Publications

Working Papers

Work in progress

  • Bethencourt, C. & Kunze, L. (2017). Like father, like son: Inheriting and bequeathing. Forthcoming German Economic Review.

    This paper incorporates indirect reciprocal behavior in the context of bequeathing decisions into an otherwise standard OLG model. We provide conditions for the ex- istence of a unique steady state with operative bequests. Contrary to standard OLG models, we show that taking into account such behavioral interactions allows one to rationalize both an increasing and U-shaped pattern of the inheritance to GDP ratio over time, consistent with recent empirical evidence. Moreover, the model predicts a non-linear (U-shaped) relationship between the size of an unfunded social security program and the long-run stock of per capita capital, which in turn provides a novel explanation of the inconclusive empirical findings on the relationship between social security, savings and long-run growth. Ricardian equivalence is shown to hold in a special case of the model.

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  • Bethencourt, C. & Kunze, L. (2017). Temptation and the efficient taxation of education and labor. Forthcoming Metroeconomica, DOI 10.1111/meca.12160.

    This paper studies efficient tax policies in Ramsey's tradition when consumers face temptation and self control problems in inter-temporal decision making. We embed the class of preferences developed by Gul and Pesendorfer into a simple two-period life-cycle model and show that education should be effectively subsidized if the elasticity of the earnings function is increasing in education and if temptation problems are sufficiently severe. By contrast, if temptation problems are not sufficiently severe, efficient education policy calls for taxing education. Moreover, efficient labor taxation calls for subsidizing qualified labor if the strength of temptation is sufficiently large.

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  • Bethencourt, C., & Tang, B. (2017). Asymmetric Unemployment-Output Tradeoff in the Eurozone. Journal of Policy Modeling, 39, 461-481.

    This study investigates the asymmetric unemployment-output tradeoff in the Eurozone. Building upon the augmented Okun's law framework, the relationships between unemployment and output cannot be correctly specified in the static linear, static asymmetric and dynamic linear regressions. By contrast, the nonlinear autoregressive distributed lag (NARDL) model is well-specified and in this case indicates that the nature of Okun's law is asymmetric. For the Eurozone, the NARDL estimates demonstrate that labour markets quickly respond to cyclical outputs in a short period, while the adjustments towards new equilibrium become weak in the long run. Furthermore, the cross-sectional analysis of long run asymmetries indicates that government spending and trade balance are key factors affecting the asymmetric unemployment-output tradeoff. Thus, these results seem to suggest that, in spite of the fact that member states lack monetary sovereignty, flexible application of fiscal reforms or labour market reforms could help to reduce asymmetric effects.

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  • Bethencourt, C. & Kunze, L. (2015). The Political Economies of Redistribution, Inequality and Tax Avoidance. Public Choice, 163, 267-287.

    A central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality. However, empirical evidence supporting such a relationship turns out to be mixed. This paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement. By focusing on structure-induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement, we show that more inequality may well reduce the extent of redistribution, depending on two opposing effects: the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue.

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  • Bethencourt, C. & Perera-Tallo, F. (2015). Declining predation during development: A feedback process. Economica, 82, 253-294.

    Empirical evidence suggests that poorer countries have larger amounts of predation. We formulate a neoclassical growth model in which agents devote time to either produce or predate. When the elasticity of substitution between labour and capital is lower than one, the labour share rises with capital, reducing the incentive to predate and increasing the incentive to produce throughout the transition. Consequently, a feedback process between capital accumulation and predation arises, which amplifies income differences generated by differences in productivity. This paper helps to explain why differences between countries have remained stable and the key role that institutions play in development.

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  • Morera-Fernandez, M., Bethencourt-Marrero, C., Morera-Fumero, A., Diaz-Mesa, E., Yelmo-Cruz, S., & Suarez-Benitez, N. (2014). EPA-0308 – Suicide Rates and Economic Crisis in Spain. European Psychiatry, 29, Supplement 1(0), 1.

    Introduction: An increase of suicide rates have been associated with periods of economic crisis. Suicide rates in Spain are the first cause of non- natural death, having surpassed traffic crash rates. Aims: To study if the economic crisis affected the suicide rates and antidepressant consumption. Methods: Suicide rates were extracted from the Spanish Statistic National Institute. Data about antidepressant consumption were extracted from the web page of the Spanish Department of National Health. Mean rate of suicide and mean rate of antidepressant consumption prior (2005-2007) and during the economic crisis (2008-2010) were compared. Data on antidepressant consumption are presented as antidepressant units per 100 people/year. Suicide rates are presented as rate per 100.000 people/year. Data are presented as mean ± standard deviation. Results: Unemployment mean rate was 9.2 ± 1.4 before the economic crisis, while it was 17.7 ± 20.5 during the economic crisis (p = 0.03). Mean rate of suicide before the economic crisis was 7.7 ± 0.19 while during the crisis was 7.2 ± 0.14 (p = 0.15). Antidepressant consumption increased significantly (p = 0.02) before the crisis (48.5 ± 11.9) compared to the crisis period (59.7 ± 16.7). Conclusions: Our data show that during the Spanish economic crisis there was not an increase in the suicide rate but the antidepressant consumption increased significantly. Our results point to the fact that the Spanish population in time of economic crisis tend to take antidepressants instead of committing suicide.

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  • Bethencourt, C., & Ríos-Rull, J. (2009). On the living arrangements of elderly widows. International Economic Review, 50(3), 773-801.

    Between 1970 and 1990, the share of elderly widows living alone grew by 23.2% in the United States, whereas those living with their children decreased by a similar amount. We pose a variety of models for determining the living arrangements in which living together increases consumption because of economies of scale and may also provide utility directly. We estimate these models using the 1970 data and obtain an excellent fit. The estimated models predict that changes in the incomes of both the widow and her offspring generate three-quarters of the increase in the number of widows living alone.

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  • Bethencourt, C., & Galasso, V. (2008). Political complements in the welfare state: Health care and social security. Journal of Public Economics, 92(3–4), 609-632.

    All OECD countries target a large majority of their welfare spending to the elderly, through public pensions and health care programs. Spending in both programs has largely increased in the past decades — often more than the share of elderly in the population. We suggest that these phenomena may be due to political complementarities between these two transfer programs. We show that these two programs may coexist, because public health care may increase the political constituency in favor of social security, and vice-versa. Specifically, public health decreases the absolute longevity differential between low and high-income individuals, therefore rising the retirement period and the total pension benefits of the former relatively to the latter. This effect increases the political support for social security among the low-income young. We show that in a political equilibrium of a two-dimensional majoritarian election, a voting majority of low-income young and retirees supports a large welfare state; the composition between public health and social security is determined by intermediate (median) income types, who favor the contemporaneous existence of these two programs, since public health increases their longevity enough to make social security more attractive. Technological improvements in health care strengthens this complementarity and lead to more welfare spending.

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  • Bethencourt, C., & Tang, B. (June 2015). Asymmetric Unemployment-Output Tradeoff in the Eurozone.

    This study investigates the asymmetric unemployment-output tradeoff in the Eurozone. Building upon the augmented Okun's law framework, the relationships between unemployment and output cannot be correctly specified in the static linear, static asymmetric and dynamic linear regressions. By contrast, the nonlinear autoregressive distributed lag (NARDL) model is well-specified and in this case indicates that the nature of Okun's law is asymmetric. For the Eurozone, the NARDL estimates demonstrate that labour markets quickly respond to cyclical outputs in a short period, while the adjustments towards new equilibrium become weak in the long run. Furthermore, the cross-sectional analysis of long run asymmetries indicates that government spending and trade balance are key factors affecting the asymmetric unemployment-output tradeoff. Thus, these results seem to suggest that, in spite of the fact that member states lack monetary sovereignty, flexible application of fiscal reforms or labour market reforms could help to reduce asymmetric effects.

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  • Bethencourt, C., & Perera-Tallo, F. (2015). On the Complementarities between Human Capital and Public Revenues: Consequences for Development.

    While there is solid empirical evidence about the significant returns to education at micro level, this relationship at macro level is more controversial, especially in developing countries. A possible explanation for this puzzle is the unproductive uses of human capital. This paper proposes a novel theory about the way in which human capital is allocated along the development process. Human capital has four possible uses: to produce private goods (private sector), to produce public goods, to collect taxes (bureaucrats) and to provide public education. At the initial stage of development, countries are characterized by low levels of human capital with a high return, which is devoted in a large portion to the private sector, due to low tax collection. The portion of human capital devoted to bureaucracy and public education grows along the transition, while the portion devoted to the private sector is declining. This may explain why the increase of human capital does not have the expected impact on production that the high private return on human capital would predict. Empirical evidence seems to support the fundamentals and implications of the model.

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  • Bethencourt, C., & Perera-Tallo, F. (Feb. 13, 2015). Growth and Aid: a Hump-Shaped Relation.

    Empirical findings show that the effect of aid on growth is ambiguous. We build a growth model in which the government receives aid in order to finance a productive public good and agents devote time to appropriate public resources. International aid raises public resources, increasing the provision of the productive public good but promoting rent-seeking. Consequently, the relationship between aid and growth results hump-shaped: too much aid is counterproductive for growth, particularly when institutions are weak. International aid transmits the growth of the donor to the receptor country, but an excessive amount of it may harm income convergence and even prevent convergence among ex-ante identical countries.

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  • Bethencourt, C. & Kunze, L. (Feb. 2015). Tax Evasion, Social Norms and Economic Growth.

    This paper proposes a theoretical model to account for the most relevant micro- and macroeconomic empirical facts in the tax evasion literature. To do so, we integrate tax morale into a dynamic overlapping generations model of capital income tax evasion. Tax morale is modeled as a social norm for tax compliance. It is shown that accounting for such nonpecuniary costs of evasion may not only explain (i) why some taxpayers never evade even if the gamble is profitable, and (ii) how a higher tax rate can increase evasion, but also that (iii) the share of evaded taxes over GDP decreases with the stage of economic development and (iv) that tax morale is positively correlated with the level of GDP per capita, as suggested by recent empirical evidence. Finally, a higher tax rate increases aggregate evasion as well as the number of evaders in the economy when taxpayers decisions are interdependent. Simulations highlight the quantitative importance of our findings.

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  • Bethencourt, C. & Kunze, L. (Feb. 2015). On the Intergenerational Nature of Criminal Behavior.

    Empirical evidence suggests that family background and parental criminality are strong predictors of an individuals’ criminal behavior. The aim of this paper is to provide a theoretical foundation of the intergenerational nature of criminal behavior. Drawing on the literature of cultural transmission, we model the dynamics of moral norms of good conduct (honest behavior). Individuals’ criminal behavior and morality are strategic complementarities that reinforce each other. We establish the existence of multiple steady states and provide conditions on the socialization process under which both types - honest and dishonest - survive in the long run even though parents may commit crime but at the same time agree that honesty is desirable. Our model provides a novel and complementary explanation of why crime is highly concentrated in specific areas and why it tends to be persistent over time.

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  • Bethencourt, C. (Dec. 2014). Crime and Social Expenditure: A Political Economic Approach.

    High-income and less unequal societies are associated with both lower rates of economic crimes and larger public programs to deter crime. This paper suggests that redistributive effects generated by a crime-control program contribute to explain these facts. Retirees are beneficiaries of the system since they are mostly victims of crimes. Rich young agents, in spite of paying more taxes, become net receivers since they devote relatively less time to criminal activities than poorer ones; thus, a regressive intra-generational redistributive effect arises. All in all, a crime-control program is politically supported by a coalition of high-income young agents and retirees.

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  • Bethencourt, C., & Perera-Tallo, F. (Dec. 2014). Optimal Retirement Age and Ageing Population.

    We study the effect of ageing population on the optimal retirement age that maximizes social welfare. An increase in longevity reduces per capita labor and raises the optimal retirement age. A drop in fertility increases the weight of seniors, reducing per capita labor, but diminishes the weight of children and raises the weight of more experienced workers, generating the opposite effect on per capita labor. Despite of these offsetting mechanisms, we provide a precise yardstick to determine the net effect of a drop in fertility on both labor supply and optimal retirement, which can be easily obtained from the data.

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  • Bethencourt, C., & Perera-Tallo, F. (Oct. 2014). Predation and Sectorial Composition along Development.

    Predation attracts a relatively high portion of labor in developing countries and obstructs development. We formulate a model in which agents devote time either to predation or to producing agricultural and manufactured goods with the following features: a subsistence level of agricultural goods must be reached and, consequently, poor countries devote more resources to agriculture; agriculture is more land intensive and, thus, has a lower labor share than manufacturing; and incentives to devote time to production increase with the labor share. A structural change occurs throughout the transition: the share of manufactured goods in GDP increases, raising the labor share and discouraging predation. This mechanism involves an amplification effect of the differences in productivity among countries due to the reallocation of labor from predation to production. Finally, institutional quality plays a crucial role in this process, since it discourages predation and fosters the labor reallocation.

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  • Bethencourt, C., & Sánchez-Marcos, V. (Aug. 2014). The Effect of Public Pensions on Women's Labor Market Participation over a Full Life-Cycle.

    We use a life-cycle model of household savings and female labor market participation decisions to evaluate several reforms of the US Social Security pension system. In our model returns to labor market experience apply, so participation decisions affect not only current earnings and Social Security pension eligibility but also future earnings. We measure the effect of removing spousal benefit, removing the survivor's pension and extending from 35 to 40 the number of periods preceding retirement that are considered to calculate each worker's pension benefit. We find that the effects are substantial on female labor market participation from age 35.

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  • Bethencourt, C. (Apr. 2014). The Living Arrangements of Elderly Widows, their Children and their Children's Spouses.

    The aim of this paper is to investigate the role that the marital status of children has in shaping the living arrangements of their widowed mothers and themselves and to explain the increase in the proportion of elderly widows living alone, which grew by 23.2% in U.S. between 1970 and 1990. We propose a model where living arrangements are determined as the outcome of a game between the mother and her child, and where the fundamentals of the model depend on children’s marital status. We estimate the model using 1970 data. We calculate the accuracy of the estimation and we obtain an excellent fit. Using the same measure of accuracy, the estimated model predicts that changes in the incomes of both the widow and her offspring and changes in the children’s marital status generate more than the 83% of the increase in the number of widows living alone.

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I'm currently working on the following:

- "Education, Family Composition, Fertility and Trend" with José-Víctor Ríos-Rull

Carlos Bethencourt