Dynamic Effects of Labor Income Taxation in an Unequal Schumpeterian Economy By Angus C. CHU, Chih-Hsing LIAO and Pietro PERETTO Forthcoming in European Economics Review Abstract: How does taxation affect growth and inequality? To study this question, we develop a Schumpeterian model in which wealth heterogeneity influences the effects of tax policy. The key mechanism is that a change in consumption dispersion across heterogeneous households due to a change in labor income taxation can cause a novel positive effect on the employment of poor households in addition to the usual negative effect on the employment of rich households. Together, these [...]

Unit Root Tests for Explosive Financial Bubbles in the Presence of Deterministic Level Shifts By David I. HARVEY, Stephen J. LEYBOURNE, Benjiamin S. TATLOW, Yang ZU Forthcoming in Oxford Bulletin of Economics and Statistics Abstract: This article considers the issue of testing for an explosive bubble in financial time series in the presence of deterministic level shifts. We demonstrate that the sign-based variants of the Phillips-Shi-Yu test retain their asymptotic validity in the presence of level shifts under a weak restriction on the number of shifts that occur. This is in contrast to the original Phillips-Shi-Yu test which only remains [...]

Natural Selection and Innovation-Driven Growth By Angus C. CHU, Guido COZZI, Haichao FAN and Dongmin HU Forthcoming in Macroeconomic Dynamics Abstract: This paper examines how the interaction between natural selection, household education choices and R&D activities influences macroeconomic growth. We develop an innovation-driven growth model that integrates household heterogeneity in educational ability with endogenous fertility and the activation of innovation. Our findings reveal that households with lower educational abilities accumulate less human capital but have more offspring and initially gain a temporary evolutionary advantage. This demographic shift enhances the likelihood of innovation taking off; however, the resulting reduction in the [...]

Estimating Time-varying Networks for High-dimensional Time Series By Jia Chen, Degui Li, Yu-Ning Li and Oliver Linton Forthcoming in Journal of Econometrics Abstract: We explore time-varying networks for high-dimensional locally stationary time series, using the large VAR model framework with both the transition and (error) precision matrices evolving smoothly over time. Two types of time-varying graphs are investigated: one containing directed edges of Granger causality linkages, and the other containing undirected edges of partial correlation linkages. Under the sparse structural assumption, we propose a penalised local linear method with time-varying weighted group LASSO to jointly estimate the transition matrices and [...]

Food Demand and Intertemporal Allocation of Food Expenditure By H. Youn Kim and K. K. Gary Wong Forthcoming in Economic Analysis and Policy Abstract: Existing studies on food consumption often ignore nonfood and fail to account for intertemporal allocation of food expenditure, which leads to a biased inference in food consumption analysis. To address this issue, the present paper proposes an integrated analysis of food demand and intertemporal food consumption via intertemporal two-stage budgeting with nonfood. A restricted indirect utility function is specified conditional on food expenditure with given nonfood, and unrestricted demand functions are derived for food and nonfood [...]

Optimal patent policy and wealth inequality in a Schumpeterian economy By Angus C. Chu and Chih-Hsing Liao Published in Journal of Macroeconomics Abstract: Does wealth inequality affect optimal patent policy? This study develops a Schumpeterian growth model with heterogeneous households to explore this question. Our model features a general innovation specification that nests two common specifications: (a) the knowledge-driven specification that uses R&D labor, and (b) the lab-equipment specification that uses final output for R&D. Under the knowledge-driven specification, all households prefer the same level of patent protection. However, under the lab-equipment specification, less wealthy households prefer weaker patent protection, [...]

Strategic responses to personalized pricing and demand for privacy: An experiment By Inácio Bó, Li Chen and Rustamdjan Hakimov Published in Games and Economic Behavior Abstract: We consider situations in which consumers are aware that a statistical model determines the price of a product based on their observed behavior. Using a novel experiment varying the context similarity between participant data and a product, we find that participants manipulate their responses to a survey regarding personal characteristics, and manipulation is more successful when the contexts are similar. Moreover, participants demand less privacy, and make less optimal privacy choices when the contexts [...]

Testing for Equal Average Forecast Accuracy in Possibly Unstable Environments By David I. Harvey, Stephen J. Leybourne and Yang Zu Published in Journal of Business & Economic Statistics Abstract: We consider the issue of testing the null of equal average forecast accuracy in a model where the forecast error loss differential series has a potentially non-constant mean function over time. We show that when time variation is present in the loss differential mean, the standard Diebold and Mariano (1995) test, which was proposed for evaluating forecasts in a stable environment, has an asymptotic size of zero, and, whilst consistent, can [...]

A new heteroskedasticity-robust test for explosive bubbles By David I. Harvey, Stephen J. Leybourne, A. M. Robert Taylor and Yang Zu Published in Journal of Time Series Analysis Abstract: We propose a new class of modified regression-based tests for detecting asset price bubbles designed to be robust to the presence of general forms of both conditional and unconditional heteroskedasticity in the price series. This modification, based on the approach developed in Beare (2018) in the context of conventional unit root testing, is achieved by purging the impact of unconditional heteroskedasticity from the data using a kernel estimate of volatility before [...]

Human Brain Evolution in a Malthusian Economy By Angus C. Chu Forthcoming in Marcoeconomic Dynamics Abstract: Why did the human brain evolve? This study develops a Malthusian growth model with heterogeneous agents and natural selection to explore the evolution of human brain size. We find that if the cognitive advantage of a larger brain dominates its higher metabolic costs, then the average brain size increases over time, which is consistent with the rising trend in human brain size that started over 2 million years ago. Furthermore, an improvement in hunting-gathering productivity (e.g., the discovery of using stone tools and fire in [...]