This paper develops an overlapping generations model that links a public health system to a pay-a... more This paper develops an overlapping generations model that links a public health system to a pay-as-you-go (PAYG) pension system. It relies on two assumptions. First, the health system directly finances curative health spending on the elderly. Second, public pensions partially depend on health status by introducing a component indexed to society's average level of old-age disability. Reducing the average disability rate in the economy then lowers pension benefits as the need to finance long-term care services also drops. We study the effects of introducing such a 'comprehensive' Social Security system on individual decisions, capital accumulation, and welfare. We first show that health investments can boost savings and capital accumulation under certain conditions. Second, if individuals are sufficiently concerned with their health when old, it is optimal to introduce a health-dependent pension system, as this will raise social welfare compared to a system where pensions are not tied to the society's average level of old-age disability. Our analysis thus highlights an important policy recommendation: making PAYG pension schemes partially health-dependent can be beneficial to society.
Looking at continental Europe over the last weeks, it seems the relative calm of the vaccine summ... more Looking at continental Europe over the last weeks, it seems the relative calm of the vaccine summer is over. The vaccines work wonderfully but are not a miracle cure. Austria is a painful example, where vaccination rates are low in mountainous areas (63% of total population), but much higher around Vienna (70%). And just as doctors in rural Salzburg were deciding between life and death three weeks ago, the situation got out of hand in Vienna as well. This culminated into a national lockdown, 2020 style.
Academic rigour, journalistic flair COVID-19 is an unprecedented doom loop between a severe healt... more Academic rigour, journalistic flair COVID-19 is an unprecedented doom loop between a severe health crisis and grave economic repercussions. Government interventions to handle the outbreak and its aftermath first stopped public life in its tracks and then entirely reshaped it. This has left us in a kind of "new normal", in which social interactions and labour conditions will probably never be the same again. An experimental research study suggests that when people are thinking about the health crisis, they express less trust in politicians and political institutions such as the
Better health not only boosts longevity in itself, it also postpones the initial onset of disabil... more Better health not only boosts longevity in itself, it also postpones the initial onset of disability and chronic inrmity to a later age. In this paper we examine the potential eects of such compression of morbidity' on pensions, and introduce a health-dependent dimension to the standard pay-as-you-go (PAYG) pension scheme. Studying the long-term implications of such a system in a simple overlapping generations framework, we nd that an increase in public health investment can augment capital accumulation in the long run. Because of this, the combination of health investment with a partially health-dependent PAYG scheme may in fact outperform a purely PAYG system in terms of lifetime welfare.
In this paper we develop a private-collective model of voluntary public knowledge production, whe... more In this paper we develop a private-collective model of voluntary public knowledge production, where group-based social preferences have an impact on coalition formation. Our theoretical model builds on the large empirical literature on voluntary production of pooled public knowledge goods, including source code in communities of software developers or data provided to open access data repositories. Our analysis shows under which conditions social preferences such as 'group belonging' or 'peer approval' influence stable coalition size, as such rationalising several stylized facts emerging from large scale surveys of Free/Libre/Open-Source software developers (David and Shapiro, 2008), previously unaccounted for. Furthermore, heterogeneity of social preferences is added to the model to study the formation of stable, but mixed coalitions.
Lower-level governments often receive federal support through transfers or bailouts. We study how... more Lower-level governments often receive federal support through transfers or bailouts. We study how the regional or local ties of federal politicians can steer this process. We build a two-tier model of government, where regionally elected federal legislators bargain over federal support aimed at their own constituency. This leads to strategic voting on the regional level. Federal legislators are strategically elected to watch over the interests of their own region, cushioning shocks to local consumption and driving down borrowing costs. Lower-level legislators anticipate this, which sets the stage for regional overspending both if they receive annual grants, or when a bailout scheme is introduced during periods of crisis. As long as these federal co-funding schemes imply some degree of interregional redistribution, voters strategically select federal representatives with more extreme positions than the median voter. This prediction is confirmed by our empirical analysis, where we com...
The dissertation collects three theoretical essays which zoom in on the drawbacks as well as adva... more The dissertation collects three theoretical essays which zoom in on the drawbacks as well as advantages of decentralised taxation in a federal context. The first essay studies the combined effect of vertical and horizontal tax competition, and finds the interaction between both types of externalities is more ambiguous than commonly understood. As a result, fiscal equalisation mechanisms fail to fully uphold efficiency. In a second essay, the soft budget constraint problem is analysed, where lower-level governments over-borrow because they expect a bailout from the federal government if needed. Explicitly modelling federal elections, the model sheds light on the logrolling and favour trading of regionally elected politicians in a federal coalition, which leads to more over-borrowing by the regions. The last essay investigates the feedback loop between decentralised tax autonomy and local growth-enhancing policies, which is self-reinforcing due to the fiscal incentives of politicians to attract additional revenues. Given a certain degree of decentralised public functions, expanding local tax autonomy is shown to unambiguously boost voter welfare in this context.status: publishe
Looking at the Belgian federation, where 10% of the working population commutes across the border... more Looking at the Belgian federation, where 10% of the working population commutes across the borders of three small regions, a case can be made for studying commuting flows in a federal constellation. In this paper, commuting is introduced to a federal setting where an ad valorem residence based tax on labour income is fully decentralised. This has lower-level (state) governments set inefficiently low taxes not to attract more workers, but to boost labour supply of own residents and hamper labour supplied by non-residents. When the labour tax base is co-occupied by the federal and state governments alternatively, either public under- or overprovision may occur. Our model identifies clear conditions for states to overprovide, i.e. for the overall fiscal externality to be negative. Moreover, such a negative externality may arise even when the vertical as well as horizontal externalities are positive in isolation, and one would rather expect underprovision. Lastly, when states differ in ...
This paper develops an overlapping generations model that links a public health system to a pay-a... more This paper develops an overlapping generations model that links a public health system to a pay-as-you-go (PAYG) pension system. It relies on two assumptions. First, the health system directly finances curative health spending on the elderly. Second, public pensions partially depend on health status by introducing a component indexed to society's average level of old-age disability. Reducing the average disability rate in the economy then lowers pension benefits as the need to finance long-term care services also drops. We study the effects of introducing such a 'comprehensive' Social Security system on individual decisions, capital accumulation, and welfare. We first show that health investments can boost savings and capital accumulation under certain conditions. Second, if individuals are sufficiently concerned with their health when old, it is optimal to introduce a health-dependent pension system, as this will raise social welfare compared to a system where pensions are not tied to the society's average level of old-age disability. Our analysis thus highlights an important policy recommendation: making PAYG pension schemes partially health-dependent can be beneficial to society.
Looking at continental Europe over the last weeks, it seems the relative calm of the vaccine summ... more Looking at continental Europe over the last weeks, it seems the relative calm of the vaccine summer is over. The vaccines work wonderfully but are not a miracle cure. Austria is a painful example, where vaccination rates are low in mountainous areas (63% of total population), but much higher around Vienna (70%). And just as doctors in rural Salzburg were deciding between life and death three weeks ago, the situation got out of hand in Vienna as well. This culminated into a national lockdown, 2020 style.
Academic rigour, journalistic flair COVID-19 is an unprecedented doom loop between a severe healt... more Academic rigour, journalistic flair COVID-19 is an unprecedented doom loop between a severe health crisis and grave economic repercussions. Government interventions to handle the outbreak and its aftermath first stopped public life in its tracks and then entirely reshaped it. This has left us in a kind of "new normal", in which social interactions and labour conditions will probably never be the same again. An experimental research study suggests that when people are thinking about the health crisis, they express less trust in politicians and political institutions such as the
Better health not only boosts longevity in itself, it also postpones the initial onset of disabil... more Better health not only boosts longevity in itself, it also postpones the initial onset of disability and chronic inrmity to a later age. In this paper we examine the potential eects of such compression of morbidity' on pensions, and introduce a health-dependent dimension to the standard pay-as-you-go (PAYG) pension scheme. Studying the long-term implications of such a system in a simple overlapping generations framework, we nd that an increase in public health investment can augment capital accumulation in the long run. Because of this, the combination of health investment with a partially health-dependent PAYG scheme may in fact outperform a purely PAYG system in terms of lifetime welfare.
In this paper we develop a private-collective model of voluntary public knowledge production, whe... more In this paper we develop a private-collective model of voluntary public knowledge production, where group-based social preferences have an impact on coalition formation. Our theoretical model builds on the large empirical literature on voluntary production of pooled public knowledge goods, including source code in communities of software developers or data provided to open access data repositories. Our analysis shows under which conditions social preferences such as 'group belonging' or 'peer approval' influence stable coalition size, as such rationalising several stylized facts emerging from large scale surveys of Free/Libre/Open-Source software developers (David and Shapiro, 2008), previously unaccounted for. Furthermore, heterogeneity of social preferences is added to the model to study the formation of stable, but mixed coalitions.
Lower-level governments often receive federal support through transfers or bailouts. We study how... more Lower-level governments often receive federal support through transfers or bailouts. We study how the regional or local ties of federal politicians can steer this process. We build a two-tier model of government, where regionally elected federal legislators bargain over federal support aimed at their own constituency. This leads to strategic voting on the regional level. Federal legislators are strategically elected to watch over the interests of their own region, cushioning shocks to local consumption and driving down borrowing costs. Lower-level legislators anticipate this, which sets the stage for regional overspending both if they receive annual grants, or when a bailout scheme is introduced during periods of crisis. As long as these federal co-funding schemes imply some degree of interregional redistribution, voters strategically select federal representatives with more extreme positions than the median voter. This prediction is confirmed by our empirical analysis, where we com...
The dissertation collects three theoretical essays which zoom in on the drawbacks as well as adva... more The dissertation collects three theoretical essays which zoom in on the drawbacks as well as advantages of decentralised taxation in a federal context. The first essay studies the combined effect of vertical and horizontal tax competition, and finds the interaction between both types of externalities is more ambiguous than commonly understood. As a result, fiscal equalisation mechanisms fail to fully uphold efficiency. In a second essay, the soft budget constraint problem is analysed, where lower-level governments over-borrow because they expect a bailout from the federal government if needed. Explicitly modelling federal elections, the model sheds light on the logrolling and favour trading of regionally elected politicians in a federal coalition, which leads to more over-borrowing by the regions. The last essay investigates the feedback loop between decentralised tax autonomy and local growth-enhancing policies, which is self-reinforcing due to the fiscal incentives of politicians to attract additional revenues. Given a certain degree of decentralised public functions, expanding local tax autonomy is shown to unambiguously boost voter welfare in this context.status: publishe
Looking at the Belgian federation, where 10% of the working population commutes across the border... more Looking at the Belgian federation, where 10% of the working population commutes across the borders of three small regions, a case can be made for studying commuting flows in a federal constellation. In this paper, commuting is introduced to a federal setting where an ad valorem residence based tax on labour income is fully decentralised. This has lower-level (state) governments set inefficiently low taxes not to attract more workers, but to boost labour supply of own residents and hamper labour supplied by non-residents. When the labour tax base is co-occupied by the federal and state governments alternatively, either public under- or overprovision may occur. Our model identifies clear conditions for states to overprovide, i.e. for the overall fiscal externality to be negative. Moreover, such a negative externality may arise even when the vertical as well as horizontal externalities are positive in isolation, and one would rather expect underprovision. Lastly, when states differ in ...
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Papers by Willem Sas