The Tax Paradox and Weak Tax Neutrality

We introduce the concept of weak tax neutrality that establishes that the relationship between the tax rate and the user cost of capital may be non-monotonic. We show that most existing corporate tax systems allow for weak neutrality. That is, given the tax allowances permitted by these systems, it is possible that neutrality may arise for at least one positive corporate tax rate. Moreover, we show the practical relevance of weak neutrality in realistic situations where there are several asset types and heterogeneous levels of firms' debt ratios.     

Money demand heterogeneity and the great moderation

A forward-looking model of the demand for money based on heterogeneous and sluggish-portfolio adjustment can simultaneously account for the low short-run and high long-run semi-elasticities reported in the literature. The parameter estimates from the model for the short-run and long-run interest semi-elasticities are 1.04 and 13.16, respectively. A simulated version of the model suggests that the Great Moderation can be partially attributed to financial innovations in the late 1970s. When moving toward a more flexible portfolio, the model can account for almost one-third of the observed decline in the volatilities of output, consumption, and investment.     

The Role of Political Institutions in the Resolution of Economic Crises: The Case of Argentina 2001–05

Many financial crises during the last decade have derived more directly from political than purely economic problems. When democratic institutions, government transparency, regulatory oversight or the rule of law break down, the likelihood that politicians will implement unsustainable economic policies rises. The economics literature analyses the role of poorly functioning government institutions in allowing a nation to slip into financial crisis. However, the literature on the effectiveness of post-crisis reforms focuses almost exclusively on whether the stated post-crisis policies are appropriate from an economic viewpoint. Oddly, that literature fails to examine the status of the underlying governmental deficiencies, assuming implicitly that they have been remedied. Because economic reforms are feasible only with wide political and social consensus, two important post-crisis issues are essential to the success of such reforms; namely, the political situation and politicians' management of economic policy. Political failures are particularly relevant to the Argentine financial crisis that began in December 2001. This paper identifies those political issues, which derived from an unstable political structure characterized by corruption and fragmented power between provinces and the federal government. Critically, the rule of law had been undermined in 1991. Interestingly, these same shortcomings still pervaded Argentina in 2004. The resultant lack of political consensus continues to delay implementation of the structural reforms necessary to return to sustainable economic growth. Social confidence in the government is low; the independence of the Supreme Court has been shattered; and the rule of law continues to be eroded, as the government tramples on the property rights of private firms and public debt-holders. Because it seems unlikely that Argentina can overcome its political deficiencies in the near future, its prospects for full economic recovery are limited, regardless of which economic reforms it implements.     

Identifying Central Individuals on the Internet: A Case Study with Food-Related Weblogs

The potential of social media is huge. Millions of individuals interact on these platforms, creating networks through which electronic word-of-mouth flows. By observing and analyzing these social networks, researchers can identify the spread of innovations throughout the network and obtain valuable and useful feedback for developing new ideas. This article presents an analysis of a food-related network on the Internet, identifies the most prominent actors, and discusses some of the managerial implications.     

A pricing scheme for QoS in overlay networks based on first-price auctions and reimbursement

Providing Assured-Quality Services over data networks has been a key objective for the past few decades. Research and commercial activities have been focused on several aspects related to this main objective, such as implementing services over heterogeneous networks, providing scalable solutions and verifying network performance. However, less attention has been devoted to the interaction of these technical aspects with the business plane. Although several quality-based pricing schemes have been proposed, reimbursement proposals, while quite common in other scenarios as health, hotel reservation or airlines, are still rare in the field of Internet Economics. In this work, we propose a simple pricing scheme and study it in detail, in order to use Quality of Service monitoring information as feedback to the business plane, with the ultimate objective of improving the seller’s revenue. In our framework, Assured-Quality Services are sold through first-price auctions, and in case of failure, a percentage of the price paid for the service is given back to the buyers. We derive the expression for the willingness to pay and we model the reimbursement problem through a zero-sum Stackelberg game. We show that the Nash equilibrium of such game implies reimbursing 100 % in case of failures.     

Modelling real exchange rate effects on output performance in Latin America

This article empirically analyses real per capita GDP growth for six Latin American countries (Argentina, Brazil, Chile, Columbia, Mexico, Venezuela) in terms of real exchange rate depreciations, inflation and US interest rates, focussing on the role of the real exchange rate. We find evidence of nonlinearity in this relationship, which we capture through a smooth transition regression model. With the exception of Mexico, nonlinearity in economic growth is associated with changes in the real exchange rate, with depreciations leading to different relationships compared with appreciations. Regimes for Mexico are associated with the past growth rates, with effectively symmetric effects of real exchange rate changes. Although our results are in accord with other recent literature in that depreciations may have negative effects for growth, the asymmetries we uncover indicate that these effects depend on the conditioning state.     

The impossibility of effective enforcement mechanisms in collateralized credit markets

We analyze the possibility of the simultaneous presence of two key features in price-taking sequential economies: collateralized credit operations and effective additional enforcement mechanisms, i.e. those implying payments besides the value of collateral guarantees.     

Electricity provision and industrial development: Evidence from India

I investigate the effect of electricity provision on industrialization using a panel of Indian states for 1965-1984. To address the endogeneity of investment in electrification, I use the introduction of a new agricultural technology intensive in irrigation (the Green Revolution) as a natural experiment. As electric pumpsets are used to provide farmers with cheap irrigation water, I use the uneven availability of groundwater at the start of the Green Revolution to predict divergence in the expansion of the electricity network and, ultimately, to quantify the effect of electrification on industrial outcomes. I present a series of tests to show that the electrification channel remains the most important one among alternative explanations that could link groundwater availability to industrialization directly or indirectly. Results show that an increase in one standard deviation in the measure of electrification is associated with an increase of around 14% in manufacturing output for a state at the mean of the distribution.     

The dynamics of efficient asset trading with heterogeneous beliefs

This paper analyzes the dynamic properties of portfolios that sustain dynamically complete markets equilibrium when agents have heterogeneous priors. We argue that the conventional wisdom that belief heterogeneity generates continuous trade and significant fluctuations in individual portfolios may be correct but it needs some qualifications. We consider an infinite horizon stochastic endowment economy populated by many Bayesian agents with heterogeneous priors over the stochastic process of the states of nature. Our approach hinges on studying the portfolios that decentralize Pareto optimal allocations. Since these allocations are typically history dependent, we propose a methodology to provide a complete recursive characterization when agents believe that the process of states of nature is i.i.d. but disagree about the probability of the states. We show that even though heterogeneous priors within that class can indeed generate genuine changes in the portfolios of any dynamically complete markets equilibrium, these changes vanish with probability one if the true process consists of i.i.d. draws from a common distribution and the support of some agent's prior belief contains the true distribution. Finally, we provide examples in which asset trading does not vanish because either (i) no agent learns the true conditional probability of the states or (ii) some agent does not know the true process generating the data is i.i.d.