Etla » Public finance, economic policy

The Nordic Welfare Model after the financial crisis – Challenges and possible solutions (NORWELL)

Pekka Vanhala — Tue, 27 Aug 2013 09:53:21 +0000

The overall objective of the NORWELL project is to

scrutinize the current competitiveness of the Nordic Model,

identify key challenges,

recommend evidence-based policy solutions.

For more information, please visit the project homepage.

Modelling housing market frictions – tools for policy analysis

admin — Tue, 09 Oct 2012 11:13:28 +0000

The housing market does not work nearly as smoothly as the market for most other type of assets or consumption goods. Since houses are all different, there is no single market price for houses which could be easily observed. The aim of this research project is to develop economic models and methods that account for aforementioned fundamental frictions and that can be used to analyse various housing policies or evaluate how certain trends show up in the housing market.

The central feature of housing is that it comes embedded in indivisible and heterogeneous units which are tied to a certain geographical location. What we refer to as houses or flats are really bundles of land and structures in a given neighbourhood. The quality of land is inherently heterogeneous because locations differ in their attractiveness. The supply of structures is also more or less fixed at least in the short term.

The heterogeneity and indivisibility of houses is a crucial issue to take into account when considering housing policies such as land development, construction regulation and public housing programs. Since the distribution of existing houses is largely fixed, different supply side policies, for instance, can have very different effects depending on the type of houses that are constructed. These price effects may in turn have distributional effects. Housing demand subsidies have similar non trivial effects on the distribution of housing prices. The heterogeneity and indivisibility of houses also imply that the housing market does not work nearly as smoothly as the market for most other type of assets or consumption goods.

The general aim of this research project is to develop economic models and methods that account for aforementioned fundamental frictions and that can be used to analyse various housing policies or evaluate how certain trends show up in the housing market. We also need empirical measures about the supply constraints. Ideally, we have the value and availability of land in different locations. Therefore, one important part of the research project is to produce policy relevant information on local housing supply conditions in Finland using state-of-the-art GIS (geographical information systems) techniques.

Researchers: Essi Eerola (Government Institute for Economic Research), Niku Määttänen (Research Institute of the Finnish Economy), Tuukka Saarimaa (Government Institute for Economic Research), Marko Terviö (Aalto University)

Housing wealth, retirement income, and public finances

admin — Tue, 09 Oct 2012 11:08:23 +0000

Majority of Finnish households have most of their wealth in the form of housing. Retired households could supplement their mandatory pension benefits by releasing housing equity. The simplest way to release housing equity is to move to a smaller house or to become a renter. Another option is to purchase a reverse mortgage. Housing wealth can also be used to buy a lifetime annuity. We compare different ways of releasing housing equity both in terms of household welfare and in terms of fiscal revenues.

Researchers: Niku Määttänen (ETLA) ja Tarmo Valkonen (ETLA)

Municipal Pension Finances And Privatization of Municipal Services

admin — Fri, 21 Sep 2012 15:05:56 +0000

When a municipality chooses whether to produce a service by its own work force or to acquire it from a private producer, it affects the funding of the earnings-related pension system of municipal sector employees, and that has repercussions on all other municipalities and also on the private sector pension system. We study how the financial sustainability of the two pension systems is affected by these interconnections and whether they distort the choices and lead to inefficient outcomes.

The study is carried out in cooperation with the Finnish Centre for Pensions and Keva by Jukka Lassila, Niku Määttänen ja Tarmo Valkonen. The project will be completed in the autumn 2012.

Aging households and the Nordic welfare model (AGHON)

admin — Fri, 21 Sep 2012 14:52:00 +0000

Household structures are changing throughout Nordic and other developed countries. These changes – couples postponing childbearing, increasing shares of divorced and other single mothers and fathers, more people in old age living alone – will have important implications for the sustainability of the Nordic welfare model, whose essential features are related to households and families. These include large transfers to households, publicly provided health and long-term care services, large public spending on child care and education, and extensive female participation in labour markets.

The shifts in family positions are concurrent and intertwined with other demographic changes. Increasing longevity, e.g., makes it more and more important whether people in old ages live alone or not. It is thus important to study family and household developments and other demographic changes together.

Our aim is to amend the analysis of population aging and its economic consequences with the analysis of changing household structures and their economic consequences. Recent studies have shown that estimates concerning the economic consequences of population aging are highly uncertain. These studies have built on quantitative research concerning the errors in population projections. Household aspects will add new dimensions to these uncertainty studies. It is important to evaluate the consequences of these new quantified uncertainties on the projections concerning the economic outcomes with aging populations.

The main novelty is that the project combines statistical analysis of household types with economic analysis of population aging. Probabilistic household projections, which describe the developments of different household types and quantify the uncertainty in these descriptions, will be used jointly with computable general equilibrium models and partial models describing household behaviour under uncertainty.

This research project is carried out by a Nordic consortium during years 2009-2012. The participants from ETLA are Eija Kauppi, Jukka Lassila, Niku Määttänen and Tarmo Valkonen. Other partners are University of Eastern Finland (Juha Alho), Copenhagen Business School (Svend E. Hougaard Jensen), CEBR (Rasmus Jacobsen) and University of Oslo (Nico Keilman and Solveig Christiansen).

Lengthening of Working Careers and Economic Impacts of Finnish Mandatory Pension System

admin — Fri, 21 Sep 2012 14:48:43 +0000

The study assesses the current economic position of the mandatory private sector pension system TyEL, the impact of pension policy measures aimed to lengthen working careers and the financial sustainability of the TyEL system under economic and demographic uncertainty. Moreover, the project enhances and improves the numerical OLG models and stochastic lifecycle models that can are currently used at ETLA to analyze these issues.

Assessing Needs of Care in European Nations (ANCIEN)

admin — Fri, 21 Sep 2012 14:38:57 +0000

ANCIEN is a research project financed under the 7th EU Research Framework Programme. The project includes 20 partners from EU member states, started in January 2009 and will last 44 months. ANCIEN concerns the future of long-term care for the elderly in Europe. The questions asked in ANCIEN are as follows. How will need, demand, supply and use of LTC develop? How do different systems of LTC perform? State of the art demographic, epidemiologic and econometric modelling will be used to interpret and project needs, supply and use of long term care over future time periods for different long term care systems.

The project’s home page.

Macroeconomic Impacts of Fiscal Devaluation

admin — Fri, 21 Sep 2012 14:32:45 +0000

This study on the macroeconomic effects of fiscal devaluation analyzes the outcomes of a cut in employers’ social security contributions and increase in VAT rate. The aim of the policy is to correct external imbalances and to boost growth, employment and competitiveness. The outcomes of the measure are simulated using the multi-country macroeconomic model Nigem, provided by the National Institute of Economic and Social Research. The study is performed within a framework contract between European Commission and a research consortium in which ETLA belongs.

The study is carried out by Kari Alho, Jukka Lassila, Niku Määttänen, Paavo Suni ja Tarmo Valkonen and it ends in November 2012.