Melbourne Institute of Applied Economic and Social Research - Theses

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    Earnings and Income Inequality in Germany and Australia: Evidence from Tax and Survey Data
    Hahn, Markus Hilmar ( 2021)
    Using tax data and combined tax-survey data, this thesis examines earnings inequality in Germany and income inequality in Australia. A particular focus is on combining tax record data and household survey data to obtain more accurate income data with the purpose of better understanding inequality in these two countries. Chapter 2, using tax data alone, creates historical series of top earnings shares. Using German wage tax statistics for 1926–2010, this chapter creates the first consistently measured long-term series of German top earnings shares. I find a U-shape pattern with top earnings shares falling from 1926 through the mid-1970s and almost continuously rising thereafter. I then compare my results to those from other studies examining top earnings shares in the US, UK, and France. Over the entire period it is reasonable to describe trends in the US, UK and Germany as U-shaped. All three decline from pre-WWII highs. The US shares begin to grow from the mid-1960s. The UK and German shares grow from the mid-1970s. In the mid-1990s, they begin to converge at a level substantially below the US. The French shares follow a different pattern that can be reasonably described as W-shaped. Over the entire period (1957–2010) that it is possible to disaggregate the data by gender, women are underrepresented among top earners. Despite an increase in their labour force participation from 1957 to 1986, their share in the top 10% and top 1% of all workers remained unchanged. Only after German reunification in 1990 did women’s presence among top earners begin to increase. Chapter 3, using a similar adjustment procedure as Burkhauser, Herault, et al. (2018) but applying it to earnings, combines data from tax records and from the German Socio-economic Panel (SOEP) to explore measures of annual earnings inequality that are broader than the top earnings shares of the previous chapter. I show that the unadjusted survey data, unlike the adjusted data, fail to replicate those shares. Using these enhanced data, I provide new evidence on German earnings inequality for the period 1992–2011. My results indicate higher levels of earnings inequality over this period than unadjusted survey data suggest. Inequality rose less quickly for measures that include all employees; it rose faster for measures of full-time, prime-aged employees. Chapter 4 turns to Australia, demonstrating the importance of capturing high incomes well and consistently when calculating and examining inequality measures of equivalised household income. Using a similar adjustment approach as in Chapter 3, we examine the two major sources of household income data in Australia—the Survey of Income and Housing (SIH) and the Household, Income and Labour Dynamics in Australia (HILDA) Survey. We show that under-capture of top incomes by these surveys leads to underestimation of the extent of income inequality in Australia. The rise in income inequality in the 2000s exhibited by the unadjusted SIH data is considerably reduced when top incomes are adjusted to match tax record data; under-capture of top incomes by the SIH is greater in the early-2000s.
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    Essays on financial stability
    Liu, Xianglong ( 2020)
    This thesis investigates several aspects of economic activity that are strongly linked to the stability of the financial system. First, I examine the possible build-up of systemic risk in the shadow banking system as an unintended consequence of the implementation of macroprudential policies. Second, I analyze the short-run and long-run interactions between house prices and household debt in Australia and study relevant policy implications. Finally, I propose the use of automatic model selection, namely Least Absolute Shrinkage and Selection Operator (LASSO) with cross-validation, to improve the forecasting performance of the conventional early warning system for systemic banking crises. The findings provide insights for policymakers about several aspects of potential vulnerabilities stemming from different segments of the financial sector, and improves the early warning system so as to help policymakers better identify and monitor systemic risk in the financial system. In Chapter 2, I investigate the impact of macroprudential policies on shadow banking activities using a panel data analysis with fixed effects containing 24 countries from 2002 to 2013. I find that the effectiveness of macroprudential policies targeting the demand for credit, namely loan-to-value and debt-to-income ratio caps, is partially undermined by regulatory arbitrage through the shadow banking system. Such a strategy is generally not found for supply-side policies with two exceptions. Sector-specific capital requirements are found to be associated with negative shadow banking growth, while loan-loss provisionings could lead to counter-productive outcomes. In Chapter 3, I empirically investigate the short-run and long-run interactions between house prices and their drivers, with a particular focus on household debt, in a Structural Error Correction Model (SVECM) framework for Australia over the sample period 1990-2016. The cointegration analysis suggests one equilibrium relationship exists between the real house prices and the long-run determinants: household debt, housing stock, household disposable income, and the real interest rate. Household debt and housing supply are the main drivers for the equilibrium house prices. Household disposable income and the real interest rate affect the equilibrium house prices through the credit channel. In the short run, house prices and household debt are found to be mutually reinforcing. The dynamic impacts of the structural shocks suggest that macroprudential policies, if they act in a manner similar to an exogenous tightening of credit conditions, may be preferable to monetary policy leaning against the wind, if and when policies are needed to reinforce financial stability. In Chapter 4, I propose using LASSO with cross-validation approach to automate the variable selection process of the conventional multivariate logit econometric framework, the purpose being to improve the prediction of systemic banking crises. Using a dataset covering 23 OECD countries with quarterly data from 1970Q1 to 2018Q3, the model performance is evaluated in a recursive out-of-sample forecasting exercise, taking policymakers’ preference of missed crises and false alarms into account. The results suggest that the automatic variable selection process can enhance the predictive performance of the early warning system. They also highlight the importance of extracting information from variable interactions and lags that may not be easily identified and accessed by typical subjective variable pre-selection. This simple approach is easy to interpret and is transparent, which are important aspects for effective policy communication. Five variables, namely credit growth, domestic and global credit gaps, real house price growth and the real effective exchange rate, are identified as the most important key indicators of systemic banking crises.
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    Housing prices, debt and beliefs
    Elias, Stephen Robert Kevin ( 2020)
    Large credit-fuelled swings in house prices can inflict substantial damage on the real economy. Indeed, the associated recessions historically have been particularly severe (Jorda, Schularick, and Taylor 2015). A literature points to house price belief formation as potentially being key to these swings. This thesis studies how these beliefs are best characterised as being formed using survey data, and examines the role house price belief formation plays in credit-fuelled house price swings and their transmission to the macroeconomy. It also evaluates how policies -- particularly macroprudential policies -- can best address volatility stemming from the housing market. I assess how house price belief formation is best characterised by testing the predictions of a wide range of expectations models on surveyed house price forecasts. I show that these forecasts are well characterised by a model in which house price growth is believed to follow an autoregressive-like process, similar to intuitive beliefs (described in Fuster, Laibson and Mendel 2010). Evidence is presented rejecting the hypotheses that house price beliefs are formed according to a wide range of other beliefs models, including fully rational, boundedly rational, diagnostic, adaptive, other autoregressive, and other vector-autoregressive expectations models. I show that if agents hold intuitive house price beliefs, a prominent macroeconomic model with housing, Iacoviello (2005), captures key stylised facts regarding the joint behaviour of house prices, household debt and GDP, including around large house price swings. In particular, the model captures that large house price swings, when fuelled by credit, are accompanied by especially severe recessions. The model does not capture these dynamics if agents form house price beliefs rationally or according to other commonly studied non-rational methods. Macroprudential policies – policies with the explicit aim of preserving the stability of the financial system as a whole – have been increasingly used since the financial crisis of 2007–08, particularly to stem risks emanating from the housing market (Akinci and Olmstead-Rumsey 2017). I evaluate which macroprudential policy instrument performs this role best, and how it should be set. These are assessed in a model where banks control the size of both their assets and liabilities, rather than passively intermediating the funds of savers, allowing them to effectively create credit. This approach captures key features of the dynamics of credit, deposits and bank capital. In this environment, instruments affecting credit supply, such as time-varying capital requirements, are found to not improve stability or welfare. Instruments affecting credit demand, such as loan-to-value ratio policies, reduce fluctuations in credit, house prices and defaults, and improve welfare.
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    The Dynamics of Self-Employment in Australia and the Role of the Solo Self-Employed
    Cowling, Michael Leith ( 2019)
    A common belief held by policymakers is that the self-employed are a vital element of well-functioning economies. They promote economic growth, technological innovation and job creation. Yet, descriptive evidence across multiple industrialised economies concludes that relatively few self-employed workers create any jobs. Most self-employed workers do not hire any employees and are known as the solo self-employed. Not much is established about the role the solo self-employed have in job creation: Do they act as a more flexible form of employment and/or is solo self-employment a stepping-stone to job creation as an employer? This thesis aims to investigate the dynamics of self-employment in Australia. It uses individual-level data from the Household, Income and Labour Dynamic in Australia (HILDA) Survey from 2001 to 2016, where initial statistics support the notion of the solo self-employment stepping-stone effect. The statistics also show a declining trend in employership and solo self-employment rates and that, at most, half of the employers survive past their initial year in employership. I consider three key questions regarding the Australian self-employed. The first explores the idea of solo self-employment being used as a device to reveal one’s own ability to be self-employed. If true, then being solo self-employed increases the individual’s probability of becoming an employer, more so than any other employment state. This assertion is empirically tested, and the results suggest that it is true. However, the results also suggest the difference, while significant, is minor when compared to the observable rates of transitions into employership. The second question investigates what the skill-based determinants of employership survival are. It is possible that high rates of employership exits are because of a mismatch between employership skill requirements and individual expectations. Using survival analysis techniques, I find experience in occupations that treat cognitive, resource management or pattern recognition skills as important determinants of employership survival. The third question examines if the declining rates of Australian self-employment represent labour market failures: are there barriers hindering entry into self-employment? I find employers and solo self-employed workers have significantly higher job satisfaction scores than wage/salary employees. I treat this as evidence for self-employment entry barriers as they should be similarly satisfied in a labour market with free entry.
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    Challenges in early adulthood and the timing of nest-leaving
    Wong, Clement ( 2018)
    Recent young adult cohorts have delayed moving out from the parental home, reflecting social trends and macroeconomic conditions that undermine the affordability of independent living. This dissertation focuses on the timing of these nest-leaving transitions in relation to other significant decisions and events in early adulthood. Each of the three chapters investigates whether potentially adverse outcomes lead to earlier nest-leaving, which has been shown to be financially harrowing and disadvantaging. To address these research questions, I utilize longitudinal data from the Household Income and Labour Dynamics in Australia (HILDA) survey. Methodologically, I extensively apply event history models and focus on effects on the timing of nest-leaving events. I address potential endogeneity between the nest-leaving decision and other choices in early adulthood by estimating these simultaneously, accounting for selection effects through random effects models. The first essay considers how heavy drinking and cigarette smoking affect the timing of leaving home. As risky health behaviors, I find evidence that young adults who drink heavily leave home sooner than moderate or non-drinking counterparts. Among women, early initiation of alcohol or tobacco use by age 15 further compounds nest-leaving risks, showing that substance usage is far more consequential for their co-residence with parents. The second essay investigates human capital investment in tertiary education, to determine if graduation or dropout rates disfavor students who move out and maintain their own independent household. This chapter also considers whether parents condition their offer of co-residence on the young adult's enrollment. The results indicate that men clearly benefit while co-residing, as they graduate sooner than counterparts who live independently. However, women do not significantly benefit from co-residence in this way, and instead tend to move out around the time of graduation. The third essay examines the pathways out from the parental home -- either with or without a partner -- and how these may be affected by negative life events. Sudden illness or injury of the young adult or a family member, the death of a close friend or a relative, and victimization to violent or property crimes are unforeseeable events that can compromise the young adult's ability to navigate key transitions in adulthood. Results suggest that men are more likely to remain at home longer after a family member is in ill health, whereas women are more likely to leave home soon after the death of a close friend or experiences of property crime. The findings across these essays consistently emphasize women's short-lived co-residence with parents, surfacing from disaggregated analyses by gender. Several factors which contribute to earlier nest-leaving are themselves disadvantaging in nature, and thus raise a concern that negative experiences early in adulthood could beget further hardships later on. This dissertation contributes to the nest-leaving literature by highlighting potential precursors of disadvantage, even while the young adult co-resides and receives in-kind parental transfers.
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    Achievement gains from attendance at selective high schools
    Houng, Brendan ( 2018)
    Academically selective high schools are a polarizing topic in education policy, despite only having a small presence in some Australian states. They appear successful. The schools regularly top annual school rankings of university entrance results, but this is perhaps unsurprising given that their students are admitted based on their performances on an entrance exam. This thesis asks whether selective high schools improve their students’ university entrance results beyond what they would have achieved otherwise. The main chapter is a case study from an anonymized Australian state that follows high-achievement students through high school. The key challenge is finding a group of non-selective students comparable to those who attend selective schools. For additional background, the thesis explored the following themes: the historical development of selective high schools, the premise that the schools cater to gifted and talented students, and the high levels of demand for the schools within current trends in educational policy. The thesis provides the first estimates of the selective school effect (roughly contemporaneous with Zen 2016) from matching and regression discontinuity approaches in the Australian context, which are improved statistical methods compared with that of previous research (e.g. regression analyses from Lu and Rickard, 2014). The estimates point to small positive effects at best on university entrance results from attending the selective schools. Overall, the small selective school effect appears to reflect the high levels of educational aspiration of both selective students as well as applicants who attended other schools. Both groups of students appear to be among the most driven and motivated, being disproportionately from immigrant and socio-economically advantaged backgrounds and having implicitly signaled an aspirational intent by applying to the schools. Lastly, the thesis expands on one aspect of the selective schools, whereby many of their students experience a decrease in within-school achievement ranks from attending a school with high-achievement peers. In a more general context, the thesis assesses the effect from changes in local ranks on later achievement for students who transitioned from primary to secondary school. The results indicate that perceived increases in local rank have a negative effect on standardized test scores, suggesting that students reduced their allocation of effort in response to random increases in rank. The new empirical evidence from the thesis supports the view that selective schools represent a positive achievement ideal for their students. Recent public policy discourse on the selective schools has included calls for expansion of the system to the primary school level in one state, and criticisms of a hyper-competitive culture at the schools, including suggestions of unfair entry due to excessive tutoring on the part of applicants. The research positively contributes to the discourse by providing historical context, identifying the relevant issues and articulating the potential indirect consequences of these policies.
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    Supply capacity and waiting times in primary care
    Swami, Megha ( 2018)
    Achieving timely access to primary care has become a central challenge for health systems around the world. However, there is very limited understanding of how supply capacity of primary health care providers and supply-side policy interventions affect how long patients have to wait for receiving primary care. This thesis provides new empirical evidence on the impact of GPs, nurses and incentive schemes on waiting times in primary care. In doing so it makes an important contribution to the waiting time literature and provides vital evidence for primary care policy development and workforce planning.
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    Essays on employment outcomes, homelessness and informal survival activities
    Swami, Neha ( 2018)
    This thesis contains three independent chapters that draw on and contribute to the literature on economic and social disadvantages and labour economics. Using three independent essays, I focus on three issues related to non-standard employment; employment in a non-standard setting, i.e. employment among homeless people; and non-standard methods of acquiring financial resources. Specifically, the first essay analyses the effect of non-permanent contractual employment on financial hardship, the second essay studies how the experience of homelessness affects employment entry and exit, and the third essay examines the circumstances influencing the informal survival activities used by disadvantaged populations.
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    The economics of education: student achievement and school effectiveness
    HELAL, MIKE ( 2015)
    This thesis examines three important aspects of the contribution made by schools to individual student achievement. Mixed evidence exists in the literature on school effects on student achievement, with early research finding little or no effect. Using a unique administrative dataset, we estimate school value-added effects, highlighting shortcomings in existing models. Allowing for heterogeneity, we find evidence of differential school effects by student ability. Our preferred measurement-error corrected model finds effective schools can achieve as much as one-quarter of a year’s progress more in a single year compared to ineffective schools. Contrasting results characterize research into the effectiveness of school resources in improving student achievement. Recent findings of substantial principal and teacher effects increasingly suggest that what matters is how school resources are managed and spent, rather than their level. The Smarter Schools National Partnership provided $2.5 billion in funding to disadvantaged schools with the spending decisions left largely up to schools within broadly defined goals. Achievement growth increased in schools that received the additional resources. The program was found to have had the greatest effect on growth in cognitive skills for secondary school students compared to primary school students. Employing a unique administrative panel data set from the Victorian public school system - known for the degree of autonomy held by its principals - we construct estimates of the idiosyncratic effects of principals on student achievement. We do so using fixed effects techniques and turnover of principals across schools to isolate the effect of principals from the effect of schools themselves. More importantly, through detailed staff and parent surveys, we investigate potential mechanisms through which individual principals may affect student outcomes. Our results suggest that a primary pathway is through establishing a coherent set of goals for a school, and through increasing professional interaction amongst staff.
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    Policy coordination among the ASEAN-5: an empirical investigation
    Tan, Sui-Lay ( 2014)
    The ASEAN-5 economies are pursuing the possibility of exchange rate and monetary policy coordination after having experienced significant spillovers during the Asian Financial Crisis (AFC) that were facilitated by their trade and financial linkages. To do so however, would require ceding national interests and could be costly depending on how often this occurs. According to the optimum currency area (OCA) literature this cost will be significantly reduced if the economies experience common and symmetric shocks. The aim of this thesis is to empirically examine whether exchange rate and monetary policy coordination is feasible among the ASEAN-5 economies based on this OCA criterion, accounting for the existing trade and financial linkages among them. First, the analysis shows that policy coordination may be needed to manage potential shock spillovers through the market linkages that are present among the ASEAN-5 economies. Significant linkages in their capital, goods and to some extent their labour markets as well, were found. While these linkages are not specifically identified as the primary channels, the transmission of the adverse shock in both the average and volatility of returns during the AFC was found to be due to the strength of the existing economic interdependence, which is facilitated by market linkages. These results suggest that policy coordination may be needed to manage the spillovers that occur among these five economies. Second, the analysis determines if the ASEAN-5 economies experience common and symmetric shocks. Supply and demand shocks are decomposed from domestic output, with the addition of price information to fully identify these shocks; demand shocks are restricted such that they do not have permanent effects on output while supply shocks do. The supply and demand shock correlations across pairs of countries are then examined. Given that only a few country pairs had correlated shocks, the degree of shock symmetry is low. However, the degree of shock symmetry increased in the post-AFC period. The analysis also isolated a common factor among the ASEAN-5's output variables; each of the economies was positively correlated with this common factor. The common factor identified was found to be best explained by four global variables: US interest rates, US output, China's output, and oil prices. Shocks to each of these global variables yielded common shocks for all the ASEAN-5 economies. Third, the ASEAN-5 economies are modelled to incorporate the existing trade and financial linkages in a global model in order to determine if they experience symmetric responses to each of the four common shocks identified previously. This is done using a Global VAR model. Output responses for the ASEAN-5 economies were found to be symmetric for all four global shocks explored. Market linkages identified previously underpin this result; trade, financial and labour linkages are present in the form of intra-industry trade flows from product fragmentation, portfolio investments and migrant remittances, respectively. The three economic characteristics of a regional production network, oil reliance and domestic consumption helped to explain the responses observed in domestic variables for the ASEAN-5 economies, more generally. Overall, the results in this thesis point to common and symmetric shocks among the ASEAN-5 economies and therefore, suggest that exchange rate and monetary policy coordination should be feasible for the group.