Browsing by study line "Research track"

This thesis attempts to examine how much a representative consumer per each country is willing to pay to avoid global warming by analysing their welfare gains from having a smoother consumption path. Temperature variations affect economic activity, and consumption is subject to shocks related to global warming. I start by reviewing the economic literature that studied the relationship between temperatures and economic activity. I highlight which are the main effects on the economy that are correlated to rising temperatures and I review the methods that are usually employed by economists to assess environmental damages. I then take a sample of 163 countries and compute the welfare gains for each country for having a smoother consumption path, following the method used by Lucas (2003). To do this, I use country-level household consumption data and I set values for the risk aversion coefficient following the suggestions of the previous economic literature. I repeat the experiment with a smaller sample of 72 countries, this time using country-specific risk aversion coefficients retrieved from Gandelman and Hernández-Murillo (2015). In both cases, I obtain that most of the countries have welfare gains lying in the order of 10^-2 and 10^-3. Using annual temperature data, I test the Spearman correlation coefficient between welfare gains and average temperatures. Although the previous literature stressed the adverse effects of global warming on the economy, I find no significant correlation between these two variables. Countries that are more at risk do not display higher welfare gains than countries with a lower risk of imminent climate damages. To explain my results, I then consider determinants of risk aversion other than temperature and conclude that risk aversion, and consequently the value of welfare gains, can depend on several other factors.

Hintavakauden saavuttamisesta on tullut keskuspankkien tärkeimpiä tehtäviä kaikkialla maailmassa, ja useat keskuspankit pyrkivät tiettyyn, hyvin määriteltyyn inflaatiotavoitteeseen. Samoin Euroopan keskuspankki pyrkii rahapolitiikallaan pitämään inflaation kahden prosentin tuntumassa. Inflaatiotavoite kuitenkin vaatii sen, että inflaatiota voidaan ennustaa mahdollisimman tarkasti. Koneoppimismetodeihin kuuluvat neuroverkkomallit ovat osoittautuneet olemaan monilla aloilla hyviä ennustemalleja. Inflaation ennustamisessa neuroverkkomallien tulokset ovat kuitenkin olleet ristiriitaisia. Aiempi tutkimus inflaation ennustamisesta on myös keskittynyt lähinnä Yhdysvaltojen ja muiden yksittäisten maiden inflaatioon. Tutkimusta ei ole myöskään tehty inflaation ennustamisesta eri suhdannetilanteissa neuroverkkomallien avulla. Tässä tutkielmassa tutkittiinkin neuroverkkomallin kykyä ennustaa inflaatiota koko euroalueella vuosien 2008-2009 taantuman aikana. Tutkielman aineistona käytettiin euroalueen harmonisoidusta kuluttajahintaindeksistä muodostettua inflaatioaikasarjaa vuosilta 1997-2010. Tutkielmassa epälineaarinen neuroverkko rakennettiin aiemmasta kirjallisuudesta vakiintuneella metodilla, jossa mallin valinta suoritettiin käyttämällä erillistä aineistoa. Valitulla mallilla simuloitiin aitoa ennustetilannetta käyttämällä euroalueen taantuman aikaista testiaineistoa. Ennusteet tehtiin myös taantuman jälkeiselle noususuhdanteelle, jotta eri suhdannetilanteita voitiin vertailla. Lisäksi samat ennusteet tehtiin ekonometriassa vakiintuneella lineaarisella mallilla, johon neuroverkkomallia verrattiin käyttämällä aiemmasta kirjallisuudesta tuttuja arviointikriteerejä ja tilastollisia testejä. Tutkielmassa selvisi, että neuroverkkomalli tuottaa hyvin tarkkoja ennusteita inflaatiolle kaikilla tutkielmassa käytetyillä ennusteväleillä. Neuroverkkomallin ennusteet ovat myös parempia, jos käytettävä aineisto on kausitasoitettu. Neuroverkkomalli tekee pienempiä ennustevirheitä noususuhdanteen aikana kuin taantumassa, mutta erot eri suhdannetilanteissa eivät ole kovin suuria. Neuroverkkomallin ennusteet eivät kuitenkaan poikkea yksinkertaisen lineaarisen mallin tekemistä ennusteista tilastollisesti merkitsevästi kummassakaan suhdannetilanteessa. Näin ollen neuroverkkomallin ei voida päätellä toimivan eri tavalla taloudellisessa taantumassa kuin muissa suhdannetilanteissa. Tutkielman tulosten perusteella neuroverkkomallia ei voida suositella keskuspankkien inflaatioennustemalliksi, koska mallin valinta ja testaaminen vievät yksinkertaista lineaarista mallia enemmän aikaa, mutta ennustetulokset eivät ole lineaarista mallia parempia. Tulokset antavatkin todisteita siitä, että inflaatio on euroalueella lineaarinen prosessi, jolloin epälineaariset mallit eivät tuota ennusteisiin lisähyötyä. Neuroverkkomallit voivat kuitenkin antaa hyvän työkalun keskuspankkien toiminnan arvioimiseen, koska niiden tuottamat ennusteet ovat tarkkoja pitemmillekin aikaväleille.

Exchange rate pass-through (ERPT) is the measure of the responsiveness of consumer prices to the exchange rate fluctuations of a domestic currency against foreign ones. Changes in the exchange rate affect the prices of imported goods and the domestically produced ones that use the imported intermediary goods. Thus, this concept is important to those nations that heavily rely on imports, such as Tajikistan, which has a small open economy. In this paper, the structural vector autoregression (SVAR) model with Cholesky decomposition is employed. To test the robustness of the findings, along with the aforementioned identification method, independent component analysis via distance covariance (ICA via DC) statistic is utilized, too. Thus, it has been estimated that during the period between 2001 and 2022, a 1% depreciation of somoni, the national currency of Tajikistan, against the US dollar results in 0.084%, 0.157%, and around 0.18% increase in consumer prices in a month, 3 months, and year, respectively. Nevertheless, the SVAR model with ICA via DC statistic yielded a higher pass-through rate, as at the same time periods the consumer prices increase by 0.12%, 0.21%, and 0.24%. The findings suggest that Tajikistan exhibits a moderate ERPT to consumer prices which could be explained by the fact that almost 70% of the consumer basket is comprised of foodstuffs. As global food prices also influence local food costs, they sometimes counterbalance the effects of exchange rate fluctuations on the inflation levels. Moreover, it has been found that the prices of some groups of goods, such as construction materials, medicines, foodstuffs, and furniture, are more susceptible to exchange rate fluctuations as their magnitude of ERPT equalled 0.41%, 0.37%, 0.25%, and 0.16% in a year, respectively, when Cholesky decomposition was utilized.

As the Finnish population ages the costs of publicly funded around-the-clock elderly care facilities rises. Contracting elderly care out has been suggested as a way of reducing the costs of expensive elderly care, utilizing the private sectors competition and stronger incentives for cost reduction. However, the theory of the proper scope of government provision highlights a concern that the possible efficiency gains of outsourcing may come at a cost to non-contractable (unmeasurable or unpredictable) quality of care provision. In this thesis, I investigate the effects of outsourcing municipal elderly care provision on the mortality rates of the elderly, using municipal level data from 2001 to 2022. During this period, most Finnish municipalities had some form of private elderly care provision. However, in the 2010s, some municipalities shifted to providing almost all around-the-clock elderly care through private providers. Replicating a study from Sweden by Bergman et al. (2016), I utilize a triple difference method to study these major shifts towards private provision of elderly care, using individuals aged 60 to 69 as a population whose mortality rates are unaffected by changes in elderly care provision. I formulate a control group that is comparable to the outsourcing municipalities in terms of demographical characteristics using nearest neighbour propensity score matching. I estimate the effects on social and healthcare costs of outsourcing using a difference-in-differences design. The triple difference estimation results indicate a 6 percent increase in the mortality rates of the elderly following the shift to private provision. The difference-in-differences estimation found no observed effects on costs. These findings suggest that vital non-contractable quality dimensions of elderly care are adversely affected by municipalities seizing most of publicly provided around-the-clock elderly care.

Value added taxes (VAT) are a central tool for collecting consumption taxes in Finland and worldwide. Still, VAT system has its shortcomings. Dishonest companies can exploit the system to evade taxes or apply for unjust tax deductions. This thesis investigates the effectiveness of an augmented VAT mechanism, reverse charge, on value added tax compliance. Reverse charge mechanism transfers the liability for remitting VAT in business-to-business transactions to the purchaser, instead of the seller. In this thesis, I conduct theoretical and empirical analysis of reverse charge. First, I employ a tax evasion model to predict how firms change their behavior when reverse charge policy is adopted. Then, I examine how VAT reverse charge affects firms' reporting behavior using administrative data on Finnish firms' VAT returns. Reverse charge policy was adopted in the Finnish construction industry in 2011. I compare the outcomes of construction firms to similar companies, with a Differences-in-Differences design, to capture the effect of the policy on VAT compliance. The findings indicate a 3.87% increase in reported tax liabilities by construction firms once the policy is adopted, suggesting enhanced tax compliance. Sensitivity analysis shows that the results hold under moderate violations of the parallel trends assumption. This thesis contributes to the existing economic literature by showing novel evidence on the firm level effects of reverse charge. I also illustrate another market structure where tax revenue can be increased by changing who remits taxes to the government.

I utvecklade länder har globalisering, teknologiska framsteg och diversifiering inom industrisektorn minskat efterfrågan på lågkvalificerad arbetskraft. Detta har resulterat i en ökad specialisering mot kunskapsintensiva och högproduktiva arbetsuppgifter, vilket har haft negativa konsekvenser för lågutbildade arbetstagare. I respons till arbetsmarknadens ökade efterfrågan på högkvalificerade arbetstagare, genomfördes skolreformer under 1900-talet, som förlängde den obligatoriska utbildningen, i de flesta utvecklade länder. Denna avhandling undersöker effekten av skolgång på arbetsmarknadsrelevanta kognitiva färdigheter och arbetsmarknadsutfall genom att utnyttja exogen variation i utbildningsnivåer, som genererats av dessa skolreformer, med data från PIAAC-undersökningen. Genom att använda den kontinuitetsbaserade lokala polynomiska regression discontinuity metoden (RDD) utforskas effekterna av obligatoriska skolreformer på testresultat i läsförståelse och räknefärdigheter, logaritmerade timlöner samt sannolikheten för sysselsättning för ett kombinerat urval som består av Belgien, Danmark, Frankrike, Grekland, Irland och Spanien. Därutöver kontrolleras för heterogeniteten i behandlingseffekterna genom att härleda landspecifika behandlingseffekter för att korrekt återspegla de varierande påverkningarna av skolreformerna mellan länderna. En signifikant inverkan av att vara föremål för en obligatorisk skolreform på antalet avlagda skolår identifieras enbart för Belgien. För Belgien varierar effekten från det första steget för antalet avlagda skolår mellan 1,466 och 2,545 år beroende på polynomjusteringen och den tillämpade bandbredden. Dessutom identifieras en signifikant inverkan av behandlingstilldelningen på kognitiva färdigheter uteslutande för Belgien. Intentionto-treat-effekten (ITT) av att vara föremål för den obligatoriska skolreformen på testresultat i läsförståelse är 0,332 standardavvikelser för justeringar av polynom av första graden och 0,529 standardavvikelser för justeringar av polynom av andra graden. De uppskattade lokala genomsnittliga behandlingseffekterna (LATE) av behandlingstilldelningen på testresultat i läsförståelse är lägre, med värden på 0,238 respektive 0,189 standardavvikelser för individer som mottog behandlingen. Sammantaget tyder konvergerande genomsnittliga koefficienter på att den positiva korrelationen mellan utbildning och testresultat i läsförståelse nästan uteslutande beror på ett kausalt förhållande mellan dem. Inga diskontinuiteter observeras för testresultat i räknefärdigheter omkring gränsvärdet för det sammanslagna urvalet eller för något enskilt land. För sannolikheten att vara sysselsatt är samtliga punktskattningar för ITT-effekterna för de enskilda länderna positiva men statistiskt insignifikanta. Trots detta observeras signifikanta genomsnittliga viktade ITT-effekter av behandlingstilldelningen på sannolikheten för sysselsättning för det kombinerade urvalet. För justeringar av polynom av första graden ökar sannolikheten för sysselsättning med 7,77 och 9,64 procentenheter för det råa respektive kollapsade urvalet enligt medelvärdena för de viktade uppskattningarna. Motsvarande uppskattningar uppgår till 12,90 och 14 procentenheter för justeringar av polynom av andra graden. En samlad bedömning av resultaten från robusthetsanalysen tillhandahåller dock inte stöd för förekomsten av en signaleringseffekt av att vara föremål för en utbildningsreform. Resultaten är känsliga för valet av bandbredd. Resultaten från avhandlingen överensstämmer med befintlig litteratur, som generellt sett har rapporterat positiva eller obetydliga effekter av utbildning på kognitiva färdigheter och arbetsmarknadsutfall. Studien bidrar till den befintliga forskningen om utbildningens inverkan på arbetsmarknadsrelevanta färdigheter och arbetsmarknadsutfall genom att analysera samlade behandlingseffekter över sex europeiska länder, vilket står i kontrast till tidigare studier som har fokuserat på landspecifika effekter. Därutöver utvidgar studien förståelsen för sambandet mellan utbildning, färdigheter och arbetsmarknadsutfall genom att fokusera på heterogeniteten i behandlingseffekterna mellan enskilda utvecklade länder.

During the recent decades corporate income tax rates have declined. This development may be due to several issues, such as changes in the political environment or increased knowledge of behavioral effects of corporate taxation. One prominent explanation is tax competition. Tax competition is defined as noncooperative tax regime setting by independent governments such that the tax policy decisions affect the allocation of mobile tax base(s) among different countries. Tax regimes include the statutory tax rates as well as the tax bases and other parts of corporate tax systems. Tax competition is an important phenomenon for multiple reasons. Lower tax rates may imply issues in financing the public sector. On the other hand, it makes some of the issues of the international corporate tax system visible. This thesis reviews theories of tax competition. The aim is to provide an analysis of the different aspects of tax competition and review how different institutional structures are modelled in tax competition framework. Studying the main implications of tax competition is an important part of the thesis. The first formal models of tax competition consider a world economy which consists of many identical countries. Firms maximize profits and governments maximize utility of the representative agent. It is shown that tax competition drives tax rates to an inefficiently low level. Later tax competition research develops both the institutional set -up of tax competition and modelling frameworks applied to study it. The results of this thesis imply that the result of the first tax competition models is strong. Tax competition drives corporate tax rates to an inefficiently low level even if the key assumptions are relaxed. On the other hand, some important extensions imply that corporate income tax rates are in an optimal level even in presence of tax competition. However, in most cases tax competition is harmful since it drives corporate income tax rates to inefficiently low levels. On the other hand, tax competition literature also provides other results. Considering sequential tax competition instead of simultaneous shows that tax rates may in equilibrium be higher if one country acts as a leader. This may be one explanation why tax rates have not declined to zero as the famous race to the bottom hypothesis suggests. Tax competition literature also provides analysis on the effect of tax havens. These results are, however, more confusing. Tax competition can decrease welfare or be welfare improving. This thesis reviews important aspects of tax competition literature and focuses on the institutional set-up of theories of tax competition. There remain some gaps in the literature. Some institutional set-ups are not analysed in the tax competition context. On the other hand, literature focusing on the empirics of tax competition is scarce. One of the important aspects of tax competition is how to limit it. This issue has a great amount of current attention in the work of OECD, for example.

Whereas primary school enrolment has grown to be nearly universal on a global scale, learning results have not kept up with the rapidly expanding systems. This is particularly true in Mozambique, where fourth-grade students lack basic skills of literacy and numeracy. Research has established that teacher quality has a large effect on student achievement. Out of the observable teacher characteristics, teacher content knowledge has most consistently been found to have a positive impact on student achievement. This study seeks to answer how large a causal impact teacher content knowledge has on student achievement in Mozambican primary schools. The data for this study come from a Service Delivery Indicator survey in Mozambique from 2014. They include assessments of fourth-grade students and their teachers in math and Portuguese, and are nationally representative. The empirical analysis exploits within-student across-subject variation. This allows to introduce not only student fixed effects, but also teacher fixed effects into the model, because all students in the sample are taught by a same teacher in both subjects, therefore strengthening the causal identification. First-differencing is then used to derive the estimable equation, which explains student achievement by teacher content knowledge only. The main results suggest that teacher content knowledge in math and Portuguese does not have a statistically significant impact on student achievement. However, further analyses show that there is considerable heterogeneity in the results. This is not unexpected, as Mozambique itself is a rather heterogenous country with large contrasts. Increasing teacher content knowledge by 1 SD increases student achievement by 0.14 SD among students with Portuguese as their first language, and by 0.13 SD among students in urban schools. Increasing the content knowledge of teachers whose knowledge is above the median also increases the achievement of students whose knowledge is above the median by over 0.12 SD. Based on the results, it is plausible that students’ poor knowledge of Portuguese is a fundamental problem for their learning, and something that should be prioritised. This could be done by improving language education at the earlier grades, or by expanding bilingual education, for instance. Because students with their knowledge below the median are unaffected by teacher content knowledge, this suggests that teaching is perhaps targeted to the more advanced students, and those who have already fallen behind benefit very little from it.

This thesis studies possible factors associated with the earnings differences between Finnish and Swedish immigrants at the beginning of the 20th century in the United States. Economics literature has provided multiple explanations for the economic assimilation of immigrants. Fundamentally immigrant assimilation in economic theory is seen as a process of country-specific human capital accumulation. Many factors, however, can affect this process. In this thesis, I will test whether the earnings differences between Finnish and Swedish immigrants were associated with their location choices, size of the immigrant communities, English skills and linguistic distance between immigrant’s mother tongue and English. In addition, I test whether even within industries, the earnings differences persist and whether in addition to Swedes, Finns also differ from other Nordic immigrants. To do this, I will use a longitudinal dataset of 28 621 European male immigrants observed in 1900, 1910 and 1920 and use pooled OLS to estimate the earnings differences of Finnish and Swedish immigrants at different stages of their migration period. First, I find that at the time of arrival or at most 5 years after it, Finnish immigrants earn more than otherwise comparable Swedish immigrants. After more than 30 years in the United States, however, Finns earn substantially less than their Swedish counterparts. Also, not only did the Finns diverge from the earnings of the Swedes with the time spent in the United States, but also from their initial level of earnings. I then find that controlling for location choices and the size of the immigrant communities slightly reduce the earnings gap between long-term Finnish and Swedish immigrants. Differences in English skills, on the other hand, are not found to be associated with the earnings differences. Instead, I find that long-term Finnish and Swedish immigrants have almost equal probabilities of knowing English and that Finnish immigrants accumulate language skills at a substantial rate after arrival. The negative earnings gap among long-term Finnish and Swedish immigrants persists even within industries. However, although remaining negative, controlling for industry fixed effects reduces the earnings gap by over 50 %, suggesting that a large fraction of the negative earnings gap was associated with Finnish immigrants being active in low-paying industries. Finally, I find that the similar pattern applies not only to Swedish immigrants but also to other Nordic immigrants. At the time of arrival, Finns seem to earn more than otherwise comparable Nordic immigrants but after more than 30 years in the United States, Finns earn substantially less than their Nordic counterparts.

Since 1991, Finland has subsidized homeownership with first-time homebuyer’s stamp duty and transfer tax exemptions. Under certain conditions, buyers with ownership shares of at least 0.5 are exempted from paying a tax of 2% on the free-of-debt price for housing company dwellings and 4% on the free-of-debt price for directly owned houses. The previous empirical literature suggests that transfer taxes may lead to large reductions in housing transactions, household mobility, and housing prices. This thesis studies whether there is evidence of similar effects among first-time homebuyers by focusing on the first-time homebuyer’s transfer tax exemption. The analysis is based on microdata provided by Statistics Finland and Tax Administration on all permanent residents in Finland and housing company shareholdings. Therefore, this study is limited to housing company dwelling transactions, and it does not cover the effects on directly-owned house transactions. The effect on the first-time home purchase decision is studied using a regression discontinuity design among a subgroup that has not lived in owner-occupied dwellings in adulthood except potentially in the household of their parents. The effect on housing prices is studied using a fixed-effects regression model. The findings show that first-time home purchases drop by roughly 30% at the age threshold of 40 years, where buyers become ineligible for the tax exemption. Similarly, covariate-adjusted estimates show that tax-exempted purchases are on average roughly 1% more expensive than purchases without the tax exemption. If the underlying identification assumptions hold, these estimates can be interpreted as the causal effects of the tax exemption. However, there are potential threats to internal validity. The credibility of the assumptions is studied by conducting graphical and formal tests that typically accompany regression discontinuity designs. There is some evidence consistent with the possibility that the assumptions do not hold, but the evidence is also consistent with alternative explanations related to data limitations. Neither possibility can be ruled out definitively.