Dubious versus trustworthy faces: what difference does it make for tax compliance?

We find experimental evidence that the decision problem of tax compliance changes if subjects’ declarations are not randomly assessed, but is based on their appearance as captured by pictures of their faces, even if the aggregate audit probability does not change. Some subjects may fear that their picture looks rather dubious, whereas others may believe that their picture looks more trustworthy than average. Depending on these beliefs, they may adjust their compliance decisions. Our experimental design allows us to disentangle these potentially countervailing effects.     

Exploration or exploitation of knowledge from universities: does it make a difference?

In the first step, based on the existing theoretical and empirical literature, we develop a series of hypotheses with respect to the relative importance of possible determinants of exploration and exploitation of knowledge in collaboration with universities and test them on Swiss firm data. In the second step, we investigate the impact on innovation performance of knowledge exploration versus knowledge exploitation. We obtain a clear pattern of the differences between firms that are engaged both in exploitative and explorative activities (‘exploration’-oriented firms) and purely ‘exploitation’-oriented firms. We find that exploration-oriented firms have a greater knowledge absorptive capacity, are technologically more diverse and are strongly exposed to intensive non-price competition compared with exploitation-oriented firms. We further find a positive effect on innovation performance for exploitation-oriented firms but not for those that were exploration oriented.     

Does trend inflation make a difference?

Although the average inflation rate of developed countries in the postwar period has been greater than zero, much of the extensive literature on monetary policy has employed models that assume zero steady-state inflation. In comparing four estimated medium–scale NK DSGE models with real and nominal frictions, we seek to shed light on the quantitative implications of omitting trend inflation, that is, positive steady–state inflation. We compare certain population characteristics and the IRFs for the four models by applying two loss functions based on a point distance criterion and on a distribution distance criterion, respectively. Finally, we compare the RMSE forecasts and we consider also an indirect inference test. We repeat the analysis for three sub-periods: the Great Inflation, the Great Moderation and the union of the two periods. We do not find strong evidence that a model with trend inflation should always be preferred. During periods of high inflation or when a backward-looking component, indexed to past inflation, is not incorporated in the model, using a model that employs trend inflation can improve the analysis. Nevertheless, where there is uncertainty concerning the change of an inflation regime, such as the recent drop, we suggest adopting a traditional approach that does not use trend inflation.     

Gender and climate change: Do female parliamentarians make difference?

This paper investigates whether female political representation in national parliaments influences climate change policy outcomes. Based on data from a large sample of countries, we demonstrate that female representation leads countries to adopt more stringent climate change policies. We exploit a combination of full and partial identification approaches to suggest that this relationship is likely to be causal. Moreover, we show that through its effect on the stringency of climate change policies, the representation of females in parliament results in lower carbon dioxide emissions. Female political representation may be an underutilized tool for addressing climate change.     

How does a public innovator license a foreign rival?

This paper uniquely considers the optimal two‐part fee of a public firm innovator licensing to a more efficient foreign rival. This is both theoretically interesting and empirically relevant. While previous research emphasises the importance of fixed fees for public firms, we show that, in this case, ad valorem fees typically dominate both fixed fees and per unit royalties. This domination carries over when a private domestic competitor is also added to the market.     

International income inequality, 2005–2011: what a difference 6 years can make

While much attention has recently been given to the rising inequality in high-income countries, particularly the US, inequality across countries has received less attention. Based on reports of the International Comparison Program, which provide the most accurate measures of PPP income at the country level, this study computes three highly recommended measures of intercountry income inequality for the years 2005 and 2011. A dramatic, and perhaps unprecedented, fall in intercountry inequality over the relatively short period of 6 years is noted. As a correlate of the fall in intercountry inequality, aggregate PPP GDP for six major high-income countries is compared with that for three large developing countries, and the dramatic increase over the 6-year period in the ratio of the total GDP of the three developing countries to that for the six high-income countries is noted, thus extending, from the most accurate data, the theme of the ‘rise of the South’ articulated in Human Development Report 2013.     

Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?

Financial factors have been found highly important in influencing firms’ real activities and in promoting aggregate growth. Yet, the linkage between finance and firm-level productivity has been overlooked in the literature. We fill this gap using a panel of 130,840 Chinese manufacturing firms over the period 2001–2007 to estimate a TFP model augmented with cash flow. We find that, especially for illiquid foreign and private firms, productivity is strongly constrained by the availability of internal finance. Furthermore, contrary to private firms, foreign non-exporters display higher dependence of productivity on cash flow than exporters.     

Does inflation targeting make a difference in developing countries?

We evaluate the treatment effect of inflation targeting in thirteen developing countries that have adopted this policy by the end of 2004. Using a variety of propensity score matching methods, we show that, on average, inflation targeting has large and significant effects on lowering both inflation and inflation variability in these thirteen countries. However, the effectiveness of inflation targeting on lowering inflation is found to be quite heterogeneous. The performance of a given inflation targeting regime can be affected by country characteristics such as government's fiscal position, central bank's desire to limit the movements of exchange rate, its willingness to meet the preconditions of policy adoption, and the time length since the policy adoption.     

Withholding investments in energy only markets: can contracts make a difference?

Although there are mechanisms to control market power in the spot market, withholding investments can still increase profits and hamper adequate capacity expansion. We examine the effect on investment of one suggested approach to reducing market power, contracting longer term. We construct a stylized model of an energy-only market where two firms, each specializing in one technology, invest in a first stage, contract part of their production in the second stage and sell the rest in the spot market in the third stage. We compare this model to one of an energy-only market having two stages, investment and a spot market. We find cases where the contracts change neither capacity nor peak prices, where the foreclosing effect of one player blocking the other from contracts markets increases investments and reduces prices, and where the opportunity to foreclose the market can incentivize one firm to lower its investment and increase its pricing power to the detriment of consumers. The model relies on the simplest possible assumptions of imperfect competition (subgame perfect equilibria with Cournot agents). We illustrate the different outcomes in a numerical example with two load steps (peak and off-peak) where we change one parameter, the height of the off-peak time segment. We find cases with increased and decreased capacity as well as no change in capacity. Since there is no general characterization of the consequences of contracts in this simple example, there can be no characterization in more complicated models that contain the market structures included here, and regulators or competition authorities cannot rely on contracts to induce sufficient capacity expansion by reducing market power. One other market mechanism that has been proposed to induce investment, a capacity auction with predetermined capacity requirements, is a potential alternative to limit market power that deserves further exploration to determine the extent to which it can provide an adequate incentive to invest in the presence of market power.     

Global uncertainty and capital flows: any difference between foreign direct investment and portfolio investment?

This note investigates how global uncertainty relates to extreme waves of capital flows, including foreign direct investment, portfolio investment, and other investment. We find the clear differences in the role of global uncertainty between advanced and developing economies. Global uncertainty increases the likelihood of sudden contraction of portfolio investment in both advanced and developing economies, while it increases that of foreign direct investment in only advanced economies.     

Economic development and evolving state capacities in Central and Eastern Europe: can “smart specialization” make a difference?

We position “smart specialization” (SS) as the third external and conditionality-based reform of economic policy rationales – after Washington Consensus and Europeanization – in Central and Eastern Europe (CEE). We discuss what kind of state, policy, and administrative capacities, or routines, SS presumes. We show that over the years CEE economies have built very different routines, especially for policy coordination and public–private interactions. Design and implementation of functional SS strategies requires critical attention and development of these routines through contextual policy experimentation in all CEE regions. We provide some general guidelines for this.     

How does immigration affect modes of foreign market access: trade and FDI?

This article presents a study of the effects of immigration on trade and FDI. Our analysis is distinct from previous work because it systematically examines the interactions between immigration, trade and FDI. Previous studies treated FDI–immigration relationships as being independent of the modes of foreign market access. Using bilateral data of Japan and 28 other economies for the period 1996–2011, our analysis shows that FDI inflows become more dominant compared to imports when skilled immigration flows increase and less dominant when unskilled immigration flows increase. The results suggest that the relevant policy instruments as regards the promotion of trade, FDI and immigration should vary depending on economic goals, such as current account balances and labour shortages.     

Trade expansion and employment generation: how mercantilist does China have to be?

We conduct an input–output analysis of China’s employment changes due to changes in trade structure on a sectoral level. We find that between 2002 and 2007 China generated about 71 million jobs due to trade expansion. We also estimate the additional amount of trade that would be needed if China were using its trade surplus as the main tool to absorb its excess labour. Given the magnitude of this estimated amount, we conclude that this ‘mercantilist’ approach to excess labour absorption is not feasible. Finally, using Spearman rank correlation analysis, we find that the ranking of China’s sectors’ employment generation capacities is inversely related to the ranking of these sectors’ trade performances. This suggests that the ‘mercantilist’ approach to excess labour absorption is not only infeasible but also inefficient. We end the paper by suggesting a more balanced growth path for China.     

Re-examining the relationship between domestic investment and foreign aid: does political stability matter?

While past studies had conflicting conclusions regarding the impact of foreign aid on growth and development of a nation, recent studies have tried to delve deeper into the question, ‘what makes aid work?’ (see, Dutta, Leeson, and Williamson, 2013; Burnside and Dollar, 2000, 2004; Svensson, 1999). This paper tests how political stability (vis-à-vis political instability) affects the relationship between domestic investment and foreign aid. Applying dynamic panel estimators, our results show that political stability affects aid’s effectiveness on domestic capital formation. The paper considers alternative measures of political stability (vis-à-vis instability), focusing on the political characteristics of a system that have the potential to make a nation stable. Political stability affects policy selection by the government positively and, thus, public resources such as foreign aid are put to the desired use. The estimated marginal impacts show that foreign aid enhances domestic investment in the presence of a stable political climate, but there is a diminishing return to aid.     

Who Counts in Crises? The New Geopolitics of International Migration and Refugee Governance

Recent migration ‘crises’ raise important geopolitical questions. Who is ‘the migrant’ that contemporary politics are fixated on? How are answers to ‘who counts as a migrant’ changing? Who gets to do that counting, and under what circumstances? This forum responds to, as well as questions, the current saliency of migration by examining how categories of migration hold geopolitical significance—not only in how they are constructed and by whom, but also in how they are challenged and subverted. Furthermore, by examining how the very concepts of ‘migrant’ and ‘refugee’ are used in different contexts, and for a variety of purposes, it opens up critical questions about mobility, citizenship and the nation state. Collectively, these contributions aim to demonstrate how problematising migration and its categorisation can be a tool of enquiry into other phenomena and processes.     

How does equity capital cost affect bank performance during a financial crisis?

This article theoretically examines how equity capital cost affects return performance and safety of a bank and how this effect varies across a financial crisis comparing to a normal time when the bank manager’s performance reveals the like of higher equity return and the dislike of higher equity risk. We derive two main results. First, an increase in the bank’s equity capital cost from an increase of the interest rate of the Federal funds results in a reduced loan risk-taking at an increased optimal bank interest margin, implying better bank performance. Second, by ignoring the dislike, we find that the better performance is reinforced during a financial crisis but is reduced during a normal time. Financial crises and the dislike preference as such contribute a relatively low return and the stability of banking activities.     

Quantity versus variety: Which aspect does status-seeking promote?

We introduce status goods in a model of monopolistic competition for investigating whether a stronger preference for status promotes a higher quantity or a greater variety of status goods in equilibrium. We argue that diversification is a more likely outcome. Elasticity of marginal status is identified as the crucial factor. Under the widely adopted relative-consumption hypothesis, elasticity of marginal status equals one, which supports a higher variety. Under other hypotheses, if the status return from an extra unit of own consumption falls as others’ consumption rises, elasticity of marginal status is likely to be higher than one or not substantially smaller than one. In these reasonable patterns, diversification also tends to appear.     

War versus peace: does military officer quality adjust?

In this study, we demonstrate the quantity–quality trade-off between the size of the U.S. military force and the quality of its junior military leaders. We employ a difference-in-differences methodology and compare measures of job performance before and after to show that in periods of military force expansion, the average quality of U.S. Marine officers decline; the converse holds in times of relative peace. This has implications for both military effectiveness and understanding labour market dynamics.     

Convergence of bank competition in Central and Eastern European countries: do foreign and domestic banks go hand in hand?

Following the massive entry of foreign banks into the Central and Eastern European (CEE) banking markets, one may wonder whether their competitive behaviour differs from that of their domestic counterparts, possibly leading to the segmentation of these markets at the regional and national levels. We find that the competitive behaviour of foreign and domestic banks differs, with foreign banks having less market power until the recent financial crisis and more market power after this financial turmoil. Despite this difference, banks tend to behave similarly, and their market power converges to a similar level. The tendency towards similar competitive behaviour is observed at the regional and national levels and for both foreign and domestic banks, although foreign institutions that enter these markets through the acquisition of domestic banks have slightly more market power. Our findings suggest the regional integration of CEE banking markets and no segmentation between foreign and domestic institutions.