Browsing by discipline "Ekonomi"

The aim of this thesis is to study the effects of household wealth on consumption. The focus of the study is on the effects of physical wealth, namely housing and forest wealth, on consumption in Finland. The empirical estimation is conducted using cross-sectional household level data obtained from the 1998 Household Wealth Survey compiled by Statistics Finland. The estimation is performed using OLS regression and taking into account survey design considerations. The results from the study provide evidence confirming the existence of a wealth effect on consumption regarding housing wealth, forest wealth as well as financial wealth. The study finds the housing wealth effect on consumption to be positive and much larger than the financial wealth effect for those households that are homeowners. However, the magnitude and the sign of the wealth effect seems to somewhat differ by the amount of accumulated net housing wealth. Evidence of the existence of a life-cycle pattern in consumption is also confirmed for the subsample of homeowners by comparing differences in wealth effects between household age groups. It should however be emphasised, that actual life-cycle behaviour can only be traced with the use of panel data. The study finds evidence that the effect of forest wealth on consumption may be negative for the subsample of forest owners. Further study then reveals that the negative estimate for the effect of net forest wealth on consumption observed for the whole subsample seems to arise from the much stronger and significant negative estimate obtained for the subgroup of forest owning farmer households. This finding could in part be explained by the skewed age distribution of forest owning households, the fact that forest owning farmer households are likely to be engaging more in home production, which lowers observed consumption outside of the home, and that farmer owned forestland estates, and the logging income they generate, are often used for funding farm associated investments. In order to study the concavity of the consumption function in Finland, wealth and income effects are estimated separately for the net wealth quintiles of households using the whole sample of observations. The results indicate that the effect of a change in financial wealth or income on consumption is indeed larger for households with small total net wealth. This finding suggests that in the case of a wealth or income shock that disproportionately affects households with less net wealth, the economy level effects on aggregate consumption may be larger than those estimated by traditional models.

Tämä tutkielma käsittelee keskuspankin rahapolitiikan muutosta ja vaikuttavuutta erityisesti korko-ohjauksen näkökulmasta tilanteessa, jossa käteisen rahan käyttö lakkaisi ja tilalle tulisi kokonaan elektroninen valuutta. Tutkimus pureutuu keskuspankin mahdollisuuteen kontrolloida lyhyen aikavälin korkoa, kun sillä ei ole enää yksinvaltaa kontrolloida selvittelyreservejä käteisen rahan kadotessa ja teknologian kehityksen nopeuttaessa maksujen selvittelyä. Työn kannalta keskeistä on, mitä tapahtuisi keskuspankkireservien kysynnälle, jos käteisen rahan käyttö loppuisi ja millainen rooli keskuspankille jäisi suhteessa talletuspankkeihin tässä tilanteessa. Teorian mukaan talletuspankkien välisen selvittelyn lisääntyminen laskee keskuspankkireservien kysyntää. Kuitenkin kriisitilanteissa keskuspankin asema korostuisi kuten tähänkin asti. Työssä esitellään Euroopan keskuspankin rahapolitiikan periaatteet ja pohditaan historian valossa päätöksiä, jotka ovat muokanneet keskuspankin rahapolitiikkaa. Vähimmäisreservijärjestelmään perustuva systeemi ei ollut euroalueella itsestäänselvyys. Reservivaateeseen perustuva järjestelmä valittiin, jotta keskuspankin taseen kokoa saatiin kasvatettua ja talletuspankkien riippuvuutta keskuspankkirahasta lisättyä. Maksamiseen liittyvät teknologiset innovaatiot nopeuttavat selvittelyä ja talletuspankit tasaavat maksuja keskenään yhä nopeammin. Lisäksi markkinoille on tullut useita keskuspankista riippumattomia virtuaalivaluuttoja. Tämä muuttaa keskuspankin asemaa rahajärjestelmässä lisäten sen valvojan tehtäviä ja vähentäen reservirahaan liittyviä tehtäviä. Näyttää myös siltä, että erilaiset maksutavat erikoistuvat tiettyihin maksutapahtumiin. Elektronisen maksamisen hyödyt ovat kiistattomat läpinäkyvyyden ja taloudellisen tehokkuuden vuoksi. Keskuspankin korko-ohjausmahdollisuuden heikkeneminen vaikuttaa epäsuorasti talouden kysynnän ja tarjonnan ohjaamismahdollisuuksiin erityisesti taloudellisten häiriöiden tilanteessa. Keskuspankin aseman heikkeneminen olisi myös viennin tukemisen kannalta hankalaa, kun sen mahdollisuudet valuuttaohjaukseen katoaisivat. Käteisettömässä taloudessa keskuspankin mahdollisuus tarjota rahoitusta ei tue sen valtaa kontrolloida lyhyen ajan korkoa, koska tarjontaa on kilpailevissa valuutoissa paljon. Keskuspankin olisi tällöin korkoihin vaikuttaakseen lainattava rahaa markkinoilta ja tarjottava sitä talletuspankeille markkinakorkoa edullisemmin, mikä luo arbitraasin. Tutkielma on teoreettinen katsaus, joka pohjautuu reservikysyntään liittyvään kanavamalliin. Työssä mallinnetaan keskuspankin reservikysyntää ja mahdollisuutta lyhyen ajan korko-ohjaukseen käteisettömässä taloudessa ja kahden selvittelyrahan tarjoajan tilanteessa. Työn esimerkissä selvittelyrahan tarjoajat ovat keskuspankki ja talletuspankeista koostuva yhteisö, joka käyttää keskuspankista riippumatonta valuuttaa. Rahan luominen ja selvittely voivat siis siirtyä nykyistä enemmän markkinoille, jolloin keskuspankin monopoli heikkenee tai jopa lakkaa. Talletuspankit käyttävät todennäköisesti keskuspankkia edelleen viimekäden lainan antajana, mikäli tämä kykenee pienestä koostaan huolimatta hankkimaan markkinoilta rahaa muita edullisemmin. Tässä valtion tuki voi auttaa. Mikäli valtio kuitenkin kerää veronsa keskuspankkivaluutassa, vahvistaa se keskuspankin mahdollisuuksia harjoittaa rahapolitiikkaa reservivaateesta ja käteisen käytöstä riippumatta. Reservivaade toisaalta lisää keskuspankin valtaa ja toimii joissain tilanteissa korko-ohjausta tehokkaammin talouden ohjaajana. Toisaalta se luo tehottomuutta, koska kassareservisysteemiin liittyy kustannuksia.

There are many studies concerning the supply of labor. However, although overtime work is a common phenomenon, it is rarely the topic of these studies. This thesis studies remuneration policy and the prevalence of overtime work for professional engineers in Finland. The data used in this study are annually collected survey data, for the period 2002-2011. The data represent union members of the Union of Professional Engineers in Finland (UIL ry). The data mainly consist of senior salaried employees. Remuneration policy and the incidence of overtime work are studied by descriptive methods and by regression models. A multinominal logit model is used for the overtime remuneration policy estimation. The method is used to impute missing data for those who do not work overtime. The Tobit regression model is applied as the overtime model. The findings of this thesis are that an individual’s position affects both the incidence of overtime work and remuneration policy. Individuals in a managerial position more often work overtime and bonus payment systems are the main incentive for this. This overtime model is reasonable for those senior salaried employees who are covered by the Working Hour Act. According to the Working Hour Act, those who work, for instance, as a specialist or in an expert position should be compensated for overtime work. In the overtime function for middle management, experts, and salaried employees the income effect initially dominates as remuneration for overtime increases, but finally, as overtime remuneration further increases, more individuals actually tend to work more overtime. As work experience increases, individuals work less overtime at first, but the relationship turns out to be U-shaped. Overtime work is less common for women and those in the public sector. The overtime model provides only a weak positive indication of the incidence of overtime for those who have recently been promoted to a new position or duties. The findings are only partly in accordance with empirical studies. The differences are explained by the characteristics of senior salaried employees. The results of this thesis might stem from the nature of their duties, the working environment and also from individual characteristics. That is why I assume here that long-run career objectives affect the incidence of overtime. In conclusion, there still remains the question of whether short-run or long-run factors have more explanatory power. For example is overtime work motivated by overtime rates or wage levels in the long run.

Foreign direct investment (FDI) flows have increased tremendously in the past twenty years, and these investments have grown especially in developing economies. FDI has become an efficient mechanism to increase economic development in poor countries. This thesis opens up the decision-making process of developed countries related to FDI decisions. The main focus is to concentrate on FDI in developing countries, and how they try to find relevant policies in order to attract more FDI flows. Some relevant empirical findings between China and Sub-Saharan Africa are shown to support the benchmark model. The model does not go through every possible aspect of FDI but shows how different southern technology frontiers and risks in production might affect the final FDI flows in developing countries. The benchmark model is a North-South model where the North and South are the developed and developing country, respectively. The main feature of this model is that a northern firm might opt out of doing FDI, if the technology frontier in a southern industry is too low for a northern firm with a relatively high technology. This situation might cause a risk of FDI quality failure, where the production chain in the South fails to complete successfully. This kind of failure is possible, if the skills or knowledge of the southern workers is not high enough. The benchmark model is later extended with the innovative and imitative South in this thesis, and lastly technology-neutral risks are introduced and added to the benchmark model. The benchmark model shows that only firms with intermediate technology levels in the North move production to the South or become multinationals. Additionally, more multinational production increases the technology frontier in the South and eventually decreases the risk of FDI quality failure. This development leads to more FDI flows and widens the technology spectrum of the multinational firms. The aim of governments in developing countries is to increase their technology frontiers in different industries. This thesis goes through many important policy parameters which can improve the technology frontier in the South and eventually lead to more multinational production.

Vuonna 2008 maailmantalous vajosi taantumaan finanssikriisin seurauksena. Euroopan keskuspankki reagoi taantumaan laskemalla reippaasti ohjauskorkoaan. Euroalueen talous ei kuitenkaan elpynyt alhaisesta korkotasosta huolimatta. Euroalue oli ajautunut keynesiläisestä talousteoriasta tuttuun likviditeettiloukun kaltaiseen tilanteeseen. Likviditeettiloukussa perinteinen rahapolitiikka, eli ohjauskoron säätely, on tehotonta, sillä nimelliskorot ovat jo lähellä nollaa. Tällaisessa tilanteessa finanssipolitiikka nousee varteenotettavaksi talouspoliittiseksi vaihtoehdoksi. Tutkielmassani tarkastelen finanssipolitiikan tehokkuutta kolmen eri talousteorian ja empiiristen tutkimusten näkökulmasta. Näin pyrin vastaamaan kysymykseen, milloin finanssipolitiikka on tehokkaimmillaan. Finanssipolitiikan tehokkuutta mitataan tutkielmassani fiskaalisella kertoimella, joka kertoo kuinka suuri vaikutus harkinnanvaraisella julkisten menojen kasvattamisella on bruttokansantuotteeseen. Talousteoriat ovat paitsi eri mieltä fiskaalisen kertoimen suuruudesta, mutta myös sen vaikutuskanavista. Keynesiläisessä mallissa (Burda & Wyplosz 2009) fiskaalisen kertoimen suuruuteen vaikuttaa marginaalikulutusalttius ja ulkomaan tavaroiden ja palveluiden tuonti ja fiskaalisen kertoimen arvo on aina yli yhden. Neoklassisissa malleissa (Woodford 2010) julkisten menojen kasvu syrjäyttää yksityistä kulutusta intertemporaalisella substituution kautta ja fiskaalinen kerroin on alle yhden. Tutkielmassani eniten huomiota saavissa uuskeynesiläisessä malleissa (Woodford 2010) rahapolitiikan linjaukset vaikuttavat finanssipolitiikan tehokkuuteen. Rahapolitiikan seuratessa Taylorin sääntöä fiskaalinen kerroin on alle yhden, mutta tilanteessa, jossa nimelliskorko on lähellä nollaa, taantuma on pitkäkestoinen ja keskuspankki ei nosta ohjauskorkoa, väliaikainen julkisten menojen kasvattaminen on erityisen tehokasta. Tällaisessa tilanteessa, fiskaalinen kertoimen on arvioitu olevan jopa kahden luokkaa. Empiiriset tutkimukset finanssipolitiikasta eivät anna yksiselitteistä vastausta siihen, mikä talousteoria mallintaa fiskaalia vaikutuksia parhaiten. Narratiivisen menetelmän tutkimusten tulokset tukevat neoklassisia malleja ja SVAR-menetelmällä saadaan tutkimustuloksia, jotka puolestaan puoltavat enemmän nimellisjäykkyyksiä sisältäviä malleja. Rahoitusmarkkinakriisin synnyttämä syvä maailmantaloudellinen taantuma on myös innoittanut taloustieteilijöitä tutkimaan fiskaalisen kertoimen suuruutta empiirisesti talouden eri suhdanteissa. Osassa tällaisia tutkimuksia on osoitettu, että finanssipolitiikan tehokkuus vaihtelee suurestikin talouden eri suhdannevaihteluissa. Taantumassa fiskaalinen kerroin on siis suurempi, kuin normaalina talouden ajankohtana. Euroalueella vastattiin taantumaan aluksi elvyttävällä finanssipolitiikalla, mutta myöhemmin finanssikriisin vaihtuessa velkakriisiksi elvytyksestä siirryttiin menojen leikkauksiin ja verojen kiristyksiin. Kiristävää finanssipolitiikka perusteltiin mm. markkinoiden luottamuksen lisäämisellä. Tutkielmani selvitys finanssipolitiikan tehokkuudesta antaa kuitenkin vahvaa näyttöä siitä, että julkisten menojen leikkaaminen, pitkäkestoisessa taantumassa nimelliskorkojen ollessa lähellä nollaa, on haitallista taloudelle. Toisin sanoen väliaikainen julkisten menojen kasvattaminen likviditeettiloukun kaltaisessa tilanteessa olisi kannattavaa. Likviditeettiloukussa finanssipolitiikan tehokkuuteen on osoitettu vaikuttavan myös julkisten menojen oikea kohdistaminen ja ajoitus (kt. Eggertsson 2011). Lisäksi on hyvä muistaa, että finanssipolitiikan tehokkuus ei tarkoita, että finanssipolitiikkaa olisi järkevää käyttää jatkuvasti suhdannevaihteluiden tasaamisen. Likviditeettiloukku on harvinainen tilanne, jossa perinteinen rahapolitiikka ei tehoa.

Evolutionary game theory models attempt to explain social norms, which defy rational behaviour, have emerged. This thesis researches if evolutionary game theory model using replicator dynamics can forecast shifts in social norms. Viability of two models from two peer reviewed articles are studied. In “An economist perspective on evolution of norms” by Kenneth Binmore and Larry Samuelson provide learning model using ultimatum game. In “Evolutionary stability and social norms” Rajiv Sethi examines how payoff maximizers fare against norm guided players in prisoner’s dilemma model. Both articles postulate that equilibrium strategies of the models are prevailing social norms of the respective systems. Key concepts of evolutionary game theory are presented. John Maynard Smith and George Price were first to introduce evolutionary stable strategy. If all members of population adept a strategy and no mutant strategy can invade the popula-tion, the original strategy is evolutionarily stable. Stability concept is extended to multi-population systems where repli-cator equations govern dynamics of the systems. Concept of evolutionary stable set is presented. In first of the two models, Binmore and Samuelson describe learning model based on ultimatum game with noise com-ponent. Discrete replicator equations describe dynamics of the model. Binmore and Samuelson find equilibria of the ultimatum game model using several sets of simulations with differing conditions. In the second model Sethi creates two stage prisoner’s dilemma model with eight norms based on pure strategies and payoff maximizers. Continuous replica-tor equations describe dynamics of the model. Sethi finds equilibria of the model analytically. Equilibria of the two models are presented. Study of the equilibria is limited to one simulation in ultimatum game model. In prisoner’s dilemma model study is limited to case where payoff maximizer can identify other strategies. Equilibria of these models is compared to features of social norms. Ultimatum game model removed from further study due lack of multiple equilibria. Long run state of the prisoner’s dilemma model is deterministic. Shifts between social norms do not occur. Stochastic effects are introduced. Stochastic process is added to the prisoner’s dilemma model. Stochastic prisoner’s dilemma model is found to be unsuitable for forecasting. Neither of the presented models can be used for forecasting. Models with best reply dynamics are offered as topic of further research.

Traditional empirical research in economics is focused on statistical inference. Therefore, economists rarely pay attention to model accuracy. Model accuracy is important when the research question is focused on prediction. Many questions in economics can be framed as a prediction problem. Thus, it is necessary to utilize techniques aimed at achieving prediction accuracy. Machine learning is a field that focuses on prediction accuracy. This thesis aims to explain the core concepts behind machine learning and how these can be applied in economics. The concepts introduced in this paper are used to predict house prices. The data are an open source dataset containing over 20000 records of houses sold in Kings County, USA. Three different models are trained on data that exclude variables describing the location of the house: linear regression, decision tree, and random forest. In addition, decision tree, and random forest are also trained on data that contain location variables. The models’ accuracies are examined by making predictions on a subset of data that was not used to train the models. Random forest performs the best as measured by the mean squared error. Using data without location variables, the mean squared error achieved by the random forest is 0.074. Linear regression and decision tree both achieve a mean squared error of 0.090. When location variables are added, the mean squared error of the random forest and decision tree drop to 0.028 and 0.045, respectively. The results suggest that the techniques utilized in machine learning can be applied successfully to economics. Machine learning excels at finding complex interactions between different variables in large amounts of data. As the datasets used in empirical economic research grow in size and complexity, machine learning can provide valuable tools to economists.

Understanding how corporate owners respond to dividend taxation is essential in order to minimize the excess burden caused by it. Dividend taxes reduce the return on investment and may, therefore, distort savings and investment in the economy. Moreover, following the basic setting of a consumer's maximization problem, dividend taxation restricts the consumption funded with dividend, and therefore, may reduce the owner’s willingness to put effort on the firm. However, the empirical evidence of such real responses is somewhat controversial. In this study, I use comprehensive Finnish data on Finnish corporations’ main owners to pursue the existing literature and to provide empirical evidence from Finland. In the analysis, I observe years 2000-2013 and three different dividend tax schedules in use. The data include more than 600,000 observations during the research period. I quantify the intensity of the responses to dividend taxation with the elasticity of taxable income (dividend tax elasticity). The elasticity of taxable income is a key parameter in the efficiency analysis of income taxation. It indicates how much income subject to taxation changes as the net-of-tax rate changes; therefore, it captures most responses to taxation including reduced production, distorted investment decision and tax planning. The majority of the earlier empirical literature has used the Difference-in-Differences (DD) method and a change in the tax rate to estimate the elasticity. However, the recently developed bunching method has several benefits relative to the DD, including fewer assumptions required. The bunching method uses discontinuities in the dividend tax schedule to estimate the dividend tax elasticity. In Finland, the marginal tax rate on dividends increased from 26 % to 40.5 % at a dividend income level of €90,000 in 2006–2011. These kinds of tiers in the marginal tax rates are likely to induce bunching which can be used to estimate the elasticity of taxable income. By using discontinuities in the dividend tax schedule as a source of variation, I find exceptionally clear dividend responses to the increase in a marginal dividend tax rate. The bunching evidence is substantial, and the estimated dividend tax elasticity is approximately 0.5. Furthermore, I study investment responses induced by dividend taxes by exploiting reforms in the dividend tax schedule. While I show that dividend payments respond strongly to dividend taxation, my descriptive analysis of real responses does not suggest that firms facing a dividend tax increase decrease their real investments in the short run. In fact, the descriptive results suggest that most of the responses are related to tax planning such as income-shifting. This topic has not been studied empirically in Finland before. My thesis provides a credible estimate of dividend tax elasticity in Finland. The elasticity of taxable income is a key parameter in evaluating tax policy, as it helps policy planners to estimate the effect a tax cut or an increase may induce. However, the elasticity of taxable income is a function of the tax base and income shifting possibilities and incentives (such as differences among tax bases) among others. Thus, the broadness of the tax base and income shifting incentives need to be taken into account when planning reforms. In addition to the dividend tax elasticity estimate, this thesis provides further description of the behavioral responses and the Finnish income tax system. My descriptive results indicate that, in the short term, Finnish corporate owners are mainly responsive to dividend taxation through tax planning rather than through investment decisions. Thus, dividend income tax reforms motivated solely with short term investment growth effects should be treated with caution.

The aim of this thesis is to enlighten, to what extent an income tax cut is self-financed in Finland. Currently, labour taxation in Finland is relatively high compared to other OECD countries. In addition, the demographic structure of Finland suggests that the same services should shortly be provided for a growing user base. Examining deadweight losses and degrees of self-financing is the building block for making political decisions and thus crucial for improving the effectiveness of taxation. This thesis revolves around the Sørensen´s model, which estimates deadweight losses from taxation and which has been applied to data for Sweden. Aside from the income tax, also tax on consumption, tax on saving and corporate tax are included in the model. In the Swedish context, Sørensen exhibits the total degree of self-financing resulting from a cut in effective marginal tax rate on labour income to be as high as 32,8%. This thesis examines the model in the Finnish case. In order to apply the model to Finland, data is obtained from Statistics Finland as well as the Finnish Ministry of Finance. The end result of this research states that the total degree of self-financing associated with an income tax cut is even larger in Finland than in Sweden, with a value of 39,27%. The thesis concludes in a comparison of the two neighbouring countries. Even though Sweden and Finland both have relatively high taxation, they differ in many aspects. Firstly, the tax base is different in Sweden as opposed to Finland. Secondly, the Swedish negotiation culture has implications on the country´s labour market. In addition, the production structure in Sweden is more diverse and the nation is wealthier in capital goods. Lastly, the calibrations were computed in different years, which affected the parameters used in the calculations. Based on the above, it is imperative that aside from the similarities, there are also vast differences between Sweden and Finland.

Since the collapse of the Soviet Union Russian economy has suffered from high and volatile inflation. In 2014 the Russian central bank announced that it will stop supporting the national currency through market operations and adopt an inflation targeting regime in the beginning of 2015. The announcement of the policy drew a widespread critique in public discussion stating that inflation in Russia has too many sources of non-monetary inflation for an inflation targeting policy to be effective. In this thesis I provide a literature review on the inflation targeting regimes and the non-monetary inflation sources. Further, I analyze non-monetary inflation sources in the context of Russia and present the data available on these sources. In the empirical part of this study I use data on budget deficit, the amount of newly passed laws and prices for housing and utility services in vector autoregression models to find out if these non-monetary inflation sources are statistically significant factors in explaining the changes in inflation expectations in Russia. My results indicate that the role of the non-monetary inflation sources in the effectiveness of the inflation targeting regime has been overstated in the critique voiced at the time of the regime change. While there is a persistent gap between the inflation expectations of consumers and central banks inflation target or the official consumer price index changes, the model that excludes the non-monetary sources is a best fit to explain the expectations.