http://www.cepr.org New Discussion Papers from the Centre for Economic Policy Research (CEPR), a network of over 700 Research Fellows based throughout Europe, who collaborate through the Centre in research and its dissemination. The Centre produces applied theory and empirical work, as well as research that addresses a wide range of European and international policy issues, with an emphasis on all aspects of European integration. en-gb Copyright 2012, Centre for Economic Policy Research pubs@cepr.org (CEPR Publications) webmaster@cepr.org (CEPR Webmaster) http://rss.cepr.org/images/cepronline.gif http://www.cepr.org 104 54 Research on a wide range of European policy issues. Wed, 16 May 2012 13:15:13 GMT Wed, 16 May 2012 13:15:13 GMT http://www.cepr.org/DP8965 http://www.cepr.org/DP8965 Sale of Visas: A Smuggler's Final Song?

Author(s): Emmanuelle Auriol, Alice Mesnard

CEPR Discussion Paper Number 8965
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Programme Area(s): Development Economics (DE), Public Policy (PP)

Date of Publication: 23/05/2012

Keyword(s): legalisation, market structure, migration, migration policies

JEL(s): F22, I18, L51, O15

Abstract: We study how smugglers respond to different types of migration policies - legalisation through the sale of migration visas, or more traditional repressive policies through borders' enforcement, employers' sanctions or deportation - by changing the price they propose to illegal migrants. In this context a government that aims at eradicating smugglers and controlling migration flows faces a trade-off. Eliminating smugglers by the sale of visas increases the flows of migrants and may worsen their skill composition. In contrast, repressive policies decrease the flows of illegal migrants and may improve their skill composition but do not eliminate smugglers. We then study how a combination of increased repression -through reinforced external and internal controls- and sale of visas may be effective at eliminating smugglers and controlling migration flows while not weighing on public finances. Simulations allow us to quantify the partial equilibrium effects of the policies under study.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8952 http://www.cepr.org/DP8952 Super-Additionality: A Neglected Force in Markets for Carbon Offsets

Author(s): Antonio Bento, Ravi Kanbur, Benjamin Leard

CEPR Discussion Paper Number 8952
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Programme Area(s): Public Policy (PP)

Date of Publication: 01/04/2012

Keyword(s): Additionality and Non-Additionality, Baseline Emissions, Carbon Offsets, Economic Compliance Costs, Emissions targets, Super-Additionality

JEL(s): Q52, Q54

Abstract: Climate change mitigation programs classify two types of carbon offsets: Additional and non-additional. Additional offsets are offsets that correspond to actual reductions in emissions. In contrast, non-additional offsets are offsets that do not correspond to emissions reductions. These offsets are created because offset projects with business-as-usual (BAU) emissions below their assigned baseline can claim offsets up to the baseline without reducing emissions. Since the sale and use of non-additional offsets by firms in climate mitigation programs has the effect of raising aggregate emissions, an extraordinary amount of focus has been on ensuring that offsets are additional. However, we show here that there is an emissions component that has been neglected in current policy design. This component, which we call Super-additional reductions, are emissions reductions which do not lead to a supply of offsets. Super-additional reductions arise from offset projects with BAU emissions above their baseline. These projects are awarded a quantity of offsets that is lower than the project's emissions reductions. The presence of such emissions reductions without supply of equivalent offsets has the effect of lowering aggregate emissions and lessening the impact of non-additional offsets. Our numerical simulations show that super-additional reductions can be as large as the supply of non-additional offsets, and in some scenarios can even exceed them. Neglecting this component during the climate policy design process can lead to the setting of overly stringent baselines or other policy instruments, ultimately raising the compliance costs of achieving emissions reduction targets.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8946 http://www.cepr.org/DP8946 A Theory of Optimal Capital Taxation

Author(s): Thomas Piketty, Emmanuel Saez

CEPR Discussion Paper Number 8946
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Programme Area(s): Public Policy (PP)

Date of Publication: 01/04/2012

Keyword(s): optimal taxation

JEL(s): H100

Abstract: This paper develops a realistic, tractable normative theory of socially-optimal capital taxation. We present a dynamic model of savings and bequests with heterogeneous random tastes for bequests to children and for wealth per se. We derive formulas for optimal tax rates on capitalized inheritance expressed in terms of estimable parameters and social preferences. The long-run optimal tax rate increases with the aggregate steady-state flow of inheritances to output, decreases with the elasticity of bequests to the net-of-tax rate, and decreases with the strength of preferences for leaving bequests. For realistic parameters, the optimal tax rate on capitalized inheritance should be as high as 50%-60% - or even higher for top wealth holders - if the government has meritocratic preferences (i.e., puts higher welfare weights on those receiving little inheritance) and if capital is highly concentrated (as it is in the real world). In contrast to the Atkinson-Stiglitz result, bequest taxation remains desirable in our model even with optimal labor taxation because inequality is two-dimensional: with inheritances, labor income is no longer the unique determinant of lifetime resources. In contrast to Chamley-Judd, positive capital taxation is desirable because our preferences allow for finite long run elasticities of inheritance to tax rates. Finally, we discuss how capital market imperfections and uninsurable shocks to rates of return can justify shifting one-off inheritance taxation toward lifetime capital taxation, and can account for the actual structure and mix of inheritance and capital taxation.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8945 http://www.cepr.org/DP8945 Does Misinformation Demobilize the Electorate? Measuring the Impact of Alleged 'Robocalls' in the 2011 Canadian Election

Author(s): Tom Cornwall, Anke Kessler

CEPR Discussion Paper Number 8945
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Programme Area(s): Public Policy (PP)

Date of Publication: 01/04/2012

Keyword(s): Canadian Election 2011, Vote Suppression, Voter Demobilization, Voter Turnout

JEL(s): D72

Abstract: The paper presents evidence on the effect of voter demobilization in the context of the Canadian 2011 federal election. Voters in 27 ridings (as of February 26, 2012) allegedly received automated phone calls (`robocalls') that either contained misleading information about the location of their polling station, or were harassing in nature, claiming to originate from a particular candidate in the contest for local Member of Parliament. We use within-riding variation in turnout and vote--share for each party to study how turnout changed from the 2008 to the 2011 election as a function of the predominant party affiliation of voters at a particular polling station. We show that those polling stations with predominantly non-conservative voters experienced a decline in voter turnout from 2008 to 2011, and that this effect was larger in ridings that were allegedly targeted by the fraudulent phone calls. The results thus indicate a statistically significant effect of the alleged demobilization efforts: in those ridings where allegations of robocalls emerged, turnout was an estimated 3 percentage points lower on average. This reduction in turnout translates into roughly 2,500 eligible (registered) voters that did not go to the polls. The 95%-confidence interval gives a lower bound estimate of 1,000 fewer votes cast in robocall ridings, which is still a sizable effect.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8943 http://www.cepr.org/DP8943 The use of tax havens in exemption regimes

Author(s): Anna Gumpert, James R Hines Jr, Monika Schnitzer

CEPR Discussion Paper Number 8943
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Programme Area(s): International Trade and Regional Economics (IT), Public Policy (PP)

Date of Publication: 01/04/2012

Keyword(s): Manufacturing FDI, Multinational Firms, Profit Shifting, Service FDI, Tax Avoidance, Tax Havens

JEL(s): F23, H87

Abstract: This paper analyzes the tax haven investment behavior of multinational firms from a country that exempts foreign income from taxation. High foreign tax rates generally encourage firms to invest in tax havens, though significant costs of reallocating taxable income dampen these incentives. The behavior of German manufacturing firms from 2002-2008 is consistent with this prediction: at the mean, one percentage point higher foreign tax rates are associated with three percentage point greater likelihoods of owning tax haven affiliates. This contrasts with earlier evidence for U.S. firms subject to home country taxation, which are more likely to invest in tax havens if they face lower foreign tax rates. Foreign tax rates appear to be unrelated to tax haven investments of German firms in service industries, possibly reflecting the difficulty they face in reallocating taxable income.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8935 http://www.cepr.org/DP8935 (Re-) Shaping Hatred: Anti-Semitic Attitudes in Germany, 1890-2006

Author(s): Nico Voigtländer, Hans-Joachim Voth

CEPR Discussion Paper Number 8935
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Programme Area(s): Public Policy (PP)

Date of Publication: 01/04/2012

Keyword(s): anti-Semitism, attitudes, cultural transmission

JEL(s): N44, Z1

Abstract: In this paper, we assess the determinants of long-run persistence of local culture, and examine the success of policy interventions designed to change attitudes. We analyze anti-Semitic attitudes drawing on individual-level survey results from Germany’s social value survey in 1996 and 2006. On average, we find that historical voting patterns for anti-Semitic parties between 1890 and 1933 are powerful predictors of anti-Jewish attitudes today. There is evidence that transmission takes place both vertically (parent to child) and horizontally (among peers). Policy modified German views on Jews in important ways: The cohort that grew up under the Nazi regime shows significantly higher levels of anti-Semitism. After 1945, the victorious Allies implemented denazification programs in their zones of occupation. We use differences in these policies between the occupying powers as a source of identifying variation. The US and French zones today still show high anti-Semitism, reflecting an ambitious botched attempt at denazification. In contrast, the British and Soviet zones, register much lower levels of Jew-hatred.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8932 http://www.cepr.org/DP8932 The Role of Social Networks and Peer Effects in Education Transmission

Author(s): Sebastian Bervoets, Antoni Calvó-Armengol, Yves Zenou

CEPR Discussion Paper Number 8932
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Programme Area(s): Labour Economics (LE), Public Policy (PP)

Date of Publication: 01/04/2012

Keyword(s): education, intergenerational correlation, Social mobility, strong and weak ties

JEL(s): I24, J13, Z13

Abstract: We propose a dynastic model in which individuals are born in an educated or uneducated environment that they inherit from their parents. We study the role of social networks on the correlation in the parent-child educational status independent of any parent-child interaction. We show that the network reduces the intergenerational correlation, promotes social mobility and increases the average education level in the population. We also show that a planner that encourages social mobility also reduces social welfare, hence facing a trade off between these two objectives. When individuals choose the optimal level of social mobility, those born in an uneducated environment always want to leave their environment while the reverse occurs for individuals born in an educated environment.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8929 http://www.cepr.org/DP8929 Lifetime earnings inequality in Germany

Author(s): Timm Bönke, Giacomo Corneo, Holger Lüthen

CEPR Discussion Paper Number 8929
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Programme Area(s): Labour Economics (LE), Public Policy (PP)

Date of Publication: 01/04/2012

Keyword(s): Earnings distribution, Lifetime inequality

JEL(s): D31, H24

Abstract: This paper documents the magnitude, pattern, and evolution of lifetime earnings inequality in Germany. Based on a large sample of earnings biographies from social security records, we show that the intra-generational distribution of lifetime earnings of male workers has a Gini coefficient around .2 for cohorts born in the late 1930s and early 1940s; this amounts to about 2/3 of the value of the Gini coefficient of annual earnings. Within cohorts, mobility in the distribution of yearly earnings is substantial at the beginning of the lifecycle, decreases afterwards and virtually vanishes after age forty. Earnings data for thirty-one cohorts reveals striking evidence of a secular rise of intra-generational inequality in lifetime earnings: West-German men born in the early 1960s are likely to experience about 80 % more lifetime inequality than their fathers. In contrast, both short-term and long-term intra-generational mobility have been rather stable. Longer unemployment spells of workers at the bottom of the distribution of younger cohorts contribute to explain 30 to 40 % of the overall increase in lifetime earnings inequality.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8919 http://www.cepr.org/DP8919 Human Capital, Innovation, and Climate Policy: An Integrated Assessment

Author(s): Carlo Carraro, Enrica De Cian, Massimo Tavoni

CEPR Discussion Paper Number 8919
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Programme Area(s): Public Policy (PP)

Date of Publication: 01/03/2012

Keyword(s): Climate Policy, Human Capital, Innovation, Sustainable Development

JEL(s): O33, O41, Q43

Abstract: This paper looks at the interplay between human capital and innovation in the presence of climate and educational policies. Using recent empirical estimates, human capital and general purpose R&D are introduced in an integrated assessment model that has been extensively applied to study the climate change mitigation. Our results suggest that climate policy stimulates general purpose as well as clean energy R&D but reduces the incentive to invest in human capital formation. Human capital increases the productivity of labour and the complementarity between labour and energy drives its pollution-using effect (direct effect). When human capital is an essential input in the production of generic and energy dedicated knowledge, the crowding out induced by climate policy is mitigated, thought not completely offset (indirect effect). The pollution-using implications of the direct effect prevail over the indirect contribution of human capital to the creation of new and cleaner knowledge. A policy mix that combines educational as well as climate objectives offsets the human capital crowding-out with a moderate, short-term consumption loss. Human capital is complement to all forms of innovation and an educational policy stimulates both energy and general purpose innovation. This result has important policy implications considering the growing concern that effective climate policy is conditional on solid economic development and therefore it needs to be supplemented by other policy targets.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]> http://www.cepr.org/DP8910 http://www.cepr.org/DP8910 Backwards Integration and Strategic Delegation

Author(s): Matthias Hunold, Lars-Hendrik Röller, Konrad O Stahl

CEPR Discussion Paper Number 8910
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Programme Area(s): Industrial Organization (IO), Public Policy (PP)

Date of Publication: 01/03/2012

Keyword(s): common agency, double marginalization, partial cross ownership, strategic delegation, vertical integration

JEL(s): L22, L40

Abstract: We analyze the effects of one or more downstream firms’ acquisition of pure cash flow rights in an efficient upstream supplier when firms compete in prices in both markets. With such an acquisition, downstream firms internalize the effects of their actions on that supplier’s and thus, their rivals’ sales. Double marginalization is enhanced. While vertical integration would lead to decreasing downstream prices, passive backwards ownership in the efficient supplier leads to increasing downstream prices and is more profitable, as long as competition is sufficiently intensive. Downstream acquirers strategically abstain from vertical control, inducing the efficient upstream firm to commit to a high price. Forbidding upstream price discrimination is then pro-competitive. All results are sustained when upstream suppliers are allowed to charge two part tariffs.

* CEPR Research Fellows and Affiliates, Corporate Members and Subscribers can download papers without charge. Individual Papers may be purchased at www.cepr.org ]]>