university of turin department of economics modelling household choices of dwelling and local public...
TRANSCRIPT
Presentazione di PowerPointMODELLING HOUSEHOLD CHOICES OF DWELLING
AND LOCAL PUBLIC SERVICES:
A Behavioural Simulation of the Effects of Fiscal Decentralization.
Ugo Colombino
Marilena Locatelli
University of Turin Department of Economics
To estimate a micro-econometric model of residential choice and simulate the effects of alternative systems of fiscal decentralisation upon public finance and household behaviour and welfare.
Purpose
The Model
Derived from the discrete choice approach proposed by McFadden (1978).
Applied to a sample of Italian chief towns of district.
The choice is assumed to depend on personal characteristics, income, structural and environmental characteristics of the dwelling and of the town, local taxes and local expenditure on services and public goods.
University of Turin Department of Economics
The model (cont.)
We assume that the consumer faces a residential location decision among the alternatives belonging to the opportunity set
For consumer h, the alternative produces a utility flow
The consumer h chooses the alternative j if
University of Turin Department of Economics
The model (cont.)
Under the assumption that the are i.i.d. type III Extreme Value, it is well-known that the probability that household h chooses alternative turns out to have the multinomial logit form.
University of Turin Department of Economics
The model (cont.)
We estimate (and simulate) the model under two different specification of the price function that differ as to the assumptions on returns to scale.
If we assume constant returns to scale:
If we assume decreasing return to scale:
University of Turin Department of Economics
The model (cont.)
The model (cont.)
University of Turin Department of Economics
A Behavioural Simulation of Fiscal Decentralization
The total expenditure for local services is kept constant, but it is re-distributed among the different locations, i.e. towns, in such a way that the local expenditures of each town represent the same proportion of the (national) income taxes paid by the households living in that town (the way each town distributes expenditures for local services is not changed).
University of Turin Department of Economics
Sheet1
Table 3. Estimates of the price function - (equation (2.5)) specification A
Variable
Estimate
Rbar-squared: 0.568
University of Turin Department of Economics
Table 9. Estimates of the price function - (equation 2.6) specification B
Variable
Estimate
Rbar-squared: 0.634
F(15,1258): 156.745
Table 4. Estimates of preference parameters - equation (3.1) specification A - (values in 103 Euro)
Mean log-likelihood -6.88009
Table 10. Estimates of preference parameters - equation (3.1) specification B - (values in 103 Euro)
Mean log-likelihood -6.86571
University of Turin Department of Economics
A Behavioural Simulation of Fiscal Decentralization
For each household we compute the expected maximum utility before and after the reform:
University of Turin Department of Economics
Equivalent variation (EV)
The equivalent variation , is a measure of the amount of money necessary to maintain the same level of households’ utility facing under two different fiscal decentralization regimes, which is implicitly defined as:
University of Turin Department of Economics
Efficiency and Equality Effects of the Reform
We compute the iso-elastic social welfare function
University of Turin Department of Economics
Table 5. Efficiency effect of fiscal decentralisation simulation: mean equivalent variation (EV) per family by town – specification A - (values in 103 Euro )
Towns
Table 11. Efficiency effect of fiscal decentralisation simulation: mean equivalent variation (EV) per family by town - specification B - (values 103 Euro)
Town
Sheet1
Decile
Table 12. Efficiency effect of fiscal decentralisation simulation: mean equivalent variation (EV) by income deciles – specification B - (values in 103 Euro)
Decile
Chart2
56.6929133858
43.3070866142
51.968503937
48.031496063
52.7559055118
47.2440944882
57.8125
42.1875
66.1417322835
33.8582677165
65.3543307087
34.6456692913
70.3125
29.6875
56.6929133858
43.3070866142
66.1417322835
33.8582677165
71.6535433071
28.3464566929
% winner
% loser
Sheet1
decile
% winner
% loser
Decile
Obs
Mean
Std.Dev.
Min
Max
1
72
0.56
0.78
0.01
3.53
2
66
0.77
0.71
0.04
2.86
3
67
0.84
0.93
0.03
4.09
4
74
1.11
1.35
0.07
9.11
5
84
1.15
1.08
0.07
5.25
6
83
1.73
1.67
0.08
8.85
7
90
2.33
2.54
0.07
11.55
8
72
1.67
1.55
0.07
8.81
9
84
2.26
2.62
0.07
13.07
10
91
4.07
5.99
0.09
47.83
Total
783
Decile
Obs
Mean
Std.Dev.
Min
Max
1
55
-0.85
0.99
-5.07
-0.05
2
61
-1.08
0.83
-3.33
-0.09
3
60
-1.15
0.91
-3.36
-0.07
4
54
-1.29
1.44
-8.51
-0.04
5
43
-1.18
1.16
-3.72
-0.10
6
44
-0.95
1.22
-5.43
-0.06
7
38
-1.04
1.02
-3.61
-0.11
8
55
-1.29
1.52
-7.89
-0.12
9
43
-1.37
1.61
-5.57
-0.09
10
36
-2.80
3.02
-13.36
-0.22
Total
489
Decile
% winner
% loser
Sheet2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
% winner
% loser
Sheet3
Chart5
55.905511811
44.094488189
54.3307086614
45.6692913386
50
50
55.905511811
44.094488189
64.84375
35.15625
64.84375
35.15625
70.0787401575
29.9212598425
57.03125
42.96875
66.1417322835
33.8582677165
72.8
27.2
% winner
% loser
Sheet1
Decile
Obs
Mean
Std.Dev.
Min
Max
1
71
0.45
0.69
0.01
3.78
2
69
0.66
0.72
0.00
3.75
3
64
0.73
0.89
0.01
4.18
4
71
1.00
1.34
0.05
9.11
5
83
1.05
0.91
0.05
3.22
6
83
1.50
1.51
0.06
8.59
7
89
2.28
2.58
0.05
12.11
8
73
1.62
1.58
0.05
8.72
9
84
1.99
2.29
0.02
10.19
10
91
4.10
6.77
0.09
56.89
778
Decile
Obs
Mean
Std.Dev.
Min
Max
1
56
-0.78
1.02
-5.48
-0.02
2
58
-0.96
0.85
-3.32
-0.04
3
64
-1.09
0.84
-3.15
-0.05
4
56
-1.10
1.00
-3.52
-0.03
5
45
-1.30
1.68
-9.15
-0.09
6
45
-0.96
1.19
-4.96
-0.07
7
38
-0.96
0.98
-3.14
-0.10
8
55
-1.24
1.56
-8.31
-0.04
9
43
-1.35
1.63
-5.95
-0.09
10
34
-2.80
2.83
-11.76
-0.19
494
1272
Decile
% winner
% loser
1
55.91
44.09
127
100
2
54.33
45.67
127
100
3
50.00
50.00
128
100
4
55.91
44.09
127
100
5
64.84
35.16
128
100
6
64.84
35.16
128
100
7
70.08
29.92
127
100
8
57.03
42.97
128
100
9
66.14
33.86
127
100
10
72.80
27.20
125
100
1272
Percent of winners and losers in the simulation A and B, by decile of income
(observations per decile = 100)
Sheet2
Sheet3
Sheet1
Decile
Obs
Mean
Std.Dev.
Min
Max
1
71
0.45
0.69
0.01
3.78
2
69
0.66
0.72
0.00
3.75
3
64
0.73
0.89
0.01
4.18
4
71
1.00
1.34
0.05
9.11
5
83
1.05
0.91
0.05
3.22
6
83
1.50
1.51
0.06
8.59
7
89
2.28
2.58
0.05
12.11
8
73
1.62
1.58
0.05
8.72
9
84
1.99
2.29
0.02
10.19
10
91
4.10
6.77
0.09
56.89
778
Decile
Obs
Mean
Std.Dev.
Min
Max
1
56
-0.78
1.02
-5.48
-0.02
2
58
-0.96
0.85
-3.32
-0.04
3
64
-1.09
0.84
-3.15
-0.05
4
56
-1.10
1.00
-3.52
-0.03
5
45
-1.30
1.68
-9.15
-0.09
6
45
-0.96
1.19
-4.96
-0.07
7
38
-0.96
0.98
-3.14
-0.10
8
55
-1.24
1.56
-8.31
-0.04
9
43
-1.35
1.63
-5.95
-0.09
10
34
-2.80
2.83
-11.76
-0.19
494
1272
Decile
% winner
% loser
1
55.91
44.09
127
100
2
54.33
45.67
127
100
3
50.00
50.00
128
100
4
55.91
44.09
127
100
5
64.84
35.16
128
100
6
64.84
35.16
128
100
7
70.08
29.92
127
100
8
57.03
42.97
128
100
9
66.14
33.86
127
100
10
72.80
27.20
125
100
1272
Percent of winners and losers in the simulation A and B, by decile of income
Obs.
Sheet2
Sheet3
Sheet1
Table 7. Estimate of equivalent variation (EV) function – specification A -
(values in 103 Euro)
University of Turin Department of Economics
Table 13. Estimate of equivalent variation (EV) function - specification B - (values in 103 Euro)
Variable
Estimate
Rbar-squared: 0.312
F(9,1264): 65.015
University of Turin Department of Economics
Table 8. Welfare effect of a fiscal decentralisation reform – specification A -
2
w
University of Turin Department of Economics
Table 14. Welfare effect of a fiscal decentralisation reform - specification B -
2
w
Conclusions
Results support the hypothesis that dwelling quality, location and local public services affect residential choice decisions, giving a quantitative measure of their relevance.
Since residential choice decisions of individual households are affected by the actions of local government, in a decentralised system, the local government, through its expenditure and tax decisions, can influence the socio-economic composition of its population and consequently the size of its tax base.
University of Turin Department of Economics
Conclusions (cont.)
the reform is efficient, since the overall mean value of EV is positive but it produces different disequalizing effect depending on the chosen specification.
()
-
-
mean equivalent variation (EV) by
income deciles
(values in 10
per family by town
variation (EV) by income deciles – specification A - (values in 10
3
Euro)
-
0.23
Percent of winners and losers in the simulation A and B, by decile of income
Obs.
112757435644
212752485446
312853475050
412758425644
512866346535
612865356535
712770307030
812857435743
912766346634
1012772287327
(EV) per family by town
-
0.53
VERONA
22
4.19
3.07
1.18
11.96
Table 3. Estimates of the price function - (equation (2.5)) specification A
VariableEstimateStd. error t-value
Rbar-squared: 0.568
F(6,1267 ): 296.378
Table 8.
–
-
0
10
20
30
40
50
60
70
80
90
100
12345678910
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12345678910
A Behavioural Simulation of the Effects of Fiscal Decentralization.
Ugo Colombino
Marilena Locatelli
University of Turin Department of Economics
To estimate a micro-econometric model of residential choice and simulate the effects of alternative systems of fiscal decentralisation upon public finance and household behaviour and welfare.
Purpose
The Model
Derived from the discrete choice approach proposed by McFadden (1978).
Applied to a sample of Italian chief towns of district.
The choice is assumed to depend on personal characteristics, income, structural and environmental characteristics of the dwelling and of the town, local taxes and local expenditure on services and public goods.
University of Turin Department of Economics
The model (cont.)
We assume that the consumer faces a residential location decision among the alternatives belonging to the opportunity set
For consumer h, the alternative produces a utility flow
The consumer h chooses the alternative j if
University of Turin Department of Economics
The model (cont.)
Under the assumption that the are i.i.d. type III Extreme Value, it is well-known that the probability that household h chooses alternative turns out to have the multinomial logit form.
University of Turin Department of Economics
The model (cont.)
We estimate (and simulate) the model under two different specification of the price function that differ as to the assumptions on returns to scale.
If we assume constant returns to scale:
If we assume decreasing return to scale:
University of Turin Department of Economics
The model (cont.)
The model (cont.)
University of Turin Department of Economics
A Behavioural Simulation of Fiscal Decentralization
The total expenditure for local services is kept constant, but it is re-distributed among the different locations, i.e. towns, in such a way that the local expenditures of each town represent the same proportion of the (national) income taxes paid by the households living in that town (the way each town distributes expenditures for local services is not changed).
University of Turin Department of Economics
Sheet1
Table 3. Estimates of the price function - (equation (2.5)) specification A
Variable
Estimate
Rbar-squared: 0.568
University of Turin Department of Economics
Table 9. Estimates of the price function - (equation 2.6) specification B
Variable
Estimate
Rbar-squared: 0.634
F(15,1258): 156.745
Table 4. Estimates of preference parameters - equation (3.1) specification A - (values in 103 Euro)
Mean log-likelihood -6.88009
Table 10. Estimates of preference parameters - equation (3.1) specification B - (values in 103 Euro)
Mean log-likelihood -6.86571
University of Turin Department of Economics
A Behavioural Simulation of Fiscal Decentralization
For each household we compute the expected maximum utility before and after the reform:
University of Turin Department of Economics
Equivalent variation (EV)
The equivalent variation , is a measure of the amount of money necessary to maintain the same level of households’ utility facing under two different fiscal decentralization regimes, which is implicitly defined as:
University of Turin Department of Economics
Efficiency and Equality Effects of the Reform
We compute the iso-elastic social welfare function
University of Turin Department of Economics
Table 5. Efficiency effect of fiscal decentralisation simulation: mean equivalent variation (EV) per family by town – specification A - (values in 103 Euro )
Towns
Table 11. Efficiency effect of fiscal decentralisation simulation: mean equivalent variation (EV) per family by town - specification B - (values 103 Euro)
Town
Sheet1
Decile
Table 12. Efficiency effect of fiscal decentralisation simulation: mean equivalent variation (EV) by income deciles – specification B - (values in 103 Euro)
Decile
Chart2
56.6929133858
43.3070866142
51.968503937
48.031496063
52.7559055118
47.2440944882
57.8125
42.1875
66.1417322835
33.8582677165
65.3543307087
34.6456692913
70.3125
29.6875
56.6929133858
43.3070866142
66.1417322835
33.8582677165
71.6535433071
28.3464566929
% winner
% loser
Sheet1
decile
% winner
% loser
Decile
Obs
Mean
Std.Dev.
Min
Max
1
72
0.56
0.78
0.01
3.53
2
66
0.77
0.71
0.04
2.86
3
67
0.84
0.93
0.03
4.09
4
74
1.11
1.35
0.07
9.11
5
84
1.15
1.08
0.07
5.25
6
83
1.73
1.67
0.08
8.85
7
90
2.33
2.54
0.07
11.55
8
72
1.67
1.55
0.07
8.81
9
84
2.26
2.62
0.07
13.07
10
91
4.07
5.99
0.09
47.83
Total
783
Decile
Obs
Mean
Std.Dev.
Min
Max
1
55
-0.85
0.99
-5.07
-0.05
2
61
-1.08
0.83
-3.33
-0.09
3
60
-1.15
0.91
-3.36
-0.07
4
54
-1.29
1.44
-8.51
-0.04
5
43
-1.18
1.16
-3.72
-0.10
6
44
-0.95
1.22
-5.43
-0.06
7
38
-1.04
1.02
-3.61
-0.11
8
55
-1.29
1.52
-7.89
-0.12
9
43
-1.37
1.61
-5.57
-0.09
10
36
-2.80
3.02
-13.36
-0.22
Total
489
Decile
% winner
% loser
Sheet2
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
% winner
% loser
Sheet3
Chart5
55.905511811
44.094488189
54.3307086614
45.6692913386
50
50
55.905511811
44.094488189
64.84375
35.15625
64.84375
35.15625
70.0787401575
29.9212598425
57.03125
42.96875
66.1417322835
33.8582677165
72.8
27.2
% winner
% loser
Sheet1
Decile
Obs
Mean
Std.Dev.
Min
Max
1
71
0.45
0.69
0.01
3.78
2
69
0.66
0.72
0.00
3.75
3
64
0.73
0.89
0.01
4.18
4
71
1.00
1.34
0.05
9.11
5
83
1.05
0.91
0.05
3.22
6
83
1.50
1.51
0.06
8.59
7
89
2.28
2.58
0.05
12.11
8
73
1.62
1.58
0.05
8.72
9
84
1.99
2.29
0.02
10.19
10
91
4.10
6.77
0.09
56.89
778
Decile
Obs
Mean
Std.Dev.
Min
Max
1
56
-0.78
1.02
-5.48
-0.02
2
58
-0.96
0.85
-3.32
-0.04
3
64
-1.09
0.84
-3.15
-0.05
4
56
-1.10
1.00
-3.52
-0.03
5
45
-1.30
1.68
-9.15
-0.09
6
45
-0.96
1.19
-4.96
-0.07
7
38
-0.96
0.98
-3.14
-0.10
8
55
-1.24
1.56
-8.31
-0.04
9
43
-1.35
1.63
-5.95
-0.09
10
34
-2.80
2.83
-11.76
-0.19
494
1272
Decile
% winner
% loser
1
55.91
44.09
127
100
2
54.33
45.67
127
100
3
50.00
50.00
128
100
4
55.91
44.09
127
100
5
64.84
35.16
128
100
6
64.84
35.16
128
100
7
70.08
29.92
127
100
8
57.03
42.97
128
100
9
66.14
33.86
127
100
10
72.80
27.20
125
100
1272
Percent of winners and losers in the simulation A and B, by decile of income
(observations per decile = 100)
Sheet2
Sheet3
Sheet1
Decile
Obs
Mean
Std.Dev.
Min
Max
1
71
0.45
0.69
0.01
3.78
2
69
0.66
0.72
0.00
3.75
3
64
0.73
0.89
0.01
4.18
4
71
1.00
1.34
0.05
9.11
5
83
1.05
0.91
0.05
3.22
6
83
1.50
1.51
0.06
8.59
7
89
2.28
2.58
0.05
12.11
8
73
1.62
1.58
0.05
8.72
9
84
1.99
2.29
0.02
10.19
10
91
4.10
6.77
0.09
56.89
778
Decile
Obs
Mean
Std.Dev.
Min
Max
1
56
-0.78
1.02
-5.48
-0.02
2
58
-0.96
0.85
-3.32
-0.04
3
64
-1.09
0.84
-3.15
-0.05
4
56
-1.10
1.00
-3.52
-0.03
5
45
-1.30
1.68
-9.15
-0.09
6
45
-0.96
1.19
-4.96
-0.07
7
38
-0.96
0.98
-3.14
-0.10
8
55
-1.24
1.56
-8.31
-0.04
9
43
-1.35
1.63
-5.95
-0.09
10
34
-2.80
2.83
-11.76
-0.19
494
1272
Decile
% winner
% loser
1
55.91
44.09
127
100
2
54.33
45.67
127
100
3
50.00
50.00
128
100
4
55.91
44.09
127
100
5
64.84
35.16
128
100
6
64.84
35.16
128
100
7
70.08
29.92
127
100
8
57.03
42.97
128
100
9
66.14
33.86
127
100
10
72.80
27.20
125
100
1272
Percent of winners and losers in the simulation A and B, by decile of income
Obs.
Sheet2
Sheet3
Sheet1
Table 7. Estimate of equivalent variation (EV) function – specification A -
(values in 103 Euro)
University of Turin Department of Economics
Table 13. Estimate of equivalent variation (EV) function - specification B - (values in 103 Euro)
Variable
Estimate
Rbar-squared: 0.312
F(9,1264): 65.015
University of Turin Department of Economics
Table 8. Welfare effect of a fiscal decentralisation reform – specification A -
2
w
University of Turin Department of Economics
Table 14. Welfare effect of a fiscal decentralisation reform - specification B -
2
w
Conclusions
Results support the hypothesis that dwelling quality, location and local public services affect residential choice decisions, giving a quantitative measure of their relevance.
Since residential choice decisions of individual households are affected by the actions of local government, in a decentralised system, the local government, through its expenditure and tax decisions, can influence the socio-economic composition of its population and consequently the size of its tax base.
University of Turin Department of Economics
Conclusions (cont.)
the reform is efficient, since the overall mean value of EV is positive but it produces different disequalizing effect depending on the chosen specification.
()
-
-
mean equivalent variation (EV) by
income deciles
(values in 10
per family by town
variation (EV) by income deciles – specification A - (values in 10
3
Euro)
-
0.23
Percent of winners and losers in the simulation A and B, by decile of income
Obs.
112757435644
212752485446
312853475050
412758425644
512866346535
612865356535
712770307030
812857435743
912766346634
1012772287327
(EV) per family by town
-
0.53
VERONA
22
4.19
3.07
1.18
11.96
Table 3. Estimates of the price function - (equation (2.5)) specification A
VariableEstimateStd. error t-value
Rbar-squared: 0.568
F(6,1267 ): 296.378
Table 8.
–
-
0
10
20
30
40
50
60
70
80
90
100
12345678910
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
12345678910