Measuring and Managing the Costs of Red Tape: A Review of Recent Policy Developments

Over the last few years, red tape has come to be identifiedas an important policy area, and there has been rapid and relativelywidespread adoption—in one form or another—of aDutch-developed set of reforms aimed at significantly reducingthe costs of compliance with government-imposed obligationsto provide information (which have come to be referred to as‘administrative burdens’). This paper begins byexamining the characteristics of the policy problems that thesereforms are intended to address, and highlighting some of thechallenges that the reforms can be expected to face. The Dutch-developedapproach, and the UK adaptation of it, are then described, andspecific ways in which the reforms have sought to influenceinformation and incentive conditions—so as to generatereductions in administrative burdens—are assessed. Footnotes ¹ E-mail address: tim.keyworth{at}rpieurope.org     

Job Protection: The Macho Hypothesis

This paper shows that the stringency of employment protectionin Mediterranean countries can be partly explained by culturalvalues embedded in religion. Both the security provided by thislegislation and its redistributive effects in favour of themale breadwinner insiders fit into the framework of Mediterraneanreligions. First, international individual surveys allow usto document that Catholics and Muslims are more likely to agreewith traditional gender division of work than Protestants andthe non-religious. Second, we develop a political economy modelpredicting that employment protection should be more stringentin countries where there is a larger share of insiders supportiveof traditional family values. We then show that this predictionis supported by empirical evidence on OECD countries over theperiod 1970–99. Footnotes ¹ E-mail addresses: yann.algan{at}ens.fr; cahuc{at}ensae.fr     

The Swedish Experience with Pension Reform

Sweden is one of few countries in Europe to have introduceda comprehensive pension reform. In 1998, Sweden passed legislationthat transformed its public pension system to a notional defined-contribution(NDC) plan— that is, a defined-contribution plan financedon a pay-as-you-go basis. In addition, a second tier of fundedindividual accounts was introduced. The reform had broad politicalsupport with more than 80 per cent of the votes in parliament.This paper discusses the trends in retirement in Sweden andassesses the experience with pension reform. The objective wasto design a fiscally sustainable system tied to economic growthwith a clear link between contributions and benefits. We discussthe challenges in meeting this goal, the extent to which theSwedish reform has succeeded, and how the system affects beneficiaries.The paper evaluates the experience of the individual fundedaccounts to date and concludes with an outlook for the future. Footnotes ¹ E-mail address: annika.sunden{at}sofi.su.se     

Innovation and Productivity Across Four European Countries

This paper compares the role innovation plays in productivityacross four European countries, France, Germany, Spain, andthe UK, using firm-level data from the internationally harmonizedCommunity Innovation Surveys (CIS3). Despite a considerablenumber of national firm-level studies analysing this relationship,cross-country comparisons using micro data are still rare. Weapply a structural model that describes the link between R&Dexpenditure, innovation output, and productivity (CDM model).Our econometric results suggest that overall the systems drivinginnovation and productivity are remarkably similar across thesefour countries, although we also find interesting differences,particularly in the variation in productivity that is associatedwith more or less innovative activities. Footnotes ¹ E-mail addresses: rgriffith{at}ifs.org.uk; ehuergo{at}ccee.ucm.es;jacques.mairesse{at}ensae.fr; b.peters{at}zew.de     

Regulatory Policy: OECD Experience and Evidence

In the past 20 years a key topic of public-sector reform inOECD countries has been the emergence of regulatory policy.During this period, the nature of regulation has undergone profoundand rapid change. This paper reviews the development of regulatorypolicy in OECD countries over the last quarter-century. It identifiesa range of tools and institutions that have been used by OECDcountries to develop high-quality regulation. The analysis attemptsto show that while there is considerable commonality on broadobjectives of regulatory policy, considerably diversity remainsin the implementation of regulatory policy across OECD countries. Footnotes ¹ E-mail address: nikolai.malyshev{at}oecd.org     

Will Social Welfare Expenditures Survive Tax Competition?

Increasing economic openness creates demands for social welfareprogrammes designed to cushion the impact of economic changes,but may also encourage governments to reduce tax rates to attractmobile economic resources. Competitive tax reductions couldthen prevent governments from being able to finance significantwelfare spending. Alternatively, economic globalization mightimprove the ability of governments to afford social welfareprogrammes—and several considerations point in this direction.First, taxes on internationally mobile activity represent onlysmall fractions of total revenue collections; personal incometaxes, value-added taxes, and social insurance contributionsfinance most social welfare spending. Second, internationalcompetition need not reduce taxes, and indeed, over the past25 years, corporate tax collections have remained high as fractionsof GDP and total taxes. Third, the vitality of a country's economylargely determines its level of social spending. To the extentthat incomes rise as a result, greater economic openness shouldstrengthen provision of social welfare. Footnotes ¹ E-mail address: jrhines{at}umich.edu     

Management Practices, Work--L ife Balance, and Productivity: A Review of Some Recent Evidence

Increasing product-market competition is believed to be a drivingforce behind higher productivity. However, even those criticsof globalization who accept this argument claim that there isa hard trade-off because tougher competition comes at the priceof reducing work—life balance (WLB). Optimists, by contrast,argue that competition can spur better WLB practices and thereforehigher productivity, so there is a ‘win—win’situation. To address this issue we use an innovative surveytool to collect the first international data on management practicesand WLB practices, surveying 732 medium-sized manufacturingfirms in the USA, France, Germany, and the UK. We find thatthe USA has the best management practices but the worst work—lifebalance. When we look within countries, however, we reject thepessimistic ‘trade-off’ model. First, WLB outcomesare significantly associated with better management, so thatwell-run firms are both more productive and offer better conditionsfor their employees. Second, tougher competition increases averagemanagement quality but does not negatively affect employees'working environment. As with many other studies, better WLBpractices are associated with significantly higher productivity.This relationship disappears, however, after controlling forthe overall quality of management. Footnotes ¹ E-mail addresses: nbloom{at}stanford.edu; j.vanreenen{at}lse.ac.uk     

The Assessment: Gender and the Life Cycle

This assessment is an introduction to the Oxford Review of EconomicPolicy's issue on gender and the life cycle. It sets the stageby providing background information on various dimensions ofgender differences, pointing out differences across countriesas well as over time, and relates this evidence to the papersthat follow. It further briefly reviews the articles in theissue and puts them into context. Footnotes ¹ E-mail address: c.dustmann{at}ucl.ac.uk     

Rethinking Fiscal Policy

The use of fiscal policy as a stabilization device has all butvanished, more or less explicitly in Europe and de facto inthe United States. The practical consequences have not beenentirely satisfactory, in either place. So it is important andtimely that the Oxford Review is devoting a special issue tothe macroeconomics of fiscal policy. In this paper I want todiscuss two underlying questions about the eclipse of fiscalpolicy. Why did this happen and was it a good idea? And if itwas not a good idea, then what follows? Footnotes ¹ E-mail address: jamu{at}mit.edu     

Regulation and Productivity Performance

The paper reviews theory and evidence on the ways in which regulationaffects productivity outcomes. In a context of endogenous growth,it is argued that traditional measures of compliance costs missthe potentially most important impacts of regulation on productivitywhich occur through changes in incentives to invest and to innovate.Recent attempts to measure cross-country variations in the strengthof product-market and employment regulation are considered andsome weaknesses are highlighted. Nevertheless, consistent withendogenous growth models, there appears to be quite strong evidencethat regulations which inhibit entry into product markets havean adverse effect on TFP growth in OECD countries. Althoughthere are some discrepancies in the evidence, on most measuresthe UK appears lightly regulated relative to France and Germany,and this may have contributed to a reduction in the recent pastin the UK's TFP gap. Footnotes ¹ E-mail address: n.crafts{at}warwick.ac.uk     

Human Resource Management Policies and Productivity: New Evidence from An Econometric Case Study

First we distinguish various approaches used by economists toassess the impact of human resource management practices onproductivity and then we briefly review and illustrate studiesthat represent different approaches. In the main part of thepaper we illustrate the econometric case study method, by usingnew data to analyse a case from retail trade and by emulatingan approach used in an earlier study. Consistent with theorywe find that when employees have opportunities to participate,and to receive appropriate information and pertinent rewards,a one standard deviation increase of the first principal componentscore would increase productivity by 1 per cent. Our findingsimply that there are benefits to innovative work practices,even in settings where employees do simple tasks and employeesare relatively low-skilled. Since our findings are similar tothose contained in a previous study, our results also indicatethe value of replication studies. Footnotes ¹ E-mail addresses: djones{at}hamilton.edu; panu.kalmi{at}hse.fi; antti.kauhanen{at}hse.fi     

The Structural Pension Reform in Chile: Effects, Comparisons with Other Latin American Reforms, and Lessons

Chile pioneered a structural reform in Latin America that privatizedits public pension system and influenced similar reforms inanother nine countries. Twenty-five years later, this articleevaluates the macroeconomic, microeconomic, and social effectsof this reform in Chile and the other countries in the region,and extracts lessons from those experiences. Fiscal costs ofthe reform have been high and prolonged, exceeded capital accumulation,and had a negative impact on national savings, but Chile's reformhas contributed to the development of capital markets; employer'scontributions were eliminated or reduced in half of the countriesand the worker's share in the total contribution averages 65per cent; competition is afflicted by a small number of administratorsand a high level of concentration; administrative costs arehigh and stagnant; capital returns are fair but declining; portfoliodiversification has been achieved only in Chile and Peru; labour-forcecoverage has declined in all ten countries, and gender and incomeinequalities have expanded. Footnotes ¹ E-mail addresses: aarenas{at}dipres.gob.cl; cmesa{at}usa.net     

Why is Productivity so Dispersed?

Many papers have documented wide variations in productivityeven in narrowly defined industries. Some have argued that thisprimarily reflects measurement problems due, for example, tocomparing across different products. Others argue that thisreflects persistent differences in performance due, for example,to management. This paper looks at productivity differencesnot within an industry but within a firm. We use data on productivityof different branches within lines of business of a major UK-basedwholesaler. Using these productivity data for comparisons is,we argue, more likely to compare like with like than comparingbetween firms. We document sustained differences in productivityeven between branches within the same line of business. We alsodiscuss the extent to which they are correlated with differencesin management and find that such differences ‘account’for around 40 per cent of the difference in productivity. Footnotes ¹ E-mail addresses: r.griffith{at}ifs.org.uk; j.e.haskel{at}qmul.ac.uk;a.neely{at}cranfield.ac.uk     

Retirement in the UK

In common with other OECD countries, the UK experienced morethan two decades of declining labour-market activity among oldermen from the 1970s to the early 1990s, a trend that has onlyrecently shown signs of being reversed. Retirement decisionsare heavily shaped by institutional context and in the UK thishas led to there being two distinct groups with very different‘retirement’ experiences. At the top of the wealthdistribution, early retirement has typically been influencedby private, occupational pensions; at the bottom of the wealthdistribution individuals are even more likely to be not workingin their 50s, but do not typically define themselves as retired,and draw on income support, or more usually, disability benefits.Policy-makers keen to increase effective retirement ages willneed to consider the very different circumstances of these twogroups. Footnotes ¹ E-mail addresses: j.banks{at}ifs.org.uk; sarah.smith{at}bristol.ac.uk     

Improving Productivity--Opening the Black Box

Hourly productivity levels in the UK still remain behind thosein some competitor countries. The government devotes much policyattention to enhancing productivity and continues to emphasiseits five drivers—investment, innovation, skills, enterprise,and competition. This article argues that it is investment broadlydefined that is the key to sustained productivity improvement.The emphasis should be on improving productivity simultaneouslywith improving the quality of production. Only thus will thegains be widely shared. In achieving these aims there are twoprerequisites for policy-makers. The first is to ensure bettercoordination of policy than appears to be currently achievedby the present departmental structures in Whitehall. The secondis to recognize fully the long and complex chain of causationthat can be triggered by pulling on one policy lever. Such complexitycan only be fully understood by more research on what actuallygoes on inside the black box of the organization. Footnotes ¹ E-mail addresses: ken.mayhew{at}ox.ac.uk; a.neely{at}cranfield.ac.uk     

Us Retirement Income System

In the United States, retirement income is supplied throughthe combination of a relatively modest, contributory socialinsurance programme; employer-provided (increasingly definedcontribution savings) programmes; and individual retirementsavings. The public programme supplies the vast majority ofthe income of the poorer half of the aged population; only therichest 20 per cent receive more from employer plans than fromthe public programme. Projections show that the public programmewill have financial problems in the 2030s. Thereafter, revenueswould have to be increased by a third or benefits cut by a quarterto restore financial balance. Despite widespread angst aboutthe impact of longer lifespans and the retirement of the baby-boomgeneration, however, there is little serious discussion abouthow either the public- or private-sector programmes should beadjusted. In 2005, President Bush failed to generate significantpublic support for a plan partially to privatize the public-sectorprogramme. Footnotes ¹ E-mail address: lthompso{at}ui.urban.org     

Financial Restraints in a Mature Welfare State--The Case of Denmark

The Scandinavian welfare states are mature in the sense of havinga high level of standards for public provisions of welfare servicesas well as a high replacement level for income transfers, especiallyfor low-income groups. In this welfare model, individuals havebasic rights to welfare services and social transfers independentlyof their ability to pay, their labour-market history, etc. Thefinancial viability of the model relies on a high tax burdenand a high level of labour-force participation for males andfemales. Evaluated on the basis of international comparisonsof income levels and inequality, the model has performed well.In a forward-looking perspective, however, the welfare modelfaces problems that may put the financial viability of the modelat risk. Two important challenges are demographic changes andthe so-called growth dilemma (increased demand for servicesand leisure). We discuss these issues using Denmark as an exampleand argue that while these two challenges may be of the sameorder of magnitude, it is easier to propose solutions to thedemographic challenges than to the growth dilemma which areconsistent with the basic principles of the welfare state. Footnotes ¹ E-mail addresses: tandersen{at}econ.au.dk; lhp{at}dreammodel.dk     

The Interactions between Fiscal Policy and Monetary Policy

This paper studies the interactions of fiscal policy and monetarypolicy when they stabilize a single economy against shocks ina dynamic setting. If both policy-makers are benevolent, then,in our model, the best outcome is achieved when monetary policydoes nearly all of the stabilization. If the monetary authoritiesare benevolent, but the fiscal authority discounts the future,or aims for an excessive level of output, then a Nash equilibriumwill result in large welfare losses: after an inflation shockthere will be excessively tight monetary policy, excessive fiscalexpansion, and a rapid accumulation of public debt. However,if, in these circumstances, there is a regime of fiscal leadership,then the outcome will be very nearly as good as when both policy-makersare benevolent. Footnotes ¹ E-mail addresses: t.kirsanova{at}exeter.ac.uk; jari.stehn{at}bnc.ox.ac.uk;david.vines{at}economics.oxford.ac.uk     

Monetary and Fiscal Theories of the Price Level: The Irreconcilable Differences

The fiscal theory of the price level (FTPL) has attracted muchattention but disagreement remains concerning its defining characteristics.Some writers have emphasized implications regarding interest-ratepegging and determinacy of rational expectations solutions,whereas others have stressed its capacity to generate equilibriain which price-level trajectories mimic those of bonds and differdrastically from those of money supplies. We argue that theFTPL attained prominence precisely because it appeared to providea theory whose implications differ greatly from conventionalmonetary analysis; accordingly we review monetarist writingsto identify the primary distinctions. In addition, we reviewrecent findings concerning learnability—and thereforeplausibility—of competing rational expectations equilibria.These indicate that when FTPL and monetarist equilibria differ,the latter are more plausible in the vast majority of cases.Under Ricardian assumptions, necessary for clear distinctions,theoretical analysis indicates that fiscal and monetary coordinationis not necessary for macroeconomic stability. Footnotes ¹ E-mail addresses: bmccallum{at}cmu.edu; edward.nelson{at}stls.frb.org