Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels

This paper presents new results on the rational bubbles hypothesis for a panel of 18 OECD countries using the model developed by Campbell (2000). We provide an analysis of international data that exploits increased power deriving from the panel unit root and cointegration methodology, together with the flexibility of allowing explicitly for multiple endogenous structural breaks in the individual series. Differently from the time series methodology, the panel data approach allows for a global analysis of the financial crashes that are related to rational bubbles. We find strong evidence in favor of bubbles phenomena.     

Corruption, growth and ethnic fractionalization: a theoretical model

This paper analyzes the existing relationship between ethnic fractionalization, corruption and the growth rate of a country. We provide a simple theoretical model. We show that a nonlinear relationship between fractionalization and corruption exists: corruption is high in homogeneous or very fragmented countries, but low where fractionalization is intermediate. In fact, when ethnic diversity is intermediate, constituencies act as a check and balance device to limit ethnically-based corruption. Consequently, the relationship between fractionalization and growth rate is also non-linear: growth is high in the middle range of ethnic diversity, low in homogeneous or very fragmented countries.     

Evaluating risks-based communities of Mafia companies: a complex networks perspective

Review of Quantitative Finance and Accounting - This paper presents a data-driven complex network approach, to show similarities and differences—in terms of financial risks—between the...     

A review of aggregation techniques for agent-based models: understanding the presence of long-term memory

Quality & Quantity - A key feature of agent-based modeling is the understanding of the macroscopic behavior based on data at the microscopic level. In this respect, financial market models are...     

Economic growth,corruption and tax evasion

In this paper, we explore tax revenues in a regime of widespread corruption in a growth model. We develop a Ramsey model of economic growth with a rival but non-excludable public good which is financed by taxes which can be evaded via corrupt tax inspectors. We prove that the relationship between the tax rate and tax collection, in a dynamic framework, is not unique, but is different depending on the relevance of the “shame effect”. We show that in all three cases — “low, middle and high shame” countries, the growth rate increases as the tax rate increases up to a threshold value, after which the growth rate begins to decrease as the tax rate increases. But, for intermediate tax rates, the rate of growth for “low shame” countries is lower than that of “uniform shame” countries which is, in turn, lower than that of “high shame” countries. This happens because the growth rate is more sensitive to variations of t in an honest country rather than in a corrupt country.     

The optimal bid/ask spread in a Specialist System

In this work we propose a simple market model where some features of the Specialist System are analyzed. In particular, the specialist's obligation to display bid/ask quotes on the book within the bounds imposed by the Exchange is considered. The proposed model allows to analyze the effects of the specialist's interventions on the short term dynamics of bid/ask prices and address a relevant market design issue, that is determination and analysis of the optimal endogenous upper bound that - according to economic conditions - should be imposed by Stock Exchange on the quoted bid/ask spread. The institutional details are summarized in a few structural parameters and the focus is on the aggregate effects of excess demand/supply.     

A quantitative view on policymakers’ goal,institutions and tax evasion

We develop a general theoretical model to compare two different policymakers both facing tax evasion. Policymakers differs in that they aim to maximize either the fiscal revenues ( $T$ ) as in a social-democracy as, e.g., Sweden, or the GDP as in a capitalistic country as, e.g., the USA. Both Bureaus can manoeuvre the tax rate and the share of tax receipts spent to fight the tax evasion rather than to increase the public capital. Our model merges the indications of two distinct, and sometimes conflicting, approaches to the analysis of tax evasion in that reconciling them. We also find that the feedbacks between the private and public sector are linked to some Laffer-type relationships usually unexplored by the existing literature. As compared to capitalistic systems, then, our results show that social-democracies end up imposing higher tax rates and, possibly, more pervasive regulations. Consequently, they are likely to suffer from larger tax-evasion-to-GDP ratios. This notwithstanding, social-democracies spend relatively more to contrast tax dodgers. On the other hand, $T$ -maximizing governments have better institutional settings and greater employment rates. Whichever the preferred target, however, no policymaker is able to erase totally the tax evasion, which may explain why this latter is so pervasive and persistent even among the richest countries.     

Roots and effects of financial misperception in a stochastic dominance framework

This work deals with the issue of investors’ irrational behavior and financial products’ misperception. The theoretical analysis of the mechanisms driving erroneous assessment of investment performances is explored. The study is supported by the application of Monte Carlo simulations to the remarkable case of structured financial products. Some motivations explaining the popularity of these complex financial instruments among retail investors are also provided. In particular, investors are assumed to compare the performances of different projects through stochastic dominance rules. Unreasonably and in contrast with results obtained by the application of the selected criteria, investors prefer complex securities to standard ones. In this paper, introducing a new definition for stochastic dominance which presents asymmetric property, we provide theoretical and numerical results showing how investors distort stochastic returns and make questionable investment choices. Results are explained in terms of framing and representative effects, which are behavioral finance type arguments showing how decisions may depend on the way the available alternatives are presented to investors.     

Tax revenues, fiscal corruption and “shame” costs

In this paper we explore tax revenues in a regime of widespread fiscal corruption in a static framework. We prove that the relationship between the tax rate and tax revenues depends on the relevance of the “shame effect” of being detected in a corrupt transaction. In countries with a “low shame” effect, tax revenues grow as the tax rate increases. Moreover, there is a critical tax rate where the growth rate of tax revenues begins to reduce. In countries with a high “shame effect” tax revenues increase up to a threshold value and then decrease.