupled from economic progress. The result has been the phenomenon of misery in the midst of plenty: despite continued economic growth, we witness rising dissatisfaction among large segments of the public, declining trust in most public and private institutions, rising nationalism and populism, rising discontent with globalization, increasing unwillingness to accept migrants and refugees, and growing ethnic and religious conflicts. This paper argues that the prevailing thinking about government policy is an outgrowth of the Age of Coupling. In the Age of Decoupling, however, a radically different approach to government policy is required, one that focuses not just on material wellbeing and its distribution, but also on promoting people’s sense of empowerment and social solidarity.

The G20 is at a crossroads. It can retreat to a reaffirmation of nationalisms or commit to a new form of multilateralism, guided by the primacy of social prosperity and the principle of subsidiarity. The G20 has traditionally focused on economic policy issues – economic growth and financial stability. This is appropriate as along as social progress is closely tied to economic progress, for then the achievement of material prosperity will promote human flourishing. But when economic and social progress becomes decoupled – as we commonly observe through growing income disparities, growing disempowerment and disintegrating social affiliations – then an exclusive preoccupation with economic policy issues is unlikely to quell the widespread public discontent. On this account, it is appropriate for the G20 objectives to be broadened to include resilient, inclusive and sustainable prosperity. This wider conception of human needs calls for a new worldview to underlie G20 policymaking, one that generates social acceptance for multilateral cooperation in tackling multilateral problems, while allowing different countries to nourish different national, cultural and religious identities.

To promote digital transformation, equal emphasis needs to be placed on digital skills development as to infrastructure development. Integral to investment in digital skills development is the subsequent management and evaluation of digital training programmes. This paper assesses mechanisms to ensure digital training programmes are adequately managed using a standardized data collection framework to measure an internationally accepted digital literacy index. Such an index requires an agile definition of digital literacy, responsive to the fluid nature of the digital economy. The paper also explores the extent to which a G20 advisory body may inform a nationally representative data collection strategy within the context of a data collection process that is cognizant of the evolving demands of businesses and users alike.

The digital divide in general, and between women and men in particular, is a manifestation of exclusion, poverty and inequality, and is likely to continue because of the effects of unemployment, poorly functioning digital skilling programmes and socio-cultural norms in some economies, and further depriving women equal access to digital services. Digital skills provide the poor a catalyst to break out of the cycle of poverty and empower themselves. This paper proposes a three-pronged digital skills strategy that will be required for developing countries to break out of the digital divide trap: (1) Monitor the evolving set of digital skills required for employment, (2) incorporate a holistic digital skills development strategy into national education programmes, and (3) contextualize skilling programs within prevailing socio-cultural norms that will shape the uptake and impact of digital skilling programs.

While popular opinion often pictures FDI flowing in search of lowest-wage, lowestskilled activities in emerging markets, actual FDI to such countries increasingly addresses medium to high-skilled manufacturing sectors. Such FDI might be called “Quality FDI” that contributes to the creation of decent and value-adding jobs, enhancing the skill base of host economies, facilitating transfer of technology, knowledge and know-how, boosting competitiveness of domestic firms and enabling their access to world-wide markets, as well as operating in a socially and environmentally responsible manner. To attract such quality FDI, host countries need mindfully tailored policies. Recent research offers evidence for strategies in developing countries that successfully turned FDI into such quality FDI.

Digitalization offers a variety of opportunities for female empowerment and for a more equal female participation in labor markets, financial markets, and entrepreneurship. Currently, digitalization seems to favor female labor force, since women face on average lower risk of being replaced by machines, as compared to men. Women’s often superior social skills represent a comparative advantage in the digital age, and this is particularly so when social skills are complemented with higher education and advanced digital literacy. However, the same barriers and deficits that obstruct women’s current advancement in many countries may deprive them from many beneficial opportunities in the digital age, including new entrepreneurial opportunities. Major efforts by policy makers are required to invalidate these barriers. New digital technologies should be used more decisively to achieve the goal of gender equality.

Tension is growing between the interests of part of the middle classes that are in decline in the mature economies and the rising ones in emerging markets. The aim of the public policies proposed in this paper is to impede such a clash by avoiding protectionism and de-globalisation, fostering inclusive technological innovation, compensating the losers of globalisation in developed economies and reassuring the winners in emerging economies. Furthermore, it argues that the G20 concept of ‘inclusive growth’ must overcome the challenges prompted by reduced inequalities between countries, growing inequality within countries and the disruptive impact that accompanies technological innovation.

In 2015, worldwide forced displacement was at its highest recorded level, surpassing 65 million. Out of this number, nearly 20 million people are those who fled their countries of origin to seek refuge in third countries. International responsibility sharing in terms of hosting the historical levels of refugee flows has so far been inadequate. Today, lowerand upper-middle income countries host 65 percent of the world’s refugees, mostly in urban settings. Whereas refugee camps provide access to basic needs such as shelter, food and healthcare, displaced individuals living in urban settings have to sustain their needs through their own means. In turn, this requires access to labor market.

The recent surge in the number of forcibly displaced persons who cross international borders in search of protection has prompted interest in evaluating policies that achieve the possible “end points” of the phenomenon. These are the integration of the forcibly displaced persons in the country of destination, relocation in a third country, and return to the country of origin. The focus of this paper is on the third aspect, and more specifically on the appropriateness of return policy viewed from an economic perspective. Although the vast majority of forcibly displaced people is found in developing countries, the object of this paper are the return policies of advanced countries.

Ensuring ‘health for all’ remains a persistent and entrenched global challenge. G20 governments are in a position to elevate the priority accorded to health, and acknowledge the centrality of health to attaining the SDGs. The authors call on G20 leaders to build nations that are more inclusive and less divided, by: adopting a Health- in-All-Policies approach, prioritizing the most vulnerable, engaging citizens in policy processes, and filling health data gaps.

Digital technologies will both create new jobs and replace existing ones. To cope with increasing labor market dynamics in the digital age, workers will have to become more mobile across jobs, occupations, and industries. The relative importance of their job-specific skills will decrease while that of their general skills applicable to various occupations will increase. The G20 should establish national adult training programs that focus on improving workers’ general skills, specifically their theoretical, non-cognitive, and digital skills. These general skills will enable workers to work with technology instead of competing with it, thereby increasing their job mobility and employability.

Severe recessions and financial crises are frequent. Their effect on the economy is persistent and often exceeds initial projections. They can also be a strong driver of widening inequality. Therefore it is important that measures be taken to minimize the risk of such events while strengthening the potential for economies to innovate and prosper (Phelps, Mass Flourishings: How Grassroots Innovation Created Jobs, Challenge and Change , 2013). An economy’s resilience to crises and recessions can also be strengthened. Minimizing risks requires the accurate monitoring of home-grown vulnerabilities in realtime; coping with the consequences means identifying and putting in place policy settings and mechanisms that can help absorb the impact of a severe downturn and facilitate a swift rebound of economic activity. Strengthening resilience will also provide a key contribution to solving the global problems of rising populism, nationalism and protectionism.

The wave of digital-industrial innovation which begins to disrupt vast sectors of the global economy has fueled fear of a potential adverse impact on jobs and wages. This paper argues that digitalindustrial innovations make human capital more important than ever and the focus needs to shift to the complementarity between new technologies and human abilities. In particular, more effort should be devoted to (i) understanding what new skills will be needed, and how existing jobs will change; (ii) upgrading education and professional training schemes; (iii) reforming labor market institutions to support a future where a larger share of workers will change jobs and employers more frequently; (iv) reforming social benefits systems and bolstering social safety nets to smooth the economic transition and cushion the impact on the worst-affected workers. This paper presents an analysis of the challenges, addresses the key areas of action, and puts forward specific proposals, including policy actions, industry initiatives, and further research projects. The authors argue that the G20 could and should champion a comprehensive approach to leverage digital-industrial innovations for faster job creation and growth, with initiatives to re-align demand and supply of skills, labor market reforms, redesigned social safety nets, measures to promote digital innovation and facilitate the adoption of skills-augmenting technologies, and strengthened private sector training programs.

In this paper the authors recall the history of Jubilee debt cancellations, emphasizing what their social purpose was at that time. They note that it would not be possible to copy that procedure exactly nowadays, primarily because most debt/credit relationships are intermediated via financial institutions, such as banks, insurance companies, etc., rather than by governments or wealthy families directly. But they argue that the underlying social purpose of such Jubilees – to keep debt within the reasonable ability to be paid without social and economic polarisation – could be recreated via alternative mechanisms, and they discuss the politico-economic arguments for, and against, doing so.

In order to fulfill multiple sustainable development targets, most prominently human development, poverty eradication and climate change mitigation, African countries need infrastructure that cover basic needs while at the same time promote industrialization and value creation. G20 countries can support African countries by: (1) aligning and cementing the G20 Agenda for Africa with African initiatives, SDGs and the Paris Agreement, (2) mitigating economic risks of climate change through supporting low carbon development pathways in Africa, (3) incentivizing low carbon development by phasing out subsidies and eventually putting a price on carbon and (4) creating and enabling a level playing field for low carbon technologies, which includes integrated strategies for de-risking renewable energy investments.

The authors propose a policy compact to achieve more inclusive growth in G20 countries so that economic growth regains the ultimate sense of improving all people’s lives. Guiding principles are: 1) prosperity is not just about income but about all relevant outcomes of well-being and capabilities to overcome the initial social disadvantage; 2) it is also about including people in participatory decision-making to enhance their dignity and control over their lives; 3) excluding people from reaping the benefits of growth will thwart social cohesion and well-being; 4) integrated policy approaches are needed to achieve inclusive growth, across policy domains and between national and global actions, including responsible management of migratory movements. Concrete policy actions are described that span education, labor, fiscal instruments, public and private governance.

Argentina’s G20 presidency has emphasized the need to improve soil management and sustainably increase agricultural productivity to achieve an inclusive and resilient food future. While increased agricultural productivity can improve economic welfare and help address food security problems by benefiting both consumers and producers simultaneously, it also must address the depletion of already scarce natural resources. In the context of a changing climate, sustainable and resilient agricultural production forms a major cornerstone of both adaptation and mitigation strategies. The global community needs to have the proper tools with which to monitor sustainable agricultural productivity gains, identify countries and sectors lagging behind, and commit R&D efforts accordingly to address the challenges ahead. As such, it is suggested that 1) an international consortium should monitor agricultural total factor productivity (TFP) to provide international comparisons and track performance over time; 2) the G20 should acknowledge and address the issue of sustainable productivity measurement, and; 3) the G20 should support more in-depth research into the relationship between agricultural TFP and agricultural R&D.

This analysis lies in the stream of research related to the quantitative assessment of the Sustainable Development Goals (SDGs), adopted by the United Nations at the end of September 2015. We assemble a composite multi-dimensional index and a worldwide ranking of current sustainability. This makes it possible to assess the strengths and weaknesses of today’s socio-economic development, as well as environmental criticalities worldwide. The methodology goes through the following steps: screening of indicators capable of addressing the UN’s SDGs; data collection from relevant sources; organization into three pillars of sustainability (economy, society, and environment); normalization to a common metrics; aggregation of the 26 indicators into composite indices by pillars as well as in a multi-dimensional index. The final ranking includes 139 countries. Sweden, Norway and Switzerland are at the top of the ranking.

To reduce SDG tradeoffs in infrastructure provision, and to inform searches for SDG synergies, the authors show that roads’ impacts on Brazilian Amazon forests varied significantly across frontiers. Impacts varied predictably with prior development – prior roads and prior deforestation – and, further, in a pattern that suggests a potential synergy for roads between forests and urban growth. For multiple periods of roads investments, the authors estimate forest impacts for high, medium and low prior roads and deforestation. For each setting, census-tract observations are numerous. Results confirm predictions for this kind of frontier of a pattern not consistent with endogeneity, i.e., short-run forest impacts of new roads are: small for relatively high prior development; larger for medium prior development; and small for low prior development (for the latter setting, impacts in such isolated areas could rise over time, depending on interactions with conservation policies). These Amazonian results suggest ‘SDG strategic’ locations for infrastructure, an idea the authors note for other frontiers while highlighting major differences across frontiers and their SDG opportunities.

The UN’s Sustainable Development Goals (SDGs) in their generalized form need to be further reflected in order to identify synergies and trade-offs between their targets, and to apply them to concrete nations and regions. Explorative qualitative cause and effect modeling could serve as an approach for considering crucial factors to better understand the interrelations among the SDGs, eventually leading to more informed concrete measures that are able to cope with the SDG’s inherent obstacles. This work describes a model that could serve as a template for concrete application. The generalized model already points to some potential trade-offs. Its first analysis cautiously raises doubts that some possible assumptions behind the SDGs might overlook systemic boundaries. For example, an undifferentiated increase of productivity contradicts a lessened environmental impact and need for resources in light of potential planetary boundaries. However, the model was developed as a starting point and requires modification for its application to a concrete region.

This paper lays out a replication plan for the influential paper by Klump et al. ( Factor Substitution and Factor-augmenting Technical Progress in the United States: a Normalized Supply-side System Approach 2007) on using a normalized CES supply-side system approach to estimate the value of the elasticity of substitution between factors of production and identify the growth patterns for biased technical progress. The authors begin with a general discussion of basic principles on carrying out a replication study. Further, they outline key steps to follow to replicate the chosen paper and establish criteria that can be used to determine if the replication confirms or disconfirms the original findings. This paper contributes to the increased interest in improving replications in economics research.

In this paper, the author describes different ways in which one can replicate a paper and illustrate them by applying them to the study by Choi and Varian (Predicting the Present with Google Trends, The Economic Record 2012).

The author argues that researchers should do replications using preanalysis plans. These plans should specify at least three characteristics that would act as stopping rules for the replicator: (1) how much flowtime the replicator will spend, (2) how much money and effort (working hours) the replicator will spend, and (3) the intended results and the precision of the replication necessary for “success”. A researcher’s replication will be “successful” according to context-specific criteria in the preanalysis plan. The author also argues that the two biggest drawbacks of preanalysis plans—(1) that they discount unexpected but extraordinary findings and (2) that they make it difficult for researchers to prespecify all possible actions in their decision trees—are less relevant for replications compared with new research. He concludes with describing a preanalysis plan for replicating a paper on housing demand and household formation.

The importance of replicating economic research to improve the validity of findings has been the topic of an ongoing discussion, but there is not a consensus about what that means in practice. This article discusses a rationale for replicating a study and offers a plan of how one might go about approaching a replication of an actual study.

Replication research is a valuable, yet often misunderstood, tool for increasing our understanding of promising research findings. In this short paper the authors discuss their principles for conducting replication research, explain how they chose a candidate study for replication, describe their replication analysis robustness checks, and give an overview of their approach to interpreting replication results. They also describe some of their lessons learned after working in replication research for over six years.

In 2011, the Annual Report of the Editor of the American Economic Review reported that the journal’s data-code archive was functioning well, and no changes were made to the archive rules. This was based on an audit of the archive that the Editor had commissioned. In point of fact, all was not well with the archive: the archive did not support the publication of reproducible research. The rules for the archive should have been changed and were not; thus the American Economic Review continued to publish articles that were not reproducible. The cause of reproducible research was set back many years. Currently it appears that the AER intends to reproduce articles prior to publication; this would be a horrible mistake.

Replication research can be used to explore original study results that researchers consider questionable, but it should also be a tool for reinforcing the credibility of results that are important to policies and programs. The challenge is to design a replication plan open to both supporting the original findings and uncovering potential problems. The purpose of this paper is to provide replication researchers with an objective list of checks or tests to consider when planning a replication study. The authors present tips for diagnostic replication exercises in four groups: validity of assumptions, data transformations, estimation methods, and heterogeneous impacts. For each group, the authors present an introduction to the issues, a list of replication tests and checks, some examples of how these checks are employed in replication studies of development impact evaluations, and a set of resources that provide statistical and econometric details. The authors also provide a list of don’ts for how to conduct and report replication research.

‘Statistical adequacy’ is an important prerequisite for securing reliable inference in empirical modelling. This paper argues for more emphasis on replication that specifically assesses whether the results reported in empirical studies are based on statistically adequate models, i.e., models with valid underpinning statistical assumptions that pass relevant diagnostic tests for misspecification. A replication plan is briefly outlined to illustrate what this would involve in practice in the context of a specific study by Acemoglu, Gallego and Robinson (Institutions, human capital, and development, Annual Review of Economics , 2014).

This paper examines the impact of income growth and income inequality on household saving rates and payoffs in a non-cooperative game where each player’s payoff depends on her present and future consumption and her rank in the present consumption distribution. The setting is a pooling equilibrium with three clusters of successive income groups, each cluster having its own present-consumption standard and rank in the present-consumption distribution. In this way the analysis addresses the saving behaviour and welfare of three social classes: the lower, middle and upper class. Explanations are found for the Easterlin paradox and the Kuznets consumption puzzle and it is concluded that rank concerns tend to strengthen the case for more income equality and weaken the standard effect of inequality on aggregate saving.

The author reviews recent studies that investigate how social status concerns influence individual preferences for redistribution and impact the design of optimal tax policies. He focuses on two aspects: the relevant dimension over which relative concerns are defined and the different formalizations of the notion of social status that the authors provide.

In this article the author considers an economy in which individuals are matched into pairs and the desirability of an individual depends on her position on the distribution of wealth. He assumes that individuals show their relative standing by consuming a conspicuous good and he shows that there exist different social norms supporting different matching arrangements. In addition, individuals have to vote over a redistributive policy and the author shows that, despite the desirability of the full redistributive outcomes, under some economic conditions the medium class is able to match with the high class in exchange of a minimum level of redistribution of wealth which keeps the low class far from economic and social opportunities.