Public Goods,Tax Policies,and Unemployment in LDCs

We build a general equilibrium model of a small open economy characterized by unemployment and producing two privately traded goods and one nontraded public consumption good. The provision of public good is financed with an income tax or an excise tax on the manufactured good or an import tariff. Within this framework, the paper examines the effects of such policies on the country's unemployment ratio and welfare, and it derives the efficiency rules for public good provision for each policy instrument. It shows, among other things, that the private marginal cost of the public good always overstates its social marginal cost in the case of income taxes and may overstate it in the case of an excise tax on the manufactured good or a tariff even if the taxed good and the public good are substitutes in consumption.     

Multi-product firms,product mix changes and upgrading: Evidence from China's state-owned forest areas

Product selection matters for a firm's productivity and long-run growth. Recent theoretical and empirical studies indicate that an important margin of adjustment to policy reforms is the reallocation of output within firms through changes in product mix decisions. This paper examines the frequency, pervasiveness and determinants of product-switching and upgrading activities in firms located in China's state-owned forest areas during a period of gradual institutional and managerial reforms (2004–2008). We find that changes to the product mix are pervasive and characterized by adding or churning products rather than only shedding products. Moreover, changes in firms’ product mix have made a significant contribution to the aggregate output growth during our sample period. We also find that firms with different characteristics, human capital and market conditions differ in their propensity to diversify and upgrade product mix.     

Agricultural Exports,Tariffs and Growth

This article presents a Ricardian model of trade with learning-by-doing to study the effect of barriers to trade in products with low growth potential on the long-run economic growth. The model shows that, when elasticity of demand for the product with a lower learning potential is lower than unitary, a reduction in the tariff imposed on this product, may shift the demand toward the product with a higher learning potential, thus enhancing economic growth in the exporter economy. Therefore, the current trend of reduction in tariffs on agricultural exports not only generates a positive welfare effect in the short run, but may similarly be beneficial for developing economies in the long run, since it also increases their incentive to develop sectors with higher growth potential.     

Determinants of Long-Run Unemployment

This paper investigates the determinants of long-run unemployment and growth by extending the endogenous growth model of Howitt and Aghion (1998) to allow for a more general treatment of the labor market in the spirit of Pissarides (1990). We find that (i) both long-run growth and unemployment depend not only on factors that affect long-run growth as identified in endogenous growth models with full employment, but also on certain labor market parameters; (ii) long-run unemployment may rise or fall with growth depending on the model's parameters; and (iii) though government policies that promote growth indirectly through improvement in labor market efficiency always reduce the long-run unemployment rate, policies that directly encourage investment in research and development may increase the unemployment rate.     

The impact of limited liability on ownership and control: Irish banking, 1877–19141

Limited liability is regarded as the sine qua non of the modern company, enabling firms to raise capital from a broad spectrum of investors who have well‐diversified portfolios. This article uses the ownership records of an Irish bank, which converted to limited liability in 1883, to explore the impact of introducing limited liability upon ownership and control. We find that ownership becomes more dispersed amongst individuals from a broader social and geographical spectrum. However, there appears to be little impact on portfolio diversification. Furthermore, although limited liability appears to contribute to the rise of the professional director, the evidence suggests that managerial incentives may have been weakened.     

AVAR Analysis of the Impacts of Company Tax Rates on Foreign Direct Investment and other Macro-economic Variables in Australia

Abstract

Taxation policy has been recognized as a main determinant of foreign direct investment (FDI). However, the effect of taxation policy on other key macro-economic variables of interest has received little attention in the literature. This paper seeks to establish the long-run effects of a change in the Australian company tax rate on inbound FDI and other Australian macro-economic variables using vector autoregression (VAR) analysis to account for the interrelatedness of the variables under consideration. Results indicate that FDI, real gross domestic product (GDP) and trade with the rest of the world are all responsive to a change in the company tax rate.     

Experimental Evidence of the Impact of Increasing Auditors' Legal Liability on Firms' New Investments*

This laboratory market study examines the potential effect of increasing auditors' liability on firms' new investments. The experimental hypotheses are derived from Shibano's 2000 model, which predicts that an increase in auditors' liability will decrease the frequency of audit failures and may decrease firms' new investments if the liability level is “excessive”. Results from three experimental market settings (with low, medium, and high liability levels) suggest two major conclusions. First, firms' new investments increase significantly when auditors' liability level increases from low to medium, and decrease significantly as the liability level increases from medium to high. This result provides support for the argument that adequate auditor liability is necessary to motivate firms to invest in new projects. Excessive liability, however, may discourage firms from making new investments. Second, the frequency of audit failure decreases insignificantly when auditors' liability increases. These two results have an important policy implication: the benefit of imposing high liability on the auditor (i.e., an insignificant decrease in audit failure) may be more than offset by its cost (i.e., a significant decrease in new investments).     

The Negligence Rule in the Presence of Judicial Corruption and Social Norms

This paper investigates the phenomenon of judicial corruption and incorporates it into Polinsky, A. M. (1980). Strict liability vs. negligence in a market setting. American Economic Review, 70, 363–367 framework so as to analyze the efficiency of the negligence rule. By shedding light on the role of social norms in regard to the phenomenon of judicial corruption, this analysis provides implications for policy. First, more prevalent corruption at the status quo tends to intensify the extent of the corruption itself and, as a result, the effectiveness of the government’s corruption enforcement is greatly lessened. This implies that an excessively lenient policy of corruption may result in an uncontrollable consequence; once corruption becomes rampant, it is costly to bring it down. Of great importance, in the presence of such a corruption effect, the social optimum cannot be achieved based on the negligence rule and the equivalence between the strict liability and negligence rule fails. Secondly, the attitude of the society toward a corrupt judge plays a crucial role in governing the effectiveness of an efficient wage arrangement. If the society can fully accept a corrupt judge, corruption will never be controlled even with the incentive wage scheme.

The capital tax paradox in a greening economy

We adopt a simple model of endogenous growth with polluting capital and a fixed budget for aggregate emissions. Pollution abatement efficiency is growing over time due to technical progress. We find that long-run capital and consumption are inversely related to the initial capital stock. Capital taxation does not harm the economy but actually raises long-run consumption and production, which we call the “capital tax paradox.” The reason for this surprising result is that in an economy with a binding carbon policy, early abundance of polluting capital is not a blessing but a curse. It is preferable to have a large capital stock when abatement efficiency has grown sufficiently large. The paper also provides novel results on the impact of pollution intensity and the rate of technical progress on the greening of the economy and the pollution permit prices. In the quantitative part, we calibrate model and study economic growth under different assumptions on the basic model parameters.

     

Short- and long-run impacts of gasoline price and macroeconomic factors on road traffic safety in Nigeria

This paper examined the short- and long-run impacts of gasoline price, macroeconomic factors and road length on road traffic crashes, injuries and fatalities in Nigeria. Annual data from 1995 to 2019 and autoregressive distributed lag approach were employed. Results suggest that gasoline price, per capita income, road length and population density significantly influence road safety outcomes. Gasoline price has a positive short-run impact on crashes, injuries, and fatalities contrary to findings in developed countries. Road crashes tend to decrease when income increases in the short term. Population density leads to improvement in road safety outcomes while road length exacerbates it. Government's policy on gasoline price increase could worsen road safety outcomes unless it is accompanied by improvement in road infrastructure, safe public transport and economic growth,     

Re-examining foreign direct investment,exports, and economic growth in asian economies using a bootstrap ARDL test for cointegration

This paper examines whether there is a long-run relationship among foreign direct investment (FDI), exports, and gross domestic product (GDP) in selected Asian economies. We use a newly developed cointegration test, the bootstrap autoregressive distributed lag (ARDL), to examine this long-run relationship. The motivation for using the bootstrap methodology is to generate and apply critical values for the ARDL test that are valid and appropriate for the specific data sets used. Further, the bootstrap tests allow for endogeneity and feedback that may exist. Pesaran et al. (2001) highlighted the possibility of degenerate cases, but empirical studies in general ignore these and may conclude that cointegration exists when it does not. Our tests fail to find evidence of cointegration when GDP is the dependent variable. The absence of a long-run forcing relation from FDI and exports to GDP implies that FDI and exports were not the sole sources of economic growth in our selected Asian economies.     

Income Inequality,Taxation, and Growth

Much recent theoretical and empirical research has focused on the relationship between income distribution and economic growth. The fiscal policy approach argues that inequality is linked to pressure for redistributionary taxation, leading to low capital investment and, therefore, growth. Empirical analyses are consonant with this view in that the long-run relationship between inequality and growth is negative. However, several empirical inconsistencies with the fiscal policy approach do emerge: (a) there exists a short-run, positive relationship between income inequality and growth and (b) the relationship between inequality and taxation is mixed, at best. This paper presents a simple theoretical model that reconciles the intuitively appealing fiscal policy approach with the empirical findings.     

Agricultural trade policy reform in South Asia: the role of the Uruguay round and policy options for the future WTO agenda

This paper examines the role of the Uruguay Round Agreement on Agriculture (URAA) in agricultural trade policy reform in South Asia and policy options for the future reform agenda of the World Trade Organization (WTO). A key policy inference is that, to be effective, planning for freeing agriculture should involve simultaneous reforms of import and export regimes, and domestic production support mechanisms. Policy related lending, in particular provision of financial support for social safety programs, can play an important role in making such comprehensive reforms politically palatable and feasible. While overloading the WTO with matters that fall beyond its purview may be counterproductive, there is certainly a case for a coordinated effort involving the WTO and international development finance institutions.     

Distribution,taxation and employment in an open economy

Summary If taxes on labour income are passed on in wages the balanced budget multiplier may be negative. The present paper analyses this problem from a theoretical point of view applying a linearized version of a model for the small open economy. The model is dynamic, because account is taken of capital accumulation. Short-run and long-run solutions are expressed in terms of fiscal policy variables, a wage push variable, the price level abroad and world demand. Numerical examples are supplemented to illustrate the analytical results. Acknowledgement is due for his helpful comment to S.K. Kuipers     

Investigating causality among unemployment,income and crime in Taiwan: evidence from the bounds test approach

This paper examines the long-run and causal relationships among unemployment, income and crime in Taiwan. The results clearly indicate that there is a long-run level equilibrium relationship among unemployment, income and total crime. There are also long-run relationships among unemployment, income and theft and among unemployment, income and economic fraud. The causality test results from the ECM-VAR and level VAR models indicate that there is a neutral relationship among unemployment, income and total crime, and a neutral relationship among unemployment, income and all three categories of crime. It is concluded that there is no strong evidence in favor of the unemployment-led crime (ULC) or the crime-led unemployment (CLU) hypotheses in Taiwan.     

Soft budget constraints, bank capital, and the monetary transmission mechanism

This paper investigates the effect of monetary policy in a situation where soft budget constraint problems prevail in the economy and the bank faces a capital requirement. Under these circumstances, an expansionary monetary policy may increase quantity of bank lending without improving the quality and thus may not stimulate economic activity. On the other hand, in order to solve the problem of soft budget constraint problems and to improve the quality of bank lending, the quantity of bank lending should be decreased. Central authorities need to keep this tradeoff in mind when exercising monetary policy and injecting public funds.     

An empirical analysis of China's aggregate import demand function

This study uses the cointegration concept to analyze the long-run relationship of China's aggregate import demand function for the period 1970–1999. The conventional specification for the import demand function reveals that the volume of imports demanded responds to domestic activity and relative prices. This study considers four definitions of domestic activity, namely gross domestic product (GDP), GDP minus exports [IMF Staff Pap. 45 (1998) 236], “national cash flow” [Econ. Lett. 74 (2002) 265], and final expenditure components [Appl. Econ. 21 (1989) 957]. The empirical results indicate a long-run equilibrium relationship between these measures of domestic activity and China's import demand. Overall, domestic activity and relative prices are inelastic in the long run. This study also highlights some policy implications.     

Factors Affecting Technical Efficiency among Coffee Farmers in Côte d’Ivoire: Evidence from the Centre West Region

This paper presents measures of technical efficiency for a sample of 81 peasant farmers in the low‐income region of Côte d’Ivoire. DEA techniques were used to compute farm‐level technical efficiency (TE) measures. The analysis reveals average levels of technical efficiency equal to 36 per cent and 47 per cent respectively for the CCR ( Charnes et al., 1978 ) and BCC ( Banker et al., 1984 ) models. These results suggest that substantial gains in output and/or decreases in cost can be attained given existing technology. In a second step analysis, two‐limit Tobit regression techniques were used to examine the relationship between TE and various farm/farmer characteristics. From a policy point of view, an important conclusion stemming from the analysis of our sample is that family size, membership to farmer's club or association and the origin of the farmer are the variables found to be most promising for action. The analysis suggests that policymakers should foster the development of the formal farmers’ club or association by building the capacity of the farmers. Our analysis also supports the argument for public sector involvement in the provision of information on labour force management to peasant farmers as a means to improve efficiency levels, and thus household incomes.     

Democracy, History, and Economic Performance: A Case-Study Approach

Crossnational statistical studies show a positive relationship between the length of time a country has been democratic and its economic performance. Old democracies grow faster, ceteris paribus, and also demonstrate advantages in some economic policies thought to be conducive to growth. However, the causal connections between regime history and economic policy and performance remain opaque. Arguments are highly speculative, for the causal pathways are usually difficult to measure and are not readily testable in a large-N cross-country format. In order to illuminate possible interconnections between regime history and economic performance we identify three countries in the developing world whose recent history may be regarded as illustrative: Brazil, India, and Mauritius. Our analysis of these cases focuses on the achievement of policy consensus and policy reform, both of which are commonly regarded as critical to economic performance. Intensive study of our chosen cases suggests multiple mechanisms by which democratic experience might translate into greater success on these policy dimensions.     

Bank loans and the effects of monetary policy in China: VAR/VECM approach

In this paper, we test the differential effects of monetary policy shock on aspects of banks' balance sheets (deposits, loans, and securities) across bank categories (aggregate banks, state banks, and non-state banks) as well as on macroeconomic variables (output, consumer price index, exports, imports, and foreign exchange reserves). We do so by estimating VAR/VEC Models to uncover the transmission mechanisms of China's monetary policy. Also we identify the cointegrating vectors to establish the long-run relationship between these variables. By using monthly aggregate bank data and disaggregated data on bank and loan types from 1996 to 2006, our study suggests the existence of a bank lending channel, an interest rate channel and an asset price channel. Furthermore, we discuss and explore the distribution and growth effects of China's monetary policy on China's real economy. In addition, we investigate the effects of China's monetary policy on China's international trade. Finally, we identify the cointegrating vectors among these variables and set up VEC Models to uncover the long-run relationships that connect the indicators of monetary policy, bank balance sheet variables and the macroeconomic variables in China.