The Internet makes you happy

We have previous established that the Internet, contrarily to conventional wisdom, makes people more social. Does this also mean that people with Internet access are happier? Of course, one should take into account that those without Internet, at least nowadays, are likely to face hardships like low income and education.

Thierry Pénard, Raphaël Suire and Nicolas Poussing do such an analysis for Luxembourg and find indeed that Internet users are happier, especially among those with lower incomes. This is also true when taking into account the intensity of Internet use. This implies that making the Internet accessible to lower socio-economic classes can improve welfare, possibly significantly. Of course, one has to take with a grain of salt studies of happiness based on surveys that ask for subjective self-evaluations. That grain of salt may be bigger when one considers who small Luxembourg is. The approach then becomes similar to the randomized experiments in the development literature where results for a small set of villages are difficult to apply to other contexts. Yet, Luxembourg is surprisingly diverse, so maybe these results are generalizable. Readers, you can now safely that you are now happier from being on the Internet and reading this.

Fiscal policy as insurance

The goal of fiscal policy is at the macroeconomic level to steer the economy towards efficiency and, depending on the country, to smooth somewhat economic fluctuations. It has long been debated whether this is desirable or possible at all, given the large delays in implementing public expenses. But changes to tax policies are quicker to put in place and implement. At the microeconomic level, the focus is more on the long term, again try to attain better efficiency as well to optimize some definition of fairness across economic agents, however this may be defined in the respective countries. These micro and macro aspects have largely been regarded as separate. This does need to be so.

Eduardo Engel, Christopher Neilson and Rodrigo Valdés look at the particular fiscal policy of Chile. This country is characterized, like many emerging economies, by wild fluctuations in economic activity. In this case this is triggered by changes in commodity prices, in particular for copper. The most important implication is that government revenue varies wildly (a macroeconomic impact) between 1 and 8% of GDP, which changes Chile's ability to redistributes across heterogeneous households (a microeconomic impact). Adhering to a balanced budget rule would have a dramatic effect, in terms of aggregate welfare it would be like renouncing to half of the copper revenue. The reason is that households' incomes is also correlated with copper revenue, and a countercyclical policy is then optimal. And to be the most effective, the poorest households are helped in hard times, both because they have the highest marginal utility from consumption and because they have the highest propensity to consume.

Chile has been pursuing so far something that is close to a balanced budget rule: expenses are related to a permanent income measure of income. This means expenses are relatively constant, except for the last years, where expenses grew significantly despite a reduction in copper prices. This appears to have worked well, in particular because the poor have been the target of this largesse, not the rich. That was stimulus spending done right. This paper shows how this can be done even better.

Energy spending and household poverty

There is broad agreement that energy, especially polluting energy, is too cheap, calling for higher energy taxes. The problem is that such taxes are believed to be highly regressive, as poor households spend a larger share of their income on energy for transportation, heating and cooling. Of course, this could be alleviated by an appropriate redistribution of the proceeds, but to do this properly one first needs to understand well the energy spending of poor households.

Tooraj Jamasb and Helena Meier do this for the United Kingdom. There, households that spend more than 10% of their income on energy are considered "fuel poor" and deemed as having difficulties heating their home. I have always been suspicious of such definitions, as one may choose to spend more to heat at higher temperatures, for example, without being considered at risk. But this definition may indeed capture a good portion of the households of interest. While Jamasb and Meier find the usual conclusions (fuel poor households are poor, have children or are retired, spend more time at home), they also put high hope in smart meters. By showing current energy consumption, they hope that these meters will trigger behavioral changes and in particular help so far ill-informed households manage better the available energy and look for energy efficiency. As so often, good information goes a long way in managing scarcity.

Transfers to mothers may hurt children

It is conventional wisdom in policy circles that if you want a policy intervention to benefit children, transfers have to be paid out explicitly to the mother. The understanding is that mothers care more about their children than men, and thus are more likely to use the funds for them, directly or indirectly. There is really not reason to this backfire, but as two recent papers show, it can, in fact.

Matthias Doepke and Michèle Tertilt build a series of non-cooperative bargaining models of the household and show that things can go wrong with targeted transfers or women empowerment in general. Indeed, for transfers to have an impact on the intra-household allocation of public goods, there needs to be some kind on friction. The specifics of this friction have a large impact. For example, if women are hard-wired to prefer spending on children, then transfers targeted to them may lead to over-spending on children and under-spending on other public goods that also benefit children (say, shelter), reducing child welfare. Or: if the difference between men and women is in the market wage, women will naturally tends to more time intensive activities in the household, such as child rearing. Empowering women leads them to spend less time at home, hurting the children. If empowerment implies that women have access to more private goods (such as bars or entertainment), they will focus less on public goods that also benefit children. While these examples seem a bit convoluted, they highlight that things are not so simple.

Olivier Bargain and Olivier Donni show in another series of models with altruistic parents that targeted transfers may not work as well as targeted price subsidies. They demonstrate that price subsidies have an income effect and a substitution effect, something we teach undergraduates. But they reinterpret the substitution effect as a "targeting effect." Naturally, transfers only lead to an income effect. Thus subsidies are better at improving children welfare, but they are more expensive as they apply to everyone. So it all depends on elasticities, and depending on the situation, transfers or price subsidies could be preferred.