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Office: Department of Economics                Monash University
               Caulfield Campus
               H433 Department of Economics
               900 Dandenong Road
               Caulfield East, VIC 3145
Office Phone: +61 3 9903 4518

Selected Paper Abstracts:

Marriage and Economic Development in the Twentieth Century. (The previous title was "Structural Change and the Rise and Fall of Marital Unions.")
There is an extensive literature discussing how individuals’ marriage behavior changes as a country develops. However, no existing data set allows an explicit investigation of the relationship between marriage and economic development. In this paper, we construct new cross-country panel data on marital statistics for 16 OECD countries from 1900 to 2000, in order to analyze such a relationship. We use this data set, together with cross-country data on real GDP per capita and the value added share of agriculture, manufacturing and services sectors, to document two novel stylized facts. First, the fraction of a country’s population that is married displays a hump-shaped relationship with the level of real GDP per capita. Second, the fraction of the married correlates positively with the share of manufacturing in GDP. We conclude that the stage of economic development of a country is a key factor that affects individuals’family formation decisions.

Does Home Production Drive Structural Transformation?
Using new home production data for the U.S., we estimate a model of structural transformation with a home production sector, allowing for both non-homotheticity of preferences and differential productivity growth in each sector. We report two main findings. First, the estimation results show that home services have a lower income elasticity than market services. Second, the slowdown in home labor productivity, started in the late 70s, is a key determinant of the rise of market services. Our counterfactual experiment shows that, without the slowdown, the share of market services would be lower by 5.8% in 2010.

Public-private Mix of Health Expenditure: A Political Economy and Quantitative Analysis
This paper constructs a simple model to examine decisions on public and private health spending under majority voting. In the model, agents with heterogeneous incomes choose how much to consume and spend on health care and vote for public health expenditure. The health status of an agent is determined by a CES composite of public and private health expenditure. The existence and uniqueness of the voting equilibrium are established. A quantitative exercise reveals the importance of the relative effectiveness of public and private health expenditure and their substitutability in determining the public-private mix of health expenditure and in accounting for the observed differences across a sample of 22 advanced democratic countries.

What Has Driven the Great Fertility Decline in Developing Countries since 1960? (Online Appendix)
Several developing countries are currently experiencing a significant fertility decline; the advent of which is likely to bring these countries large economic benefits since high fertility is considered to be among the most important causes of underdevelopment. However, academic economists have paid not much attention to this transition in developing countries. This paper seeks to explain the transition by infant mortality, urbanization, income, culture and educational attainment of females in their fertility age using annual data for 92 developing countries over the period 1960-2010. External instruments are used to deal with endogeneity. The results give intriguing insights into the demographic transition in the developing world.

Economic Freedom and Productivity Growth in Resource-rich Economies
Governments in resource rich economies typically receive revenues from natural resources and are often characterized by substantial interference in the private sectors, weak law enforcement and extensive regulations. To examine how the impact of natural resource rents on productivity growth depends on free market institutions, this paper uses the Fraser Institute’s Economic Freedom Index and its five sub-indices: government size, legal system and property rights, access to sound money, freedom to trade internationally, and regulation of business, labour and credit markets. Using data from 99 sample countries over the period 1970-2010, the system GMM estimates suggest that the negative growth effects of resource rents are significantly lower in countries with greater economic freedom.

The Role of Food Choices in a Model of Endogenous Health Shocks
This paper presents an environment where agents' consumption choices affect the distribution of future health shocks and studies its consequences for health and non-health outcomes. Choosing a healthier diet is a form of preventive medicine or self-protection which reduces morbidity rates, whereas the use of medical services after an agent is sick is a form of self-insurance. The model rationalizes why agents become overweight even though they are fully aware of the adverse health consequences associated with obesity. It also allows us to explicitly consider the role of preventive medicine which is key in explaining why poor agents are more overweight than the rich, eat better diets and spend more on medical services accounting for at least 80% of the U.S. cross-sectional data.

Monetary and Fiscal Policies When All Income is Taxed: Implications for (In)Determinacy
In this paper we explore the consequences of taxing interest income from nominal bonds. We show that this minimal departure drastically changes the properties of equilibrium. Specifically, the stability properties of this economy depend on both the slope and the intercept of the monetary and fiscal rules and the set of policy rules that generate determinate equilibria is larger than originally thought. Moreover, the economic environment is able to generate a Laffer curve even though tax policies do not change the amount of future resources. We show that having a fiscal rule that depends on previous debt and taxing interest income are key aspects in generating multiplicity of steady states and the non-decoupling behavior of the economy. Ignoring the tax treatment of interest income generated by bond holdings is not as innocuous as it may seem.

Public-Private Mix of Health Expenditure: An OLG Political Economy Model and A Quantitative Analysis
This paper constructs a simple overlapping generations model to examine how the choice of public and private health expenditure is affected by preferences and economic factors under majority voting. In the model, agents with heterogeneous income decide how much to consume, save, and invest in private health care, and vote for the income tax to be used to finance public health. Agents's survival probabilities are endogenously determined by a CES composite of public and private health expenditure. For the two special cases that public and private health are complements or perfect substitutes, we show that the voting equilibrium is unique and locally stable. For the general case, we calibrate the model to Canadian data to conduct a quantitative analysis. Our results suggest that the public-private mix of health expenditure is quite sensitive to the degree of substitutability between private and public health and the relative effectiveness of public and private health. Using a sample of advanced democratic countries, we further infer these two parameters and construct the shares of public health in total health expenditure for each country, and find that the predicted values match the data quite well.

The Composition of Government Expenditure: Economic Conditions and Preferences
This paper examines the question of why the composition of government expenditure differs among democratic countries and to what extent it may be explained by differences in economic conditions or preferences. A simple overlapping generations model, which allows for a range of relevant factors, is constructed to examine the division of expenditure on public goods and a transfer payment under majority voting. The model yields a closed-form solution for the majority choice of the expenditure ratio. An empirical examination suggests that income inequalities play a minor role while different preferences for public goods reflecting cultural differences across countries may play an important role in accounting for the substantial variations in expenditure patterns.

Inequality Aversion and the Optimal Composition of Government Expenditure
This paper examines the choice of government expenditure on public goods and transfer payments, in the form of a pension, in an overlapping generations model. Government expenditure is tax-financed on a pay-as-you-go basis. A utilitarian judge chooses expenditures to maximize a social welfare function. The nonlinear solution is found to involve the ratio of a welfare-weighted average income, which depends on the inequality aversion of the judge, to arithmetic mean income. An approximation for this ratio is found which produces explicit solutions for the optimal composition. The result is used to obtain an indication of `implicit' inequality aversion for a range of countries.

Modelling the composition of government expenditure in democracies
This paper considers majority voting over the ratio of transfer payments to per capita expenditure on public goods. A model is constructed in which individuals vote for government expenditure on a public good, for a given income tax rate. Labour supply is endogenous. The equilibrium ratio of transfers to public good expenditure is a function of the ratio of median to mean wages and the tax rate. Cross-sectional regressions confirmed that reductions in the skewness of the wage rate distribution are associated with reductions in transfer payments relative to public goods expenditure, at a decreasing rate. Increases in the tax rate initially increase the importance of transfer payments but eventually tax rate increases lead to lower transfers.

The Role of Home Production in Voting over Taxes and Expenditure
This paper investigates, first, how allowance for subsistence activities, or home production, affects the standard results in models involving the majority choice of the tax rate in a flat tax--basic income scheme. The paper extends the analysis of home production to choices regarding the composition of government expenditure, in situations where there is a tax-financed pure public good in addition to a transfer payment, conditional on a given tax rate. The effect of home production is to reduce the transfer payment in each model, but the effect is small.