A SIMPLER CONSUMPTION-BASED ALTERNATIVE TO THE INCOME TAX FOR SOCIALIST ECONOMIES IN TRANSITION

The tax systems of socialist economies in transition will distortresource allocation, create inequities, and cause administrativeheadaches if not reformed. These countries have weak tax administrations,lack experience with mass taxes based on voluntary compliance,and need to encourage domestic saving and foreign investment.This article suggests an alternative to the conventional incometax that is more suited to these conditions. Attempting to tax real economic income raises complicated timingissues (when to recognize income and allow deductions) and mayrequire complex adjustments for inflation. The simplified alternativetax (SAT) avoids these complications and provides a generalincentive for saving and investment less subject to abuse ordistortions than tax holidays and other tax gimmicks in voguein countries emerging from socialism. The key elements of the SAT are separate taxes on income fromlabor and capital, immediate deduction for all business expenditures,no deduction for interest, and no taxation of interest or dividends.(Interest could be treated as under an income tax, at some cost.)Although the marginal effective tax rate is zero, the governmentshares in extraordinary returns to investment. The article discussespotential problems (including distributional implications, taxlosses, and foreign tax credits) as well as advantages of theSAT.      

THE ROLE OF GROUPS AND CREDIT COOPERATIVES IN RURAL LENDING

Lending groups and credit cooperatives have the potential toprovide affordable credit to small-scale farmers because theycan reduce transaction costs and lower the risk of default.In developing countries these two kinds of lending arrangementshave a mixed record, although their difficulties reflect shortcomingsin implementation rather than in the lending arrangements themselves. The article indicates that successful group lending schemeswork well with groups that are homogeneous and jointly liablefor defaults. The practice of denying credit to all group membersin case of default is the most effective and least costly wayof enforcing joint liability. Another way to encourage membersto repay is to require mandatory deposits that are reimbursedonly when all borrowers repay their loans. The article points out that credit cooperatives that mobilizesavings deposits are less dependent on external sources andincrease the borrowers' incentive to repay. The success of creditcooperatives requires training of members as well as management.Experience suggests that credit cooperatives should not expandtheir activities beyond financial intermediation until theydevelop strong institutional and managerial capabilities      

MACROECONOMIC ADJUSTMENT TO CAPITAL INFLOWS: LESSONS FROM RECENT LATIN AMERICAN AND EAST ASIAN EXPERIENCE

Capital inflows to some developing countries have increasedsharply in recent years. Impelled by better economic prospectsin those countries, lower international interest rates, anda slowdown of economic activity in the capital-exporting countries,the inflows have furnished financing much needed to increasethe use of existing capacity and to stimulate investment. Butcapital inflows can bring with them their own problems. Typicalmacroeconomic repercussions have been appreciation of the realexchange rate, expansion of nontradables at the expense of tradables,larger trade deficits, and, in regimes with a fixed exchangerate, higher inflation and an accumulation of foreign reserves. Should government intervene to limit some of these side effects—andif so, how? The question is especially pressing in the wakeof the Mexican crisis of December 1994. This article looks foranswers in the experience of four Latin American and five EastAsian countries between 1986 and 1993, examining the effectsof the capital inflows on the economy and comparing the differentways in which these countries responded to the problem of "toomuch" capital.      

Weathering the Storm: The Impact of the East Asian Crisis on Farm Households in Indonesia and Thailand

This article assesses the impact of the East Asian financialcrisis on farm households in two of the region's most affectedcountries. Indonesia and Thailand, using detailed household-levelsurvey data collected before and after the crisis began. Althoughthe nature of the shocks in the two countries were similar,the impact on farmers' income (particularly on distribution)was quite different. In Thailand, poor farmers bore the bruntof the crisis, in part because of their greater reliance onthe urban economy, than did poor farmers in Indonesia. Urban-rurallinks are much weaker in Indonesia. Farmers in both countries,particularly those specializing in export crops, benefited fromthe currency devaluation. Although there is some evidence thatthe productivity of the smallest landholders declined over theperiod in question, it is difficult to attribute this directlyto the financial crisis. At least in Thailand, a rural creditcrunch does not seem to have materialized.      

Does auditor choice matter to foreign investors? Evidence from foreign mutual funds worldwide

This study explores whether a firm’s auditor choice affects its ability to access foreign equity capital. Using the equity holdings of 35,665 foreign mutual funds from 30 countries for the period 1998–2009, we find evidence that appointing a Big 4 auditor is associated with the increased level of foreign mutual fund ownership in firms. Our results are robust when conditioned on firm-level information asymmetries, country-level information disclosure quality, and when employing the Enron–Andersen fiasco as the natural experiment. Furthermore, appointing Big 4 auditors is particularly important for firms to attract foreign capital during the 2008 global financial crisis.     

THE RELEVANCE FOR DEVELOPING COUNTRIES OF RECENT DEVELOPMENTS IN MACROECONOMIC THEORY

This article reviews recent developments in macroeconomic theoryand considers their relevance for developing countries. Particularemphasis is given to the rational expectations revolution. Thearticle asks whether government policies are systematic andsuggests the need to study the expectations on which governmentsbase their decisions. Also discussed are the neo-Ricardian theorem,the implications of real wage rigidity and of supply side modelswith sectoral income effects, and recent models involving largegroup interaction.      

CHANGES IN POVERTY AND INEQUALITY IN DEVELOPING COUNTRIES

This paper presents new data on poverty, inequality, and growthin those developing countries of the world for which the requisitestatistics are available. Eco-nomic growth is found generallybut not always to reduce poverty. Growth, however, is foundto have very little to do with income inequality. Thus the "economiclaws" linking the rate of growth and the distribution of benefitsreceive only very tenuous empirical support here.      

全球证券交易所并购风潮及对我国的启示

文章针对危机后全球出现的新一轮证券交易所并购浪潮，分析了本轮交易所并购风潮的特点，认为主要包括追求规模效应的内部驱动力、大国经济博弈的外部推动力，及资本流动需求的客观要求等。文章随后分析了本轮证交所全球并购对交易所业务的影响和对中国交易所发展的启示，指出需提升对资本市场发展重要性的认识和危机意识，应重点增进大中华地区资本市场的合作等。     

CASH FLOW OR INCOME?: The Choice of Base for Company Taxation

Cash flow and equity income (or income) are two alternativebases advocated for taxes on businesses throughout the world.Although in practice most tax systems are hybrids with elementsof both types of taxes, recent literature has stressed the meritsof the cash flow tax because it is simple in concept and itdoes not distort decisions about capital expenditures and financing.But international issues and administrative complexities—particularlytax evasion—present problems that must be sorted out beforea cash flow tax can be implemented.      

PRIVATE INVESTMENT AND MACROECONOMIC ADJUSTMENT:A Survey

This article reviews theories of investment behavior and examinesempirical studies of investment in developing countries. Theemphasis is on understanding the interactions among macroeconomicpolicies, structural adjustment, and private investment. Thearticle deals with the effect of exchange rate policy on investment,the relationship between public and private investment, theimportance of market imperfections and financial constraintson capital formation, and the effect of economic instabilityon irreversible investment decisions.      

Financial Markets and Economic Growth*

In this reprinting of the Nobel Prize‐winning financial economist's classic statement about the origins of financial crises, the Southeast Asian crisis of the late 1990s is attributed “not to too much reliance on financial markets, but to too little.” Like the U.S. economy a century ago, the emerging Asian economies did not then—and do not now—have well‐developed capital markets and remain heavily dependent on their banking systems to finance growth. But for all its benefits, banking is not only basically 19th‐century technology, but disaster‐prone technology. And in the summer of 1997, a banking‐driven disaster struck in East Asia, just as it had struck so many times before in U.S. history. During the 20th century, the author argues, the U.S. economy reduced its dependence on banks by developing “dispersed and decentralized” financial markets. In so doing, it increased the efficiency of the capital allocation process and reduced the economy's vulnerability to the credit crunches that have recurred throughout U.S. history. By contrast, Japan has not reduced its economy's dependence on banks, and its efforts to deal with its banking problems during the crisis of the late'90s served only to destabilize itself as well as its neighbors. Developing countries in Asia and elsewhere are urged not to follow the Japanese example, but to take measures aimed at developing financial markets and institutions that will either substitute for or, in some cases, complement bank products and services.     

The global financial crisis and the capital structure of firms: Was the impact more severe among SMEs and non-listed firms?

Using a dataset covering about 276,998 firms across 75 countries over the period 2004–2011, this paper examines the short-run evolution of firms' capital structures following the start of the global financial crisis and its immediate aftermath, comparing the experience of already levered SMEs, large non-listed firms, and listed companies. We find that firm leverage and debt maturity declined both in advanced economies and in developing countries, even in those that did not experience a crisis. The deleveraging and maturity reduction were particularly significant for non-listed firms, including both SMEs as well as large non-listed companies. For SMEs, these effects were larger in countries with less efficient legal systems, weaker information sharing mechanisms, less developed financial sectors, and with more restrictions on bank entry. In contrast, there is weaker evidence of a significant decline in leverage and debt maturity among listed companies which are typically much larger than other firms and likely to benefit from the “spare tire” of easier access to capital market financing. Though our results are robust to many changes in sample and specification, we cannot rule out that survivorship bias and attrition could affect our estimates to some degree.     

HOW DO MARKET FAILURES JUSTIFY INTERVENTIONS IN RURAL CREDIT MARKETS?

Understanding of the economic causes and consequences of marketfailure in credit markets has progressed a great deal in recentyears. This article draws on these developments to appraisethe case for government intervention in rural financial marketsin developing countries and to discover whether the theoreticalfindings can be used to identify directives for policy. Before debating the when and how of intervention, the articledefines market failure, emphasizing the need to consider thefull array of constraints that combine to make a market workimperfectly. The various reasons for market failure are discussedand set in the context in which credit markets function in developingcountries. The article then looks at recurrent problems thatmay be cited as failures of the market justifying intervention.Among these problems are enforcement; imperfect information,especially adverse selection and moral hazard; the risk of bankruns; and the need for safeguards against the monopoly powerof some lenders. The review concludes with a discussion of interventions,focusing on the learning process that must take place for financialmarkets to operate effectively.      

Bank lending to third world countries in the 1980's

The world financial system today faces challenges more serious than any since World War II. International trade in goods declined sharply in 1981 and 1982. Last year was the first year in 40 years that income in many developing countries declined. Unemployment levels around the world are both staggering and frightening. All of these problems are focused neatly into the international debt issue in which countries in the process of development are currently unable to repay principal on their international indebtedness without very great political and financial strain. The LDC debt question is a public policy issue that has exhibited at least nine lives. One should emphasize two self-evident facts: One, we are dealing in this issue with intangibles; the political climate in the developing countries, the mood of the United States Congress and the regulatory authorities in the creditor countries. Secondly, we should frankly admit that there are huge gaps in our knowledge of the facts that make all prediction hazardous. The problem of the LDC debt is severe but not beyond repair. A resolution of the problems of worldwide protectionism, and of unstable interest rates and foreign exchange rates will do much to eliminate the problem. This requires cooperation between national governments, central banks, international organizations and commercial banks. The uncertainty which plagues us can be laid to rest only when some evidence is at hand that the major nations of the western world recognize that this is a global problem and requires global solutions.     

Income Risk, Coping Strategies, and Safety Nets

Poor rural and urban households in developing countries facesubstantial risks, which they handle with risk-management andrisk-coping strategies, including self-insurance through savingsand informal insurance mechanisms. Despite these mechanisms,however, vulnerability to poverty linked to risk remains high.This article reviews the literature on poor households' useof risk-management and risk-coping strategies. It identifiesthe constraints on their effectiveness and discusses policyoptions. It shows that risk and lumpiness limit the opportunitiesto use assets as insurance, that entry constraints limit theusefulness of income diversification, and that informal risk-sharingprovides only limited protection, leaving some of the poor exposedto very severe negative shocks. Public safety nets are likelyto be beneficial, but their impact is sometimes limited, andthey may have negative externalities on households that arenot covered. Collecting more information on households' vulnerabilityto poverty—through both quantitative and qualitative methods—couldhelp inform policy.      

From Prices to Incomes: Agricultural Subsidization without Protection?

Drawing from the experience of the direct income support programsrecently introduced in the European Union, Mexico, and the UnitedStates, this article highlights problems that may arise whenthe agricultural sector of a developing economy moves from price-basedsubsidization to less distorted income support. Such programsare a step in the right direction, but as currently implemented,they have many shortcomings. Moreover, developing countriesmay lack the necessary supporting arrangements needed to makesuch programs effective. The article argues that the programsshould not restrict the use of land, that the programs shouldlast for a stipulated period of time, and that the fiscal costsshould be contained by linking income support payments to worldprices.      

USING AUCTIONS TO ALLOCATE AND PRICE LONG-TERM CREDIT

Most long-term credit in developing countries is allocated throughnegotiated agreements between government institutions and financialintermediaries or final borrowers, and often at administeredrates. Yet many developing countries have no long-term creditmarket whose interest rates can be used as benchmarks for theseloans. If credit is priced improperly, it will be allocatedinefficiently and the development of capital markets may bestunted. In light of the generally disappointing experiencewith conventional methods of allocating development credit,some countries have introduced credit auctions as an alternative.Among the advantages are greater transparency and fairness,lower transaction costs, and increased competition and efficiency.Among the disadvantages are a greater vulnerability to collusion,which can lead to lower interest rates and revenue, and a tendencyto attract the least desirable participants (adverse selection)and to lend for riskier projects (moral hazard), which can leadto lower repayment rates and a higher probability of default.All these factors can lead to inefficiency in the allocationof funds. This article suggests ways to lessen these negativeeffects and presents various elements of auction design thataffect the efficiency of credit auctions and their suitabilityto specific circumstances. When properly designed, auctionscan be used in a variety of environments to allocate developmentcredit more efficiently than current methods do.      

ENTREPRENEURS AND ENTREPRENEURSHIP IN AFRICA

The article examines the widespread belief that indigenous entrepreneurshipis less well represented in African countries than in otherparts of the developing world. The evidence shows no dearthof ability among Africans to identify business opportunitiesand to act upon them—the two quintessential characteristicsof entrepreneurship. But the management problems these businesseshave sometimes encountered suggest that there may be a continuingrole for expatriates, provided the industries are fundamentallysound. Small businesses appear to have a better chance of successand are more viable than some of the heavily protected and subsidizedtransnational enterprises. The article finds that successful industrial entrepreneurs havecome from a variety of religious, cultural, and educationalorigins. It casts doubt on the efficacy of training programsto teach entrepreneurial skill and argues instead that a liberaleconomic regime is more likely to encourage entrepreneurship.Equally important is a well-grounded and widely dispersed growthof income, especially among small-scale cultivators, which leadsto a growth of demand for what small businesses produce.      

Banking the poor: The role of mobiles

It is estimated that about 90 per cent of the people living in developing countries do not have access to financial services. Also, in some developing countries including Ghana, some people live below the international poverty line of US $1 a day. Some of the issues related to this phenomenon include; difficulty in accessing banking services owing to geographic distance, bureaucratic nature of banking services and misconception regarding the inability of the poor to repay their loans. This article argues that if the traditional financial setting does not allow the poor to access to the financial services like banking, the poor could be offered banking services through mobile technologies. This article therefore proposes a Mobile Banking Model that conceptualizes key ways by which mobile phone technology can be used to increase pathways to banking access for poor people. Future research will focus on empirically testing this model.     

Toward Transparency: New Approaches and Their Application to Financial Markets

The Asian financial crisis in the late 1990s not only highlightedthe welfare consequences of transparency in the financial sectorbut also linked this relatively narrow problem to the broadercontext of transparency in governance. It has been observedthat objections to transparency, often on flimsy pretexts, arecommon even in industrialized countries. This article arguesthat transparency is indispensable to the financial sector anddescribes its desirable characteristics: access, timeliness,relevance, and quality. The authors emphasize the need to weighthe costs and benefits of a more transparent regulatory policy,and they explore the connection between information imperfections,macroeconomic policy, and questions of risk. The article arguesfor developing institutional infrastructure, standards, andaccounting practices that promote transparency, implementingincentives for disclosure and establishing regulations to minimizethe perverse incentives generated by safety net arrangements,such as deposit insurance. Because institutional developmentis gradual, the authors contend that relatively simple regulations,such as limits on credit expansion, may be the most reasonableoption for developing countries. They show that transparencyhas absolute limits because of the lack of adequate enforcementand argue that adequate enforcement may be predicated on broaderreforms in the public sector.