Corruption and public finance: an IMF perspective

Public finance should be a means whereby governments in low-income countries are able to increase economic growth and end poverty. Corruption, however, reduces tax revenue and makes public expenditure policies ineffective for achieving social objectives. The papers in this volume, which is sponsored by the Fiscal Affairs Department of the International Monetary Fund (IMF), describe how corruption makes public finance ineffective in promoting economic development.     

Francesco Forte’s Contributions to <Emphasis Type="Italic">Essentials of Fiscal Sociology</Emphasis>

Francesco Forte has made major contributions to many areas of economics with the result that his theoretical work and applications have opened new areas of inquiry. This paper connects Forte’s work with the work of Jürgen Backhaus on fiscal sociology. Positioned at the crossroads of economics and sociology, the answers to these questions helped fill the void which gave rise to the field of fiscal sociology. Fiscal sociology is primarily a study of taxation and fiscal policies which illuminates core issues in the sociology of contemporary capitalism. It includes the causes of poverty and inequality in rich countries and adds to our understanding the basis for the inequality between rich and poor countries. Our paper reviews several of Forte’s papers on Pareto’s fiscal sociology and the failure of European planning for less-developed regions. The paper highlights Forte’s contributions to economic theory focusing on Pareto’s sociological theory and the influence of the European Union on regional development.     

Growth,budget deficits,and fiscal policies in an overlapping generations model

Analyzing an overlapping generations model with growing endowments and a government sector that is permitted to have a budget deficit forces the real interest factor to deviate from Samuelson's biological interest factor. Fiscal policies then affect the real interest factor, which in turn has consequences both for the direction and the effectiveness of those fiscal policies. These consequences depend upon the borrowing position of the young.We would like to thank Jo Ritzen, Marcel Peeters, Casper de Vries, Georg Tillmann, Richard Gigengack, an anonymous referee, and the participants of workshops at Erasmus University and the University of Groningen for helpful comments on an earlier version of the paper. We owe a special debt to Claus Weddepohl for stimulating our interest in this subject. The paper was presented at the 5th annual meeting of the European Economic Association, Lisbon 1990.     

Quality competition,welfare, and regulation

In this paper, we study the supply of quality in imperfectly competitive markets, and explore the role of regulation in markets where firms may use both quality and price to compete for customers. In a model where firms first choose qualities and then prices, we find that quality decisions have strategic effects: firms react to quality disadvantages by price reductions. Because of this strategic effect, firms do not have the correct incentive to set socially efficient quality levels. Price and quality competition results in a socially suboptimal quality level. Efficiency can be restored by lump-sum transfers and price regulatory policies. Simple price regulation may result in lower price and higher quality.We thank Nicholas Economides, Randall Ellis, Thomas McGuire, Michael Riordan, and Monika Schnitzer for discussing various issues in this research with us. We are also grateful to a referee for helpful comments and suggestions. The first author acknowledges support from the Management Science Group, Department of Veterans Affairs at Bedford, Massachusetts. The ideas here do not represent those of the Department of Veterans Affairs.     

‘An Incomplete Contract Approach to Eurozone Fiscal Governance’ – Commitment vs. Flexibility

In this paper, we take an incomplete contract approach to Eurozone Fiscal Governance between the European Commission (EC) and any heavily debt member state, Greece in particular. Incomplete contract approach makes possible to put a long process of Eurozone Fiscal Governance into an extensive form game in which a renegotiation procedure is incorporated. We theoretically reveal the conflict of interests between the EC (Germany) and Greece over the Greek debt repayment plan proposed in 2015. We show that the Greek’s position is consistent with incomplete contract theory, but that the EC (Germany) does not allow the renegotiation for restructuring for growth-oriented debt repayment program proposed by the Greek government because the EC (Germany) judges that the commitment effect (on fiscal austerity) is greater than the flexibility one (pro-growth effect). This will undoubtedly provide a novel and interesting approach to Eurozone Fiscal Governance.     

财政分权对地方公共支出结构的影响及对策研究

中国财政分权的实施为我国的现代化建设做出了巨大贡献,但同时许多问题也渐渐暴露。本文着眼于现阶段地方公共支出中所存在的问题和弊端,分析财政分权对其影响过程中的突出问题,提出重视民生建设合理的调整财政支出比例、全面的官员考核制度、中央与地方政府间的合理分权等相应对策,以使地方公共支出结构更为合理、有效。     

Quality-adjusted price indexes for portable computers

The aim of this article is to identify the variables affecting the decision to make contributions to personal pension plans and the amount of such contributions. For this purpose, we specify and estimate a Tobit model for a sample based on the 1995 Personal Income Taxpayers Panel prepared by the Institute of Fiscal Studies (Spanish Ministry of Economy and Finance) formed by 3041 taxpayers, of whom 358 made contributions to pension plans. Our results suggest that individuals decide to invest in pension plans on complex grounds combining the wish to benefit from tax savings and to ensure they will receive supplementary income upon retirement.     

Outliers - robust ECM cointegration tests based on the trend components

The main goal of this paper is to analyze the behavior of the ECM non-cointegration test when there are additive outliers in the time series under different co-breaking situations. We show that the critical values of the usual ECM test are not robust to the presence of transitory shocks and we suggest a procedure based on signal extraction to bypass this problem. These procedure renders ECM tests with a left tail of distribution under the null that is robust to the presence of additive outliers in the series. The small sample critical values and the empirical power of the test are analyzed by Monte Carlo simulations for several low frequency filters. The proposed empirical methodology is applied to the CPI-based US/Finland real exchange rate.JEL Classification: C22, C12, C15, C52, C51 Corresponding author: Alvaro EscribanoWe thank A. Lucas for kindly providing us with the data for the empirical example. Previous drafts of this paper have greatly improved thanks to the comments of two anonymous referees and the Associate Editor. The first author wishes to thank members of Department of Statistics and Econometrics, Universidad Carlos III de Madrid, and Department of Economics, University of Maryland at College Park. The second author acknowledeges support from the following grants: Spanish MCyT BEC2002-00279, The European TMR-ERB-40618C97-0994 and the Secretaría de Estado de Universidades PR2003-0305. This paper was finished while Alvaro Escribano was visiting the Department of Economics, Georgetwon University, Washington DC, USA.     

Balancing budget through tax increases or expenditure cuts: is it neutral?

Fiscal adjustment currently ranks at the top in the economic policy agenda of many OECD countries, and not only those European countries aiming to meet the Maastricht convergence criteria. Recently, Alesina and Perotti argued that successful cases of fiscal adjustment resulted from cutting expenditures, while those focusing on tax increases were unsuccessful. The paper, using a bivariate VECM representation for the joint government revenue–government expenditure dynamics for five of the main OECD countries, provides two contributions to this issue. First, it proposes and performs a neutrality test of the alternative adjustment strategies (through revenue or expenditures), second it characterizes the departure from neutrality in the three countries where the neutrality hypothesis is rejected. The conclusion, prevailing for these three countries, is that adjustment through taxes not only is inefficient, but even results in a perverse effect with induced extra expenditures which more than offset the increase in government revenue.     

REVIEWS

Book reviewed in this article:
Studies in Australian Affairs. By various writers.
New Zealand Affairs. By Sir Apirana T. Ngata and ten other writers.
The Economic Effects of Federation. By L. G. Melville and J. W. Wainwright.
Gold and Central Banks. By Feliks Mlynarski.
Gold and Central Banks. By Feliks Mlynarski.
International Gold Movements. By Paul Einzig.
Handbuch der Finanzurissenschaft; Kap. 25, Der Staatsaushalt und das Finanzsystem Australiens seit 1900, von R. C Mills
Economic Control: Australian Experiments in "Rationalization" and "Safeguarding. " By N. Skene Smith
Fixation of Wages in Australia. By George Anderson
Agricultural Economics. By George O'Brien.
Unemployment in New Zealand:
Double Taxation and International Fiscal Co-operation. By Professor E. R. A. Seligman.     

Convergence Analysis of the Structure of Social Protection Financing

Expenditure on social protection in the European Union (EU) member states has been increasing rapidly over the last decade. To cover the increasing expenses, the countries need to find ways to increase revenues. Social protection financing systems and structure of financing vary across countries, but all of them use mainly two sources for financing: general government contributions and social tax revenue. The aim of this paper is to study the development of the structure of social protection financing at the main contributor level over the last decade, defining the trends that characterize the changes. We concentrate on convergence analysis of the structure of social protection financing, which is an important but, so far, insufficiently studied issue.This paper was presented at the 57th IAES Conference in Lisbon, March 10–14, 2004. The authors would like to thank the discussants in that session for their helpful suggestions. This paper was prepared with the support of the Estonian Science Foundation research grant. We wish to thank Reet Maldre for the assistance     

On the determination of real interest rates in Europe

In this paper a loanable funds model is estimated over the period 1959–1990 for the determination of after-tax expected real interest rates using aggregated data for four European countries under the assumption that high capital mobility in Europe implies a common capital market. It is concluded that real interest rates in the European Community were mainly driven by movements in temporary income, expected inflation, lagged investment, money growth, and the oil price. Moreover, our aggregate, model appears to be reasonably stable. Finally, individual country rates are shown to depend on the European rate as well as some country-specific variables, suggesting a limited degree of isolation from international financial markets for the countries concerned.At the time of writing the author was still affiliated with the Department of Economics at the University of Groningen. Hence, any views expressed here are those of the author and do not necessarily represent those of De Nederlandsche Bank. This paper benefitted very much from stimulating comments made by Willem Buiter, Kanhaya Gupta, Jakob de Haan, Flip de Kam, Kees Koedijk, and an anonymous referee. The author would like to thank Jan-Egbert Sturm for technical assistence. Of course, the usual disclaimer applies.     

Distributive politics and economic growth: the Markovian Stackelberg solution

Summary. We generalize the result of Alesina and Rodrik (1994) by showing that their static solution is also a time consistent Stackelberg solution of a differential game between the government and the median voter.Received: 11 June 2001, Revised: 7 February 2003, JEL Classification Numbers: O15, O40, E61, C73.We would like to thank Claus Peter Ortlieb, Nikolaus A. Siegfried, and two anonymous referees for useful comments. The first version of this work was written while Holger Strulik was Marie Curie Research Fellow at the Department of Applied Economics, University of Cambridge, U.K. A research grant of the European Commission is gratefully acknowledged. Correspondence to: H. Strulik     

基于财政支农资金整合的理性反思与展望

改革以来,尽管财政部一直强调要加强财政支农资金管理,但依然存在财政支农效率低下的问题。2006年5月我国启动财政支农资金整合试点,但整合的难度大、成本高,在经济上未必合理。为破解财政支农难题,本文在系统梳理财政支农存在问题的基础上,对整合财政支农的可行性进行了深层剖析,并基于财政、金融支农比较优势整合观,提出了政府应在深刻认知财政支农规律的基础上将财政支农与金融支农予以整合的政策建议。     

Wealth effects on money demand in the euro area

We investigate the determinants of money demand (M3) in the euro area, considering that this variable remains an important co-determinant of monetary policy making by the European Central Bank. Regressing the real stock of M3 on real GDP, interest rates and wealth variables (real housing and stock prices) within an error-correction framework provides evidence of positive wealth effects on money demand in the long run. Correcting for this wealth effect, money demand in the euro area has grown almost exactly in line with the official reference value of 4 1/2% per annum. This article builds on research that was conducted in preparation of the annual OECD Economic Survey of the euro area and reported in Boone et al. (2004). The authors thank their colleagues in the Economics Department and the European Central Bank and two anonymous referees for their valuable comments. The authors assume full responsibility for any remaining errors and omissions. The opinions expressed in this article do not necessarily represent those of the OECD or its member countries     

Law in Modern Society

In this article, we study the relationship between monetary policy and the socio-institutional framework. Specifically, we examine the economic policy response to the debt crisis of the Eurozone, applying institutional economics from two perspectives: the theory of social power and the endogenous money supply. The research question is whether monetary policy can be characterized as a countervailing power exercised by European institutions with respect to the member countries. Fiscal and monetary policies have been interpreted through these sources and types of power, as proposed by Galbraith, by distinguishing between those types of power that have had a permanent versus a conjunctural character. We conclude that European Quantitative Easing can be characterized as having been a countervailing power. All of this has strengthened European institutional power despite having been manifested in the context of an economic and financial crisis.     

Equilibria in a dynamic global game: the role of cohort effects

Summary. We introduce strategic waiting in a global game setting with irreversible investment. Players can wait in order to make a better informed decision. We allow for cohort effects, which arise endogenously in technology adoption problems with positive contemporaneous network effects. Formally, cohort effects lead to intra-period network effects being greater than inter-period network effects. Depending on the nature of the cohort effects, our game may or may not satisfy dynamic increasing differences. If it does, our model has a unique rationalizable outcome. Otherwise, multiple equilibria may exist as players want to invest at the same point in time others do.Received: 13 July 2004, Revised: 20 May 2005, JEL Classification Numbers: C72, C73, D82, D83.We thank George-Marios Angeletos, Helmut Bester, Andreas Blume, Estelle Cantillon, Frank Heinemann, Christian Hellwig, Larry Karp, Tobias Kretschmer, In Ho Lee, Robin Mason and an anonymous referee for helpful comments. We also thank seminar participants at the EEA-meeting in Stockholm 2003, ESRC Workshop in Warwick 2004, Free University Berlin, IAE (Barcelona), Keele, MIT, Southampton, University of Pittsburgh, and at a CEPR-conference in Brussels 2002 for comments, and the European Union for providing financial support through the TMR network on network industries (Contract number FMRX-CT98-0203). This paper was completed while the first author visited the Department of Economics at MIT, whose hospitality he gratefully acknowledges.     

A framework for the decomposition of poverty differences with an application to poverty differences between countries

We propose an Oaxaca-Blinder-like decomposition of poverty differences. The decomposition is based on a parametric model of the income distribution and can be used to decompose differences in poverty rates across countries or years. Poverty differences are decomposed into differences in the underlying distribution of poverty-relevant characteristics and differences in the incidence of poverty conditional on these characteristics. We illustrate our method by comparing levels and patterns of relative poverty in the USA, Great Britain and Germany during the 1990s. Our results suggest that the higher aggregate poverty rates in the USA and in Britain relative to Germany were mostly accounted for by higher poverty rates conditional on characteristics, which were partly offset by a more favourable distribution of poverty-relevant characteristics, in particular higher employment rates.This paper is part of the research programme of the TMR Network ‘Living Standards, Inequality and Taxation’. Financial support from the European Union (Contract #ERBFMRXCT980248), the UK Economic and Social Research Council, the University of Essex, and the Deutsche Forschungsgesellschaft (DFG) is gratefully acknowledged. The data used in this study were made available by Cornell University (Cross-National Equivalent File), the University of Michigan (Panel Study of Income Dynamics), the UK Data Archive (British Household Panel Survey), and the German Institute for Economic Research (German Socio-Economic Panel). Martin Biewen would like to thank the Institute for European Studies and the Department for Policy and Management at Cornell University, in particular Jonas Pontusson, Richard Burkhauser and Dean Lillard, for their hospitality and support. We are also grateful for comments by Bernd Fitzenberger, Joachim Winter, Christoph M. Schmidt, an anonymous referee and seminar participants in Essex, Heidelberg and Mannheim. Last but not least, we thank Nick Cox for providing us with updated versions of his Stata programs for drawing quantile plots.First version received: May 2003/Final version received: December: 2003     

Book Reviews

Béla Greskovits, The Political Economy of Protest and Patience. East European and Latin American Transformations Compared
Roman Frydman, Kenneth Murphy and Andrzej Rapaczynski, Capitalism with a Comrade's Face
Lorand Ambrus-Lakatos and Mark Schaffer (eds), Fiscal Policy in Transition. Forum Report of the Economic Policy initiative No. 3
Michael Ellman and Vladimir Kontorovich (eds), The Destruction of the Soviet Economic System. An Insider' History
Louis Emmerij (ed.), Economic and Social Development into the XXI Century     

FISCAL CONVERGENCE IN THE EUROPEAN UNION BEFORE THE CRISIS

This article investigates fiscal convergence attained by EU countries in the period 1991–2008, by employing β‐ and σ‐convergence techniques complemented by a time series analysis. Overall our results highlight a distinctive convergence pattern in the European Union. Fiscal discipline leading to a fast convergence of deficit/GDP ratio over the 1990s markedly weakened in the following decade. Nonetheless, after the Euro debut a pronounced convergence in total revenue and total government spending emerges, with different patterns characterizing each expenditure component. Despite this evidence of fiscal harmonization, European treaties failed to attract countries toward a common share of government debt over GDP. (JEL E61, H11, C23)