Does fiscal decentralization promote the inflow of FDI in China?

This paper tests whether China's fiscal decentralization promotes the inflow of foreign direct investment (FDI). Using provincial panel data during 1995–2002, we find that fiscal decentralization has a positive and significant effect on inward FDI, after controlling for other factors, and fixed time and province effects in both LSDV (Least squares dummy variables) regression and system GMM (Generalized method of moments) estimations that address the endogeneity of fiscal decentralization. The results are robust to six measures of fiscal decentralization that consider budgetary amount, extra-budgetary funds and inter-governmental transfers. A simple theory is offered to explain the findings. The results during 1987–1994 are further contrasted. Policy implications are also presented.     

What are the effects of fiscal policy on asset markets?

We investigate the link between fiscal policy shocks and asset markets. Our results show that spending shocks have: a positive and persistent effect on GDP in the U.S. and in the U.K., while for Germany and Italy, such impact is temporary; a positive and persistent effect on housing prices; a negative effect on stock prices; and mixed effects on the price level. A VAR counter-factual exercise suggests that fiscal shocks play a minor role in the asset markets of the U.S. and Germany, and substantially increase the variability of housing and stock prices in the U.K., while government revenue shocks have increased volatility in Italy.     

Does fiscal decentralization foster regional investment in productive infrastructure?

The aim of this paper is to analyze the effect of revenue decentralization on the provision of infrastructure at the sub-national level. We estimate the effects of revenue decentralization and earmarked grant financing on the level of sub-national infrastructure investment in 20 European countries over the period 1990–2009. The results are interpreted in light of the predictions of the theory on fiscal federalism. We find that it is sub-national infrastructure investment that increases after revenue decentralization and not investment in redistribution. However, the effect of revenue decentralization is lower the higher the use of earmarked grants to fund infrastructure investment.     

Does fiscal decentralization affect local governments' strategic behaviours? Evidence from South Korea

Local governments tend to show strategic behaviours when making their spending decisions. However, few studies have examined strategic behaviours when promoting fiscal decentralization. Thus, this study empirically examines the presence of strategic interactions in expenditure decisions in South Korea as well as how fiscal decentralization affects those interactions, using a panel data set from 2010 to 2017. The results demonstrate that a local government mimics other governments' spending when those governments' residents share similar age demographics. Moreover, local governments in South Korea engage in strategic interactions as their expenditure side becomes more decentralized. However, local governments tend to demonstrate less isomorphic behaviour in welfare spending decisions when they have higher revenue decentralization. This is because local governments have no motive to emulate other welfare policies, as the central government delegates the provision of social services to local governments by providing grants with strings attached.     

Does monetary policy credibility mitigate the fear of floating?

Based on the argument that monetary policy credibility can reduce the fear of floating, we analyze this hypothesis for a set of 47 countries (of which, 32 are developing countries, 26 are Inflation Targeting countries and 16 are Inflation Targeting developing countries). Our study is the first to empirically assess the impact of monetary policy credibility (defined as the central bank's ability to anchor inflation expectations to the target) on the central banks' reaction through the basic interest rate due to exchange rate fluctuations (fear of floating). Based on panel data methodology applied to different samples, the most important result of this paper is that monetary policy credibility is able to mitigate the fear of floating. However, this effect is weaker after the crisis. Our estimates also reveal that Inflation Targeting developing countries present stronger fear of floating, which is justified by the fear of inflation in these countries.     

Does the crowding-in effect of public spending on private consumption undermine neoclassical models?

Empirical evidence from vector autoregressions (VARs) showing that public spending shocks crowd in private consumption has been seen as evidence against standard neoclassical models of the business cycle. We show that a standard real business cycle model in which all agents including the government optimize is compatible with the results from the empirical literature. A VAR estimated using artificial data simulated from the model indicates that, under standard assumptions to identify public spending shocks, an increase in public spending is associated with an increase in private consumption and the real wage. The implied impulse responses are qualitatively and quantitatively similar to those in the empirical literature.     

Does corruption rule the auditor's soul? Examining the auditors' attitude toward accepting corruption behaviors

This study investigates individual auditors' attitudes toward various corrupt behaviors in Palestine, an underexplored context. We examine the perception and determinants of auditors toward corruption and introduce the link between gender, job position, exposure to other cultures, age, and level of education as factors affecting attitudes toward corruption perception. Our findings reveal that auditors' perception of corruption differs across corrupt behaviors. In most surveyed behaviors, age is negatively associated with acceptance of corruption, and female auditors exhibit a higher attitude toward accepting corruption across various forms. Additionally, the auditor's position and outside education significantly impact their attitude toward accepting corruption. Our work fills an existing literature gap and provides valuable information for targeted regulators and professional bodies aiming to reduce corruption.     

Does the ban on trans-fats improve public health? In search of the optimal policy response

This paper examines the contribution of the regulatory ban on trans-fats and voluntary trans-fat regulation to public health outcomes for a sample of 39 countries in the period 1990–2015. To this end, we exploit within-country variation in trans-fat legislation to estimate the impact of the trans fat ban on cardiovascular mortality and obesity rates. Our difference-in-difference estimates indicate modest and beneficial effects of the trans-fats ban in reducing cardiovascular mortality and obesity rate. We find that the ban on trans fats tends to decrease the mortality rate attributed to cardiovascular diseases while the effects on the obesity rates are significant, especially among children and adolescent age group. By contrast, voluntary regulation of trans fats and demand-driven regulatory strategies are generally not associated with a marked drop in the obesity rate. By controlling for country-specific time trends, we show that the estimated mortality- and obesity-related impact of the ban is not driven by pre-existing trends, and does not affect non-cardiovascular mortality rate.

     

The impact of local financial development on firm growth in Vietnam: Does the level of corruption matter?

We examine the effects of province-level financial development and corruption on the performance of Vietnamese firms in terms of the growth rates of sales, investment and sales per worker. Employing a large firm-level dataset of more than 40,000 firms for the period 2009–2013 and applying a heteroskedasticity-based identification strategy, we find that province-level financial development promotes firm growth, while corruption hinders it. Most importantly, the marginal effect of financial development on firm growth depends negatively on the level of corruption. Moreover, financial development exacerbates the growth-retarding effect of corruption.     

Does transparency reduce political corruption?

Does a better monitoring of officials' actions (transparency) lower the incidence of corruption? Using a common agency game with imperfect information, we show that the answer depends on the measure of corruption that one uses. More transparency lowers the prevalence of corruption but raises the average bribe as it motivates the corruptor to bid more aggressively for the agent's favor. We show that transparency affects the prevalence of corruption at the margin through a competitive effect and an efficiency effect.     

Does financial development reduce corruption?

We estimate the impact of bank credit to the private sector on corruption, using indicators of a country’s legal origin as instrumental variables to assess causality. We find that bank credit to the private sector reduces corruption, with the result robust to instrumenting for bank credit and for many different controls.     

Does competition cause government decentralization? The case of state-owned enterprises

This paper examines the causal effects of competition on governments’ incentives in decentralizing state-owned enterprises (SOEs). By using the shocks to product market competition caused by China's trade liberalization, we find that competition substantially improves SOEs’ decentralization. Furthermore, we also provide evidence of the incentive to exploit local information and roll out an alternative interpretation that government divests itself of SOEs because they become burdensome. Finally, we find that the effect of competition on decentralization is augmented when governments are geographically distant from their SOEs or when SOEs are located in regions characterized by low social trust, high dialect diversity, or heavy pressure for economic growth.     

Do fiscal decentralization and income inequality affect the size of the shadow economy? A panel data analysis for OECD countries

In this article, we study fiscal decentralization and inequality as driving forces of the shadow economy in advanced economies. Our empirical analysis suggests that a reduction in income inequality will contain the shadow economy, whereas expenditure and tax decentralization do not significantly impact it. As decentralization is generally believed to increase government efficiency, this result is indicative of already highly efficient public administrations. Our results further indicate that redistributive policies positively affect the size of the shadow economy, whereas the tax burden does not have any discernible effect on the shadow economy in our sample.     

Spillover effects of fiscal policy in a monetary union: Why do fiscal instruments matter?

Using a two‐country DSGE model, we analyse the spillover effects of fiscal policy in a monetary union. Based on a non‐Walrasian labour market with a labour force participation decision and involuntary unemployment and a detailed fiscal sector, we focus on the relative cross‐border effects of different kinds of fiscal shocks (government expenditure and tax shocks). Among the major lessons from this analysis, five general and striking results are worth highlighting : (1) spillover effects differ widely according to the fiscal instrument, (2) all fiscal instruments produce positive spillover effects on foreign GDP except a rise in government consumption, (3) the response of unemployment is not always negatively correlated with the response of output (4) the different fiscal shocks trigger different effects on foreign inflation and the term of trade, which implies heterogeneous interest‐rate and trade channels, and (5) a more accommodative monetary policy and a scenario of ‘fiscal dominance’ alter greatly the effects of fiscal policy shocks.     

Does the evidence on corruption depend on how it is measured? Results from a cross-country study on microdata sets

While much of the existing literature on corruption looks at the effect of corruption on macro variables such as growth rates and income distribution, this study provides a departure by focussing on victims of corruption by using microdata to compare civilian and business corruption. This study finds that businesses face a stronger incidence of bribe demands than individuals. Though there are several differences between the determinants of the two forms of bribe victimization, there are also some similarities. Policies to combat corruption need to take into account both the differences and the similarities.     

Is fiscal policy always counter- (pro-) cyclical? The role of public debt and fiscal rules

We investigate the reaction of fiscal policy to the business cycle in a panel of 56 developed, emerging and developing economies over 1990–2011. While we strengthen the established finding that fiscal policy is counter-cyclical, additional outcomes emerge from this study. We reveal a non-linear response of fiscal policy to the business cycle, conditional upon the outstanding debt stock. Interestingly, when the public debt-to-GDP ratio goes beyond our endogenously estimated threshold of 87%, fiscal policy turns pro-cyclical. To tackle this effect, we explore the role of fiscal rules (FR). We unveil heterogeneous impacts among FR, as only some of them may mitigate fiscal policy procyclicality in high-debt contexts.     

Supranational integration and national reorganization: On the Maastricht treaty’s impact on fiscal decentralization in EU countries

We explore the implications of European integration for fiscal decentralization in EU member states with a dataset on 21 OECD countries over the 1975–2000 period. The difference-in-difference methodology is used to establish causality. EU member states are classified as the treatment and non-EU OECD countries as the control group. The Maastricht treaty is interpreted as a quasi-experimental policy intervention that substantially advanced European integration. Our results suggest that tax decentralization has increased in EU countries after the signing of the Maastricht treaty. The treaty’s effect on expenditure decentralization also seems to be positive, but is less clear-cut.     

Does corruption impede economic growth in Pakistan?

The present study reinvestigates the impact of corruption on economic growth by incorporating financial development and trade openness in growth model in case of Pakistan. We have used time series data over the period of 1987–2009. We have applied structural break unit root test to test the integrating order of the variables. The structural break cointegration has also been applied to examine the long run relationship between the variables.The long run relationship between the variables is validated in case of Pakistan. We find that corruption impedes economic growth. Financial development adds in economic growth. Trade openness stimulates economic growth. The causality analysis has exposed the feedback effect between corruption and economic growth and same inference is drawn for trade openness and corruption. Trade openness and economic growth are interdependent. Financial development Granger causes economic growth implying supply-side hypothesis in case of Pakistan.     

Who has terror angst? Perceptions of the effects of terror on the world economy

We examine sources of biased terror perceptions. In particular, we investigate how international experts of the IFO World Economic Survey assess the effect of terror on the world economy and the economy of their own country. The results show that respondents from terror-stricken countries have more favourable views on the effect of terror on the word economy (but not on their own countries). Male respondents and those from democratic and richer countries are likewise more optimistic.