The Permanent Income Hypothesis: A Test on Czech Privatisation

Since the late eighties, economists have been regarding the transition from command to market economies in Central and Eastern Europe with intense interest. In addition to studying the transition per se, they have begun using the region as a testing ground on which to investigate the validity of certain classic economic propositions. In his research, comprising three articles written in English and totalling 40 pages, Mr. Hanousek uses the so-called "Czech national experiment" (voucher privatisation scheme) to test the permanent income hypothesis (PIH). He took as his inspiration Kreinin's recommendation: "Since data concerning the behaviour of windfall income recipients is relatively scanty, and since such data can constitute an important test of the permanent income hypothesis, it is of interest to bring to bear on the hypothesis whatever information is available". Mr. Hanousek argues that, since the transfer of property to Czech citizens from 1992 to 1994 through the voucher scheme was not anticipated, it can be regarded as windfall income. The average size of the windfall was more than three month's salary and over 60 percent of the Czech population received this unexpected income. Furthermore, there are other reasons for conducting such an analysis in the Czech Republic. Firstly, the privatisation process took place quickly. Secondly, both the economy and consumer behaviour have been very stable. Thirdly, out of a total population of 10 million Czech citizens, an astonishing 6 million, that is, virtually every household, participated in the scheme. Thus Czech voucher privatisation provides a sample for testing the PIH almost equivalent to a full population, thus avoiding problems with the distribution of windfalls. Compare this, for instance with the fact that only 4% of the Israeli urban population received personal restitution from Germany, while the number of veterans who received the National Service Life Insurance Dividends amounted to less than 9% of the US population and were concentrated in certain age groups. But to begin with, Mr. Hanousek considers the question of whether the public percieves the transfer from the state to individual as an increase in net wealth. It can be argued that the state is only divesting itself of assets that would otherwise provide a future source of transfers. According to this argument, assigning these assets to individuals creates an offsetting change in the present value of potential future transfers so that individuals are no better off after the transfer. Mr. Hanousek disagrees with this approach. He points out that a change in the ownership of inefficient state-owned enterprises should lead to higher efficiency, which alone increases the value of enterprises and creates a windfall increase in citizens' portfolios. More importantly, the state and individuals had very different preferences during the transition. Despite government propaganda, it is doubtful that citizens of former communist countries viewed government-owned enterprises as being operated in the citizens' best interest. Moreover, it is unlikely that the public fully comprehended the sophisticated links between the state budget, state-owned enterprises, and transfers to individuals. Finally, the transfers were not equal across the population. Mr. Hanousek conducted a survey on 1263 individuals, dividing them into four monthly earnings categories. After determining whether the respondent had participated in the voucher process, he asked those who had how much of what they received from voucher privatisation had been (a) spent on goods and services, (b) invested elsewhere, (c) transferred to newly emerging pension funds, (d) given to a family member, and (e) retained in their original form as an investment. Both the mean and the variance of the windfall rise with income. He obtained similar results with respect to education, where the mean (median) windfall for those with a basic school education was 13,600 Czech Crowns (CZK), a figure that increased to 15,000 CZK for those with a high school education without exams, 19,900 CZK for high school graduates with exams, and 24,600 CZK for university graduates. Mr. Hanousek concludes that it can be argued that higher income (and better educated) groups allocated their vouchers or timed the disposition of their shares better. He turns next to an analysis of how respondents reported using their windfalls. The key result is that only a relatively small number of individuals reported spending on goods. Overall, the results provide strong support for the permanent income hypothesis, the only apparent deviation being the fact that both men and women aged 26 to 35 apparently consume more than they should if the windfall were annuitised. This finding is still fully consistent with the PIH, however, if this group is at a stage in their life-cycle where, without the windfall, they would be borrowing to finance consumption associated with family formation etc. Indeed, the PIH predicts that individuals who would otherwise borrow to finance consumption would consume the windfall up to the level equal to the annuitised fraction of the increase in lifetime income plus the full amount of the previously planned borrowing for consumption. Greater consumption would then be financed, not from investing the windfall, but from avoidance of future repayment obligations for debts that would have been incurred without the windfall.

Value Choice of Russia in the Reform Process: The Sociological Aspect

The transition in Central and Eastern Europe since the late 1980s has provided a testing ground for classic propositions. This project looked at the impact of privatisation on private consumption, using the Czech experiment of voucher privatisation to test the permanent income hypothesis. This form of privatisation moved state assets to individuals and represented an unexpected windfall gain for participants in the scheme. Whether the windfall was consumed or saved offers a clear test of the permanent income hypothesis. Of a total population of 10 million, 6 million Czechs, i.e. virtually every household, participated in the scheme,. In a January 1996 survey, 1263 individuals were interviewed , 75% of whom had taken part. The data obtained suggests that only a small quantity of transferred assets were cashed in and spent on consumption, providing support for the permanent income hypothesis. The fraction of the windfall consumed grows with age, as would be predicted from the lower life expectancy of older consumers. The most interesting deviation was for people aged 26 to 35, who apparently consumed more that they would if the windfall were annuitised. As these people are at the stage in their lives when they would otherwise be borrowing to cover consumption related to establishing a family, etc., this is however consistent with the permanent income hypothesis, which predicts that individuals who would otherwise borrow money would use the windfall to avoid doing so.

A Comparative Study of Two Semantic Systems: Body Russian and Russian Phraseology

Grigorij Kreidlin (Russia). A Comparative Study of Two Semantic Systems: Body Russian and Russian Phraseology. Mr. Kreidlin teaches in the Department of Theoretical and Applied Linguistics of the State University of Humanities in Moscow and worked on this project from August 1996 to July 1998. The classical approach to non-verbal and verbal oral communication is based on a traditional separation of body and mind. Linguists studied words and phrasemes, the products of mind activities, while gestures, facial expressions, postures and other forms of body language were left to anthropologists, psychologists, physiologists, and indeed to anyone but linguists. Only recently have linguists begun to turn their attention to gestures and semiotic and cognitive paradigms are now appearing that raise the question of designing an integral model for the unified description of non-verbal and verbal communicative behaviour. This project attempted to elaborate lexical and semantic fragments of such a model, producing a co-ordinated semantic description of the main Russian gestures (including gestures proper, postures and facial expressions) and their natural language analogues. The concept of emblematic gestures and gestural phrasemes and of their semantic links permitted an appropriate description of the transformation of a body as a purely physical substance into a body as a carrier of essential attributes of Russian culture - the semiotic process called the culturalisation of the human body. Here the human body embodies a system of cultural values and displays them in a text within the area of phraseology and some other important language domains. The goal of this research was to develop a theory that would account for the fundamental peculiarities of the process. The model proposed is based on the unified lexicographic representation of verbal and non-verbal units in the Dictionary of Russian Gestures, which the Mr. Kreidlin had earlier complied in collaboration with a group of his students. The Dictionary was originally oriented only towards reflecting how the lexical competence of Russian body language is represented in the Russian mind. Now a special type of phraseological zone has been designed to reflect explicitly semantic relationships between the gestures in the entries and phrasemes and to provide the necessary information for a detailed description of these. All the definitions, rules of usage and the established correlations are written in a semantic meta-language. Several classes of Russian gestural phrasemes were identified, including those phrasemes and idioms with semantic definitions close to those of the corresponding gestures, those phraseological units that have lost touch with the related gestures (although etymologically they are derived from gestures that have gone out of use), and phrasemes and idioms which have semantic traces or reflexes inherited from the meaning of the related gestures. The basic assumptions and practical considerations underlying the work were as follows. (1) To compare meanings one has to be able to state them. To state the meaning of a gesture or a phraseological expression, one needs a formal semantic meta-language of propositional character that represents the cognitive and mental aspects of the codes. (2) The semantic contrastive analysis of any semiotic codes used in person-to-person communication also requires a single semantic meta-language, i.e. a formal semantic language of description,. This language must be as linguistically and culturally independent as possible and yet must be open to interpretation through any culture and code. Another possible method of conducting comparative verbal-non-verbal semantic research is to work with different semantic meta-languages and semantic nets and to learn how to combine them, translate from one to another, etc. in order to reach a common basis for the subsequent comparison of units. (3) The practical work in defining phraseological units and organising the phraseological zone in the Dictionary of Russian Gestures unexpectedly showed that semantic links between gestures and gestural phrasemes are reflected not only in common semantic elements and syntactic structure of semantic propositions, but also in general and partial cognitive operations that are made over semantic definitions. (4) In comparative semantic analysis one should take into account different values and roles of inner form and image components in the semantic representation of non-verbal and verbal units. (5) For the most part, gestural phrasemes are direct semantic derivatives of gestures. The cognitive and formal techniques can be regarded as typological features for the future functional-semantic classification of gestural phrasemes: two phrasemes whose meaning can be obtained by the same cognitive or purely syntactic operations (or types of operations) over the meanings of the corresponding gestures, belong by definition to one and the same class. The nature of many cognitive operations has not been studied well so far, but the first steps towards its comprehension and description have been taken. The research identified 25 logically possible classes of relationships between a gesture and a gestural phraseme. The calculation is based on theoretically possible formal (set-theory) correlations between signifiers and signified of the non-verbal and verbal units. However, in order to examine which of them are realised in practice a complete semantic and lexicographic description of all (not only central) everyday emblems and gestural phrasemes is required and this unfortunately does not yet exist. Mr. Kreidlin suggests that the results of the comparative analysis of verbal and non-verbal units could also be used in other research areas such as the lexicography of emotions.