The Commonwealth Grants Commission and Horizontal Fiscal Equalisation

The role and approach of the Commonwealth Grants Commission are outlined and put into perspective for the review of Federal financial relations being undertaken by Ross Garnaut and Vince FitzGerald.     

Devaluation,Inflation, and the Balance of Payments: A Short-Run Monetary Approach*

In this paper a model is presented to analyze, in a monetary setting, the effects of a once-and-for-all adjustment in the exchange rate in a small economy committed to a fixed exchange-rate system. The effects of such an adjustment are shown to be transitory. After a devaluation the domestic rate of inflation accelerates in relation to the rate of inflation in the rest of the world. The increase in prices reduces the real value of the nominal stock of money and, in order to restore real liquidity to its previous level, foreign-exchange reserves start to flow into the country. However, as monetary equlibrium is reached, the flow of reserves tends to stop and the domestic rate of inflation converges to the world rate.     

Trade,Wages, and Specific Factors*

In this paper, we use a multisector specific‐factors model with sector‐specific capital and two mobile factors, skilled and unskilled labor, to examine the effects of trade, technology, and factor endowments on the skill premium in US manufacturing industries. Based on this model and data for the US manufacturing sector from 1958–96, we calculate changes in the skill premium and then carry out a decomposition to identify the changes caused by product price changes (trade), technological progress, labor, and capital endowment changes. The decomposition reveals that trade effects, working through product price changes, caused the skill premium to increase moderately. Changes in capital endowments (new investments) had a positive effect on the skill premium, with the strongest impact during the 1980s, while the effect of technological change on the skill premium varied over time. Finally, changes in relative labor endowments had a negative effect on the skill premium.     

Sector Specific Wage Rigidity and Factor Accumulation*

Economic expansion resulting from factor accumulation is introduced in the mobile capital and small open economy version of the Harris-Todaro model. Among other things, it is shown that economy expansion leads to normal effects on urban unemployment if land is introduced as a scarce input in the agricultural sector. However, capital accumulation and labour growth have indeterminate effects on the absolute level of urban unemployment.     

Specific Factors,Learning, and the Dynamics of Trade*

In the postwar period, the volume of trade among developed countries has increased at a much higher rate than GDP. This article presents a dynamic general equilibrium model of trade between developed countries that accounts for this pattern of trade dynamics. Countries trade in goods that use good‐specific skilled labor and unskilled labor as factors of production. Specific skills are learned on the job and there exist positive effects in learning. Small initial differences in the distribution of experts in each country generate an increasing pattern of specialization over time. Knowledge spillovers across sectors are crucial determinants of the trade pattern.     

Payments and Output

Output declines may be caused or propagated through the payments system by shortages of the reserves required for the payment of factors of production. Appropriate open market purchases are shown to be able to lower the short-run interest rate on liquid assets and to relieve the output disruption. Journal of Economic Literature Classification Numbers: E42, E58.     

The Dynamic Effect of Devaluation on the Balance of Payments of a Small Debt-Ridden Open Economy*

This paper derives a precise necessary and sufficient condition for devaluation to eventually improve the balance of payments in domestic currency, using assumptions more appropriate for a small open economy than those of Marshall-Lerner. It will be shown that, following devaluation, the balance of payments deteriorates over a short period before it gradually improves– the so-called J-curve effect The duration of this short period will be shown to depend on the magnitude of trade elasticities, lag-coefficients, unhedged foreign debt denominated in foreign currency, interest rate and current account deficit     

Tariff Elimination and the Wage Gap in an Industrial Specific Factors Model*

A specific factors model of 458 US manufacturing industries simulates the effects of eliminating manufacturing tariffs on unskilled and skilled wages. The model assumes constant elasticity substitution, industry‐specific capital inputs, and mobile unskilled and skilled labor. Tariff elimination slightly lowers both unskilled and skilled wages, and increases the skilled wage gap. Industry outputs and capital returns absorb the negative impact of the falling tariffs with losses concentrated in more highly protected industries and most industries enjoying small positive outcomes.     

On the Equivalence of Ad Valorem Tariffs and Specific Tariffs under Duopoly*

Using a quantity conjectural variation model, this paper examines whether an ad valorem tariff and a specific tariff are equivalent under duopoly. We show that if the average per‐unit import tax is the same for the two tariffs, domestic output will be smaller while foreign output will be larger under an ad valorem tariff. We further show that for any value of a specific tariff, there is a Pareto‐superior ad valorem tariff for all values of conjectural variation except in the case of perfect competition where the two tariffs are equivalent.     

转移支付均等化条件分析——基于转移支付与地方经济增长的关系

文章运用近16年的转移支付数据验证了龚六堂2000年的观点,即中央政府对地方政府的转移支付率与地方经济增长率之间是"倒U型"的关系。并在此基础上进一步推导出地方经济增长和中央政府对地方政府的转移支付之间也存在着这样"倒U"关系。用这种关系解释两个问题:第一,转移支付对地方经济增长有部分正的刺激作用,无论是富裕地区还是贫穷地区,中央政府都应该对其地方政府给予转移支付,同时转移支付也不是越多越好,也应该有个量的限制,当地方政府的收益足够大时,转移支付对经济增长的刺激就不再那么明显,反而会抑制地方经济增长;第二,从新的角度分析转移支付均等化实现的条件,即富裕地区较贫穷地区较早的进入"倒U"曲线的边际收益递减阶段时,才可能实现均等化。     

Trade,Wage Gaps,and Specific Human Capital Accumulation*

We develop a new framework for the analysis of the impact of trade liberalization on the wage structure and on welfare. Our model focuses on the decision of workers to accumulate firm‐specific skills, by “on‐the‐job” training, knowing that this means their future wages will have to be negotiated, and that the outcome of negotiation will depend on the profitability prospect of firms operating in a new trading environment. We show that trade liberalization may reduce the welfare of a developing country because of its adverse effect on skill accumulation. We also explore the effects of trade liberalization on the wage gap between skilled and unskilled workers.     

Firm‐Specific Learning and the Investment Behavior of Large and Small Firms*

We examine a model of size distribution and growth of firms where firms learn about idiosyncratic productivity parameters through their production experience. Aggregate shocks, by adding noise to learning at the firm level, can produce different responses across firms. In particular, young firms, which are smaller on average than older firms and more uncertain about their productivity, can “overreact” to aggregate shocks. Such differences across firm sizes and ages, which arise here in a model with perfect financial markets, are often attributed to financial frictions that hit small and large firms differently.     

Immigrants and the Use of Government Transfer Payments

This article examines the use of government benefits and allowances by Australian immigrants relative to their native-born counterparts. The study extends the Australian literature by employing micro-level (Australian Longitudinal Survey) data, controlling for a number of relevant variables including first or second generation immigrant status and the nature of transfer payments received. The data on young adults employed in the study provide a comparable population for examining the relative use of benefits among those of similar age, allowing comparisons based on only the relevant types of benefits. The results consistently reject the hypothesis that immigrants are disproportionately using benefit payments and thereby imposing a burden on public funds. These results are of interest, especially since Australia is already a major immigrant-receiving country, and since the Australian welfare system is more extensive in its coverage than most other immigrant-receiving countries.     

Whither the Balance of Payments?

This article sets out the analytical framework of the 'new' approach to the balance of payments under the conditions of 'international financial laissez faire' characterised by financial deregulation, floating exchange rates, and high international capital mobility. It is argued that much of the reasoning underlying the new approach derives from the modus operandi of regional payments systems. The fundamental differences between the benchmark model of regional financing and the current international financial laissez faire are explored, and the extent to which the presence of exchange risk may interfere with the 'optimal' debt/borrowing processes posited by the new approach is discussed. The possibility of a transfer problem arising from Australia's rapid accumulation of short-term foreign debt is considered.
While developments in international banking, together with the liberalisation and globalisation of world securities markets, have considerably narrowed the differences between the new global financial environment and regional payments systems, the conclusion of the article is that there are substantial externalities in the international case which are intrinsic to the debt/borrowing process and which are likely to remain a source of continued policy concern.