China’s value-added tax reform,firm behavior and performance

China reformed value-added tax (VAT) by removing investment from the tax base in northeastern provinces in 2004, which is a “natural experiment” of its tax system. Using difference-in-differences method, this paper for the first time investigates the impact of VAT reform on China firms’ fixed asset investment, employment behavior, innovative activities, and productivity, and furthermore discusses the impact of firm behavior on industrial structural upgrade and employment with a firm-level panel data of large and medium-sized manufacturing enterprises in China. We find that VAT reform significantly promotes firms’ fixed asset investment, and increases firms’ capital-labor ratio and productivity; while enhancement of firms’ productivity is mainly achieved by means of substituting labor with capital, rather than independent technology innovation; meanwhile, VAT reform distinctly decreases employment. Our findings have essential policy implications on the extension of VAT reform in the entire China.     

The Implications of Rybczynski’s Theorem for Government Spending,Learning by Doing,and Labor Mobility

The evolution of a small open economy or region with labor mobility and dynamic scale economies in the high-tech sector is analyzed using the neoclassical 2×2-model. Government services are inputs to private production and influence specialization according to Rybczynskis theorem. This effect is reinforced by dynamic scale economies. Empirically observed differences in regional development and specialization are explained by diverging government policies and/or history-dependent factors. Despite of diverging wage rates, diversified regions and regions specialized in low-tech production may coexist with a common level of per capita incomes.     

Three brief proofs of Arrow’s Impossibility Theorem

Summary. Arrows original proof of his impossibility theorem proceeded in two steps: showing the existence of a decisive voter, and then showing that a decisive voter is a dictator. Barbera replaced the decisive voter with the weaker notion of a pivotal voter, thereby shortening the first step, but complicating the second step. I give three brief proofs, all of which turn on replacing the decisive/pivotal voter with an extremely pivotal voter (a voter who by unilaterally changing his vote can move some alternative from the bottom of the social ranking to the top), thereby simplifying both steps in Arrows proof. My first proof is the most straightforward, and the second uses Condorcet preferences (which are transformed into each other by moving the bottom alternative to the top). The third proof proceeds by reinterpreting Step 1 of the first proof as saying that all social decisions are made the same way (neutrality).Received: 9 July 2001, Revised: 2 September 2004, JEL Classification Numbers: D7, D70, D71.John Geanakoplos: I wish to thank Ken Arrow, Chris Avery, Don Brown, Ben Polak, Herb Scarf, Chris Shannon, Lin Zhou, and especially Eric Maskin for very helpful comments and advice. I was motivated to think of reproving Arrows theorem when I undertook to teach it to George Zettler, a mathematician friend. After I presented this paper at MIT, a graduate student there named Luis Ubeda-Rives told me he had worked out the same neutrality argument as I give in my third proof while he was in Spain nine years ago. He said he was anxious to publish on his own and not jointly, so I encourage the reader to consult his forthcoming working paper. The proofs appearing here appeared in my 1996 CFDP working paper. Proofs 2 and 3 originally used Mays notation, which I have dropped on the advice of Chris Avery.     

Durable Good Monopoly,Finite Durability and ‘Trigger’ Time-Consistent Equilibrium

This paper analyzes the problem of durable good monopoly facing linear demand function when the good decays in a one-hoss-shay fashion. It is shown that under certain conditions there can exist a time-consistent equilibrium which resembles the trigger strategy equilibrium in the repeated games. [L12]     

Sraffa’s Constructive and Interpretive Work,and Marx

ABSTRACT

This article provides a summary account of Piero Sraffa’s constructive and interpretive work on the classical approach to the theory of value and distribution and its relationship with Marx’s contributions. It is shown that in the early phase of his constructive work Sraffa developed his equation systems by adopting a ‘physical real cost’ approach and a strictly objectivist point of view, and completely eschewed Marx’s labour-based approach and the related Marxian concepts. Only at a later stage did he explore systematically the relationship between his own modern re-formulation of the surplus approach to the theory of value and distribution and Marx’s contribution. He considered Marx’s most important analytical contribution to the further development of the surplus approach to consist of the re-integration of circular production relations, which allowed him to see the existence of a maximum rate of profits and its role in an analysis of accumulation and technical change.     

Uncertainty,Control, and Karl Polanyi’s Protective Response

Post-Keynesian institutionalist economists like Wallace Peterson and John Kenneth Galbraith recognized that the impact of uncertainty on economic wellbeing depends in part on the degree of control people have over the sources and consequences of it. Given the inability of government and other large institutions to reduce uncertainty or to provide citizens with the ability to manage it, mediating structures are considered as an alternative means of promoting economic security. The article concludes by describing and evaluating several of these alternatives.     

Neoliberalism,Polanyi’s Protective Response,and Veblenian Waste

As capitalism unfolds, continual technological advance — in combination with the relentless accumulation imperative — serves to amplify material progress. The expanding economic sphere begins to pervade the everyday lives and thinking of the individual. The institutionalization of the market fundamentally changes the structure of society and, in so doing, fundamentally changes the institutional structure through which individuals are socialized. The social dislocation generated therein prompts Karl Polanyi’s protective response. Despite this market intensification, the existence of the economic surplus undermines the syllogistics of market-determined pricing. Evidence of the economic surplus and Veblenian waste as well as of the fact that the competitive law of value is not operable under neoliberalism is found in the lobby industry and campaign contributions. This research seeks to explicitly connect the concepts of Polanyi’s protective response with Veblenian waste and the economic surplus in order to better understand how the irrational system of neoliberalism continues to evolve.     

Infrastructure,women’s time allocation,and economic development

This paper develops a gender-based OLG model of endogenous growth to analyze the impact of infrastructure on women’s time allocation between market work, raising children, own health care, and home production, and its implications for education and health outcomes. Women’s health status in adulthood, which affects productivity and wages, depends on their health status in childhood. Threshold effects in health and life expectancy, associated with access to infrastructure, may generate multiple development regimes. Whether an increase in government investment in infrastructure succeeds in shifting the economy to a high-growth equilibrium depends crucially on how women reallocate their time and the strength of congestion effects.     

Depreciated Depreciation Methods? Alternatives to Sraffa’s Take on Fixed Capital

This article discusses the treatment of fixed capital in the classical theory of price. Sraffa uses non-linear depreciation of ‘physical’ capital that equalizes all annual profit rates individually, but violates the proportionality of monetary machine value reduction and physical use-up on an annual basis. One alternative is to apply simple linear depreciation that has equal annual fixed capital costs. The key for consistency is that the internal rate of return on fixed capital investments throughout the fixed asset lifetime must be equated with the normal profit rate. A second alternative is to use ‘monetary’ capital, where the ‘correct’ amortization charges depend on the ability of the accumulated depreciation fund to earn interest. Among these valid alternative methods are the original proposals of Marx and Torrens, which were dismissed falsely and prematurely by Neo-Ricardian economists. These alternatives are shown here to imply fundamentally different prices of production. For all methods, the formulas for deriving amortization charges and fixed capital prices of all vintages are derived. The article also illustrates how the system of Sraffian price equations can be modified to incorporate these methods.     

Children’s Snacks,their Ads and Consumer Sovereignty

Abstract

The concept of sovereign consumer preferences is challenged from three sides: child consumers, unhealthy food and advertising. The two theoretical concepts of merit goods and libertarian paternalism are implemented in order to classify situations in which full consumer sovereignty does not apply. An empirical analysis of ads for children’s snacks reveals the libertarian paternalist perspective as helpful for understanding the demand for and justification of ‘soft’ governmental intervention in the case of the advertised snacks, whilst the ads for these snacks may well be demerit goods. The banning or heavy taxation of these ads is therefore advocated.     

China’s Reform: History,Logic and Future

This paper is a brief introduction of the core content and basic concepts of the book China’s Reform: History, Logic and Future, and gives answers to questions such as why China’s reform and opening-up policy has achieved great success, why the catch-up mode, extensive and extractive development mode China adopted in the past three decades are no longer sustainable and what China’s market-oriented reforms should aim to achieve in the next stage so that readers can have a profound understanding of China’s reform. Planning ahead, from the perspective of sustainable economic development, China badly needs to transform from factor-driven growth to efficiency-driven and innovation-driven growth, the key to which is to further encourage the liberalization of thought, promote reform and opening-up, unswervingly follow the path of economic liberalization, marketization and privatization, to establish an inclusive modern market system, to allow the market to play a decisive role in resource allocation and the private economy to play a dominant role in the national economy. The market-oriented reform is a complicated project and China is faced with at least three different aspects of reform in some key areas—the main body of private economy, the liberalization of financial market and the marketization of land. Meanwhile, China needs to efficiently balance three elements of good governance, that is, the rule of law, execution and democratic supervision, so as to facilitate the modernization of state governance system and governance capability.     

Financialization,Class Interests,and Karl Polanyi’s Protective Response

Many observers expected a stronger countermovement against neoliberalism following the Great Recession. This article argues that such a protective response failed to materialize because the financialization process has aligned the preferences of labor and rentier classes. The result has been weaker support in democracies for expansionary monetary and fiscal policies during the early stages of recessions, which further lowers aggregate spending by increasing uncertainty. Thus, reversing the culture of financialization may be a necessary condition for preventing and responding to financial crises.     

Women’s rights and development

Why has the expansion of women’s economic and political rights coincided with economic development? This paper investigates this question by focusing on a key economic right for women: property rights. The basic hypothesis is that the process of development (i.e., capital accumulation and declining fertility) exacerbated the tension in men’s conflicting interests as husbands versus fathers, ultimately resolving them in favor of the latter. As husbands, men stood to gain from their privileged position in a patriarchal world whereas, as fathers, they were hurt by a system that afforded few rights to their daughters. The model predicts that declining fertility would hasten reform of women’s property rights whereas legal systems that were initially more favorable to women would delay them. The theoretical relationship between capital and the relative attractiveness of reform is non-monotonic but growth inevitably leads to reform. I explore the empirical validity of the theoretical predictions by using cross-state variation in the US in the timing of married women obtaining property and earning rights between 1850 and 1920.     

Vicarelli’s Keynes (and today’s international disorder)

The article speculates about the legacy of Fausto Vicarelli’s interpretation of John Maynard Keynes’s work in the times of a major global crisis. In particular, it puts an emphasis on those aspects of Keynes’s “method” that Vicarelli rightly considered as revolutionary in his Keynes, of 1977, as well as in other writings. The article then turns to Vicarelli’s reconstruction of Keynes’s early work in international economics (Indian Currency and Finance, Economic Consequences of the Peace) and reflects upon the continuing relevance of the philosophy inspiring Keynes’s plans of global reform in the Forties, also in the light of Vicarelli’s (Keynes-inspired) vision of the problem of policy space at the international level.     

Collective Action,Marx’s Class Theory,and the Union Movement

Research on establishment size-wage effects has consistently shown a positive relationship between the number of employees and workers' wages. While several theories have been offered to explain these outcomes, the use of data with limited employer characteristics make for a dubious connection between theory and results. This study examines the firm size-wage effect using a dataset that captures typical worker demographics, but also contains employer information not typically captured in larger datasets. The results provide strong evidence that these wage effects are the result of several forces, including worker sorting/matching, efficiency wages, internal labor markets, and, to a lesser degree, working conditions.