Three Essays on the Formation and Impact of Economic Policy

Introduction In my thesis I argue that economic policy is all about economics and politics. Consequently, analysing and understanding economic policy ideally has at least two parts. The economics part, which is centered around the expected impact of a specific policy on the real economy both in terms of efficiency and equity. The insights of this part point into which direction the fine-tuning of economic policies should go. However, fine-tuning of economic policies will be most likely subject to political constraints. That is why, in the politics part, a much better understanding can be gained by taking into account how the incentives of politicians and special interest groups as well as the role played by different institutional features affect the formation of economic policies. The first part and chapter of my thesis concentrates on the efficiency-related impact of economic policies: how does corporate income taxation in general, and corporate income tax progressivity in specific, affect the creation of new firms? Reduced progressivity and flat-rate taxes are in vogue. By 2009, 22 countries are operating flat-rate income tax systems, as do 7 US states and 14 Swiss cantons (for corporate income only). Tax reform proposals in the spirit of the "flat tax" model typically aim to reduce three parameters: the average tax burden, the progressivity of the tax schedule, and the complexity of the tax code. In joint work, Marius Brülhart and I explore the implications of changes in these three parameters on entrepreneurial activity, measured by counts of firm births in a panel of Swiss municipalities. Our results show that lower average tax rates and reduced complexity of the tax code promote firm births. Controlling for these effects, reduced progressivity inhibits firm births. Our reading of these results is that tax progressivity has an insurance effect that facilitates entrepreneurial risk taking. The positive effects of lower tax levels and reduced complexity are estimated to be significantly stronger than the negative effect of reduced progressivity. To the extent that firm births reflect desirable entrepreneurial dynamism, it is not the flattening of tax schedules that is key to successful tax reforms, but the lowering of average tax burdens and the simplification of tax codes. Flatness per se is of secondary importance and even appears to be detrimental to firm births. The second part of my thesis, which corresponds to the second and third chapter, concentrates on how economic policies are formed. By the nature of the analysis, these two chapters draw on a broader literature than the first chapter. Both economists and political scientists have done extensive research on how economic policies are formed. Thereby, researchers in both disciplines have recognised the importance of special interest groups trying to influence policy-making through various channels. In general, economists base their analysis on a formal and microeconomically founded approach, while abstracting from institutional details. In contrast, political scientists' frameworks are generally richer in terms of institutional features but lack the theoretical rigour of economists' approaches. I start from the economist's point of view. However, I try to borrow as much as possible from the findings of political science to gain a better understanding of how economic policies are formed in reality. In the second chapter, I take a theoretical approach and focus on the institutional policy framework to explore how interactions between different political institutions affect the outcome of trade policy in presence of special interest groups' lobbying. Standard political economy theory treats the government as a single institutional actor which sets tariffs by trading off social welfare against contributions from special interest groups seeking industry-specific protection from imports. However, these models lack important (institutional) features of reality. That is why, in my model, I split up the government into a legislative and executive branch which can both be lobbied by special interest groups. Furthermore, the legislative has the option to delegate its trade policy authority to the executive. I allow the executive to compensate the legislative in exchange for delegation. Despite ample anecdotal evidence, bargaining over delegation of trade policy authority has not yet been formally modelled in the literature. I show that delegation has an impact on policy formation in that it leads to lower equilibrium tariffs compared to a standard model without delegation. I also show that delegation will only take place if the lobby is not strong enough to prevent it. Furthermore, the option to delegate increases the bargaining power of the legislative at the expense of the lobbies. Therefore, the findings of this model can shed a light on why the U.S. Congress often practices delegation to the executive. In the final chapter of my thesis, my coauthor, Antonio Fidalgo, and I take a narrower approach and focus on the individual politician level of policy-making to explore how connections to private firms and networks within parliament affect individual politicians' decision-making. Theories in the spirit of the model of the second chapter show how campaign contributions from lobbies to politicians can influence economic policies. There exists an abundant empirical literature that analyses ties between firms and politicians based on campaign contributions. However, the evidence on the impact of campaign contributions is mixed, at best. In our paper, we analyse an alternative channel of influence in the shape of personal connections between politicians and firms through board membership. We identify a direct effect of board membership on individual politicians' voting behaviour and an indirect leverage effect when politicians with board connections influence non-connected peers. We assess the importance of these two effects using a vote in the Swiss parliament on a government bailout of the national airline, Swissair, in 2001, which serves as a natural experiment. We find that both the direct effect of connections to firms and the indirect leverage effect had a strong and positive impact on the probability that a politician supported the government bailout.

Subjective Memory Deficits in People with and without Dementia: Findings from the 10/66 Dementia Research Group Pilot Studies in Low- and Middle-Income Countries

OBJECTIVES To compare subjective memory deficit (SMD) in older adults with and without dementia or depression across multiple centers in low- and middle-income countries (LAMICs). DESIGN Secondary analysis of data from 23 case control studies. SETTING Twenty-three centers in India, Southeast Asia (including China), Latin America and the Caribbean, Nigeria, and Russia. PARTICIPANTS Two thousand six hundred ninety-two community-dwelling people aged 60 and older in one of three groups: people with dementia, people with depression, and controls free of dementia and depression. MEASUREMENTS SMD was derived from the Geriatric Mental State examination. RESULTS Median SMD frequency was lowest in participants without dementia (26.2%) and higher in those with depression (50.0%) and dementia (66.7%). Frequency of SMD varied between centers. Depression and dementia were consistently associated with SMD. Older age and hypochondriasis were associated with SMD only in subjects without dementia. In those with dementia, SMD was associated with better cognitive function, whereas the reverse was the case in controls. CONCLUSION Associations with SMD may differ between subjects with and without dementia living in LAMICs.

Lessons learned from developing a national NCD programme in low- and middle-income countries (Seychelles)

This paper identifies selected issues and lessons learned from the implementation of a national program of prevention and control of non-communicable diseases (NCD) during the past 20 years in the Seychelles, a small island state in the African region. As early as in 1989, population-based surveys demonstrated high levels of several cardiovascular risk factors, which prompted an organized response by the government. The early creation of a NCD unit within the Ministry of Health, coupled with cooperation with international partners, enabled incremental capacity building and coherent development of NCD programs and policy. Information campaigns and screening for hypertension and diabetes in work/public places raised awareness and rallied increasingly broad awareness and support to NCD prevention and control. A variety of interventions were organized for tobacco control and comprehensive tobacco control legislation was enacted in 2009 (including total bans on tobacco advertising and on smoking in all enclosed public and work places). A recent School Nutrition Policy prohibits the sale of soft drinks in schools. At primary health care level, guidelines were developed for the management of hypertension and diabetes (these conditions are managed in all health centers within a national health system); regular interactive education sessions were organized for groups of high risk patients ("heart health club"); and specialized "NCD nurses" were trained. Decreasing prevalence of smoking is evidence of success, but the raising "diabesity epidemic" calls for strengthened health care to high-risk patients and broader multisectoral policy to mould an environment conducive to healthy behaviors. Key components of NCD prevention and control in Seychelles include effective surveillance mechanisms supplemented by focused research; generating broad interest and consensus on the need for prevention and control of NCD; mobilizing leadership and commitment at all levels; involving local and international expertise; building on existing efforts; and seeking integrated, multi-disciplinary and multisectoral approaches.

Predicted effect of climate change on the invasibility and distribution of the Western corn root-worm

1 Insect pests, biological invasions and climate change are considered to representmajor threats to biodiversity, ecosystem functioning, agriculture and forestry.Deriving hypothesis of contemporary and/or future potential distributions of insectpests and invasive species is becoming an important tool for predicting the spatialstructure of potential threats.2 The western corn rootworm (WCR) Diabrotica virgifera virgifera LeConte is apest of maize in North America that has invaded Europe in recent years, resultingin economic costs in terms of maize yields in both continents. The present studyaimed to estimate the dynamics of potential areas of invasion by the WCR under aclimate change scenario in the Northern Hemisphere. The areas at risk under thisscenario were assessed by comparing, using complementary approaches, the spatialprojections of current and future areas of climatic favourability of the WCR. Spatialhypothesis were generated with respect to the presence records in the native rangeof the WCR and physiological thresholds from previous empirical studies.3 We used a previously developed protocol specifically designed to estimatethe climatic favourability of the WCR. We selected the most biologicallyrelevant climatic predictors and then used multidimensional envelope (MDE) andMahalanobis distances (MD) approaches to derive potential distributions for currentand future climatic conditions.4 The results obtained showed a northward advancement of the upper physiologicallimit as a result of climate change, which might increase the strength of outbreaksat higher latitudes. In addition, both MDE and MD outputs predict the stability ofclimatic favourability for the WCR in the core of the already invaded area in Europe,which suggests that this zone would continue to experience damage from this pestin Europe.

Healthy, wealthy, wise, and happy? An exploratory analysis of the interplay between aging and subjective well-being in low and middle income countries

In this paper, we address the relationship between age and several dimension of subjective well-being. Whilst literature generally finds a U-shaped age-profile in subjective well-being, this age-pattern might only hold after controlling for objective life circumstances. The observed U-shaped age-profile might further not generalize to other dimensions of well-being and might vary across countries and cultures. Our study examines the relationship between age and several dimensions of well-being as well as the effect of objective life circumstances using the WHO Study on Global AGEing and Adult Health (SAGE). Our results suggest a decreasing age profile in the raw data associated with evaluative well-being, while experienced well-being shows a rather flat or slightly increasing pattern. However, age per se is not a cause of a decline in evaluative well-being. The negative age-profile in evaluative well-being is mainly explained by changes in life circumstances associated with aging. Controlling for socio-demographic factors, we find higher levels of well-being for older persons relative to their middle-aged counterparts. In contrast, we find that changes in life circumstances have a much smaller effect on experienced well-being.

Effect of irrigation water on the incidence of Salmonella spp. on lettuces produced by urban agriculture and sold on the markets in Dakar, Senegal

The aim of our survey was to assess the effect of irrigation water of the microbiological quality on the production chain of lettuce in the Dakar area. Microbiological analysis showed that 35% of irrigation water was contaminated by Salmonella spp. between the two water-types used for irrigation (groundwater and wastewater), no significant difference (p>0.05) in their degree of contamination was found. The incidence of different types of irrigation water on the contamination rate of lettuces from the farm (Pikine and Patte d'Oie) was not different either (p>0.05). However, the contamination rate of lettuce from markets of Dalifort and Grand-Yoff that were supplied by the area of Patte d'Oie was greater than those of Sham and Zinc supplied by Pikine (p<0.05). Comparison of serotypes of Salmonella isolated from irrigation water and lettuce showed that irrigation water may affect the microbiological quality of lettuce. Manures, frequently used as organic amendment in cultivating lettuce are another potential source of contamination. These results showed that lettuce may constitute effective vectors for the transmission of pathogens to consumers. Extensive treatment of the used wastewater and/or composting of manure could considerably reduce these risks.

2

The driving force behind arbuscular mycorrhizal (AM) interactions is an exchange of nutrients between fungus and plant. Glomeromycotan fungi are obligate symbionts and rely on the carbon provided by their plant hosts to complete their life cycle. In return, the fungus provides nutritional benefits to the plant, notably by delivering minerals. The majority of the nutrient exchange is thought to occur in root cortical cells containing the highly-branched fungal arbuscules. In this chapter, we describe the molecular components of the arbusculated cell and the proteins involved in the transfer of nutrients between fungus and plants. We consider, in detail, the passage of phosphorous and nitrogen from the soil to the arbusculated cell and the concomitant delivery of carbon to the fungal symbiont. In natural conditions, the exchange of nutrients does not need to be completely equitable and selective pressure may act on both partners to push the balance in their favour. In cultivated plants, the artificial environment may further distort the balance. We discuss how a better understanding of the molecular regulation of nutrient transfer benefits attempts to optimise AM associations for agriculture use.

Socioeconomic determinants of dietary patterns in low- and middle-income countries : a systematic review

BACKGROUND: In high-income countries, high socioeconomic status (SES) is generally associated with a healthier diet, but whether social differences in dietary intake are also present in low- and middle-income countries (LMICs) remains to be established. OBJECTIVE: We performed a systematic review of studies that assessed the relation between SES and dietary intake in LMICs. DESIGN: We carried out a systematic review of cohort and cross-sectional studies in adults in LMICs and published between 1996 and 2013. We assessed associations between markers of SES or urban and rural settings and dietary intake. RESULTS: A total of 33 studies from 17 LMICs were included (5 low-income countries and 12 middle-income countries; 31 cross-sectional and 2 longitudinal studies). A majority of studies were conducted in Brazil (8), China (6), and Iran (4). High SES or living in urban areas was associated with higher intakes of calories; protein; total fat; cholesterol; polyunsaturated, saturated, and monounsaturated fatty acids; iron; and vitamins A and C and with lower intakes of carbohydrates and fiber. High SES was also associated with higher fruit and/or vegetable consumption, diet quality, and diversity. Although very few studies were performed in low-income countries, similar patterns were generally observed in both LMICs except for fruit intake, which was lower in urban than in rural areas in low-income countries. CONCLUSIONS: In LMICs, high SES or living in urban areas is associated with overall healthier dietary patterns. However, it is also related to higher energy, cholesterol, and saturated fat intakes. Social inequalities in dietary intake should be considered in the prevention and control of noncommunicable diseases in LMICs.

Cost-effectiveness of surgery in low- and middle-income countries: a systematic review.

BACKGROUND: There is increasing interest in provision of essential surgical care as part of public health policy in low- and middle-income countries (LMIC). Relatively simple interventions have been shown to prevent death and disability. We reviewed the published literature to examine the cost-effectiveness of simple surgical interventions which could be made available at any district hospital, and compared these to standard public health interventions. METHODS: PubMed and EMBASE were searched using single and combinations of the search terms "disability adjusted life year" (DALY), "quality adjusted life year," "cost-effectiveness," and "surgery." Articles were included if they detailed the cost-effectiveness of a surgical intervention of relevance to a LMIC, which could be made available at any district hospital. Suitable articles with both cost and effectiveness data were identified and, where possible, data were extrapolated to enable comparison across studies. RESULTS: Twenty-seven articles met our inclusion criteria, representing 64 LMIC over 16 years of study. Interventions that were found to be cost-effective included cataract surgery (cost/DALY averted range US$5.06-$106.00), elective inguinal hernia repair (cost/DALY averted range US$12.88-$78.18), male circumcision (cost/DALY averted range US$7.38-$319.29), emergency cesarean section (cost/DALY averted range US$18-$3,462.00), and cleft lip and palate repair (cost/DALY averted range US$15.44-$96.04). A small district hospital with basic surgical services was also found to be highly cost-effective (cost/DALY averted 1 US$0.93), as were larger hospitals offering emergency and trauma surgery (cost/DALY averted US$32.78-$223.00). This compares favorably with other standard public health interventions, such as oral rehydration therapy (US$1,062.00), vitamin A supplementation (US$6.00-$12.00), breast feeding promotion (US$930.00), and highly active anti-retroviral therapy for HIV (US$922.00). CONCLUSIONS: Simple surgical interventions that are life-saving and disability-preventing should be considered as part of public health policy in LMIC. We recommend an investment in surgical care and its integration with other public health measures at the district hospital level, rather than investment in single disease strategies.

Cardiovascular disease and the changing face of global public health : a focus on low and middle income countries

Eighty percent of the global 17 million deaths due to cardiovascular disease (CVD) occur in low and middle income countries (LMICs). The burden of CVD and other noncommunicable diseases (NCDs) is expected to markedly increase because of the global aging of the population and increasing exposure to detrimental lifestyle-related risk in LMICs. Interventions to reduce four main risks related to modifiable behaviors (tobacco use, unhealthy diet, low physical activity and excess alcohol consumption) are key elements for effective primary prevention of the four main NCDs (CVD, cancer, diabetes and chronic pulmonary disease). These behaviors are best improved through structural interventions (e.g., clean air policy, taxes on cigarettes, new recipes for processed foods with reduced salt and fat, urban shaping to improve mobility, etc.). In addition, health systems in LMICs should be reoriented to deliver integrated cost-effective treatment to persons at high risk at the primary health care level. The full implementation of a small number of highly cost effective, affordable and scalable interventions ("best buys") is likely to be the necessary and sufficient ingredient for curbing NCDs in LMICs. NCDs are both a cause and a consequence of poverty. It is therefore important to frame NCD prevention and control within the broader context of social determinants and development agenda. The recent emphasis on NCDs at a number of health and economic forums (including the September 2011 High Level Meeting on NCDs at the United Nations) provides a new opportunity to move the NCD agenda forward in LMICs.

Screening for cardiovascular disease risk and subsequent management in low and middle income countries : challenges and opportunities

Background: Cardiovascular disease (CVD), mainly heart attack and stroke, is the leading cause of premature mortality in low and middle income countries (LMICs). Identifying and managing individuals at high risk of CVD is an important strategy to prevent and control CVD, in addition to multisectoral population-based interventions to reduce CVD risk factors in the entire population. Methods: We describe key public health considerations in identifying and managing individuals at high risk of CVD in LMICs. Results: A main objective of any strategy to identify individuals at high CVD risk is to maximize the number of CVD events averted while minimizing the numbers of individuals needing treatment. Scores estimating the total risk of CVD (e.g. ten-year risk of fatal and non-fatal CVD) are available for LMICs, and are based on the main CVD risk factors (history of CVD, age, sex, tobacco use, blood pressure, blood cholesterol and diabetes status). Opportunistic screening of CVD risk factors enables identification of persons with high CVD risk, but this strategy can be widely applied in low resource settings only if cost effective interventions are used (e.g. the WHO Package of Essential NCD interventions for primary health care in low resource settings package) and if treatment (generally for years) can be sustained, including continued availability of affordable medications and funding mechanisms that allow people to purchase medications without impoverishing them (e.g. universal access to health care). This also emphasises the need to re-orient health systems in LMICs towards chronic diseases management.

Topics in public finance: social security and taxation

Summary The field of public finance focuses on the spending and taxing activities of governments and their influence on the allocation of resources and distribution of income. This work covers in three parts different topics related to public finance which are currently widely discussed in media and politics. The first two parts deal with issues on social security, which is in general one of the biggest spending shares of governments. The third part looks at the main income source of governments by analyzing the perceived value of tax competition. Part one deals with the current problem of increased early retirement by focusing on Switzerland as a special case. Early retirement is predominantly considered to be the result of incentives set by social security and the tax system. But the Swiss example demonstrates that the incidence of early retirement has dramatically increased even in the absence of institutional changes. We argue that the wealth effect also plays an important role in the retirement decision for middle and high income earners. An actuarially fair, but mandatory funded system with a relatively high replacement rate may thus contribute to a low labor market participation rate of elderly workers. We provide evidence using a unique dataset on individual retirement decisions in Swiss pension funds, allowing us to perfectly control for pension scheme details. Our findings suggest that affordability is a key determinant in the retirement decisions. The higher the accumulated pension capital, the earlier men, and to a smaller extent women, tend to leave the workforce. The fact that early retirement has become much more prevalent in the last 15 years is a further indicator of the importance of a wealth effect, as the maturing of the Swiss mandatory funded pension system over that period has led to an increase in the effective replacement rates for middle and high income earners. Part two covers the theoretical side of social security. Theories analyzing optimal social security benefits provide important qualitative results, by mainly using one general type of an economy. Economies are however very diverse concerning numerous aspects, one of the most important being the wealth level. This can lead to significant quantitative benefit differences that imply differences in replacement rates and levels of labor supply. We focus on several aspects related to this fact. In a within cohort social security model, we introduce disability insurance with an imperfect screening mechanism. We then vary the wealth level of the model economy and analyze how the optimal social security benefit structure or equivalently, the optimal replacement rates, changes depending on the wealth level of the economy, and if the introduction of disability insurance into a social security system is preferable for all economies. Second, the screening mechanism of disability insurance and the threshold level at which people are defined as disabled can differ. For economies with different wealth levels, we determine for different thresholds the screening level that maximizes social welfare. Finally, part three turns to the income of governments, by adding an element to the controversy on tax competition versus tax harmonization.2 Inter-jurisdictional tax competition can generate at least two potential benefits or costs: On a public level, tax competition may result in a lower or higher efficiency in the production of public services. But there is also a more private benefit in the form of an option for individuals to move to a community with a lower tax rate in the future. To explore the value citizens attach to tax competition we analyze a unique popular vote for a complete tax harmonization between communities in the third largest Swiss canton, Vaud. Although a majority of voters would have seemingly benefited from replacing the current tax rate by a revenue-neutral average tax rate, the proposal was rejected by a large margin. Our estimates suggest that the estimated combined perceived benefit from tax competition is in the range of 10%.