Twenty-year review of South African fiscal policy: A tale of two sustainabilities

In 2014 democracy in South Africa was 20 years old. The democratic government in 1994 inherited both a high and increasing public debt/gross domestic product ratio and significant development backlogs. The government had to establish fiscal sustainability, yet also pursue development in a sustainable way. This article explores the government's performance in reconciling fiscal sustainability with sustainable development. The article shows that fiscal policy has been sustainable over the 20 years, with some risks appearing towards the end, and that the government pursued sustainable development through reallocating resources within the budget and by spending more in real terms. Three phases can be identified: 1994–2000, 2001–08 and 2009–13. However, poor service delivery and low levels of government investment during the 20 years threaten to undermine economic growth. Lower growth consequently threatens the sustainability of both fiscal policy and development, which, in turn, again undermines growth prospects. Hence, the article also identifies key future challenges.     

2022 KLEIN LECTURE PARENTAL EDUCATION AND INVENTION: THE FINNISH ENIGMA

Why is invention strongly positively correlated with parental income not only in the United States but also in Finland, which displays low income inequality and high social mobility? Using data on 1.45 M Finnish individuals and their parents, we find the following: (i) the positive association between parental income and off-spring probability of inventing is greatly reduced when controlling for parental education; (ii) instrumenting for the parents having an MSc degree using distance to nearest university reveals a large causal effect of parental education on offspring probability of inventing; and (iii) the causal effect of parental education has been markedly weakened by the introduction in the early 1970s of a comprehensive schooling reform.     

Intrahousehold moral hazard frictions and household poverty traps in rural India

We empirically study the role of assets held by women in the creation of household wealth using data from rural India. We design a streamlined model of intrahousehold project funding where moral hazard frictions between spouses and women's asset control are the main ingredients. As predicted by the model, the data show that household asset accumulation depends on women's asset control in a non-monotonic way. Results indicate no presence of multiple equilibrium poverty traps, but do show that exogenous negative shocks will trigger assets aggregation within households where both spouses are present. This resilience mechanism is, however, not found in female headed household as these households have a monotonic relationship between women's wealth control and asset creation. We thus argue that policies to support women's empowerment need to distinguish women based on their individual wealth levels and headship status to enhance household well-being in remote Indian communities.     

On the generic inefficiency of differentiable market games

It is shown that a differentiable market game remains generically inefficient when its strategic outcome function is perturbed smoothly. The proof is based on Thom's transversality theorem and removes any restriction regarding the dimension of the strategy spaces. A converse result is that almost all efficient market games that are competitive are characterized by Bertrand-like non-differentiabilities. Finally a synthesis between the Cournot-and-Bertrand-type approaches to Walrasian equilibrium, as recently developed in the literature, is suggested.     

Code and conduct in French cuisine: Impact of code changes on external evaluations

We study the effects of organizational code‐preserving and code‐violating changes on external evaluations by third parties—an essential but under‐studied strategic outcome. We define code‐preserving changes as a variation in the firm's product range that preserves the social code within which the firm positions its offering. By contrast, a code‐violating change corresponds to a variation in the product range that breaks with past codes and embraces another social code. Our analyses of French haute cuisine restaurants show that code‐preserving changes and code‐violating changes have positive effects on external evaluations. Both effects decline with prior evaluations received by the organization, but only the effect of code‐violating changes is reduced with age. Moreover, external evaluations improve when restaurants undertake more code‐preserving changes than their direct competitors but decline when they make more code‐violating changes than competitors. These results enable us to derive implications for research on strategic change, strategic groups, and strategic social positioning. Copyright © 2007 John Wiley & Sons, Ltd.     

Dynamic duopoly with learning through market experimentation

Summary This paper analyzes how learning behaviors can substantially modify the outcome of competition in an oligopolistic industry facing demand uncertainty. We consider the case of a symmetric duopoly game where firms have imperfect information about market demand and learn through observing the volume of their sales. The main body of the paper consists in showing how market experimentation can explain the existence ofprice-dispersion in an oligopolistic industry. We study this phenomenon and its dynamic evolution in the context of an Hotelling duopoly model; we then extend the analysis to general demand functions and toN-firm oligopolies. We discuss some implications of the public good aspect of information about market demand. We then conclude with a few comments on what happens when the value of information in the oligopolistic industry is negative.We are very grateful to Patrick Bolton for his helpful advice. We also wish to thank Richard Caves, Anthony Creane, Jean-Jacques Laffont, Andreu Mas-Colell, Eric Maskin, Jean-Charles Rochet, Margaret Slade, John Sutton, Jean Tirole, Mike Whinston and an anonymous referee.     

Three New Real Estate Price Indices for Geneva,Switzerland

This paper develops constant-quality price indices for three categories of real estate-apartment buildings, vacant land, and condominiums—for the city of Geneva, Switzerland. We use both the hedonic and repeat sales models to estimate the price level and, in turn, the rate of price change. The general pattern of each series suggests that real estate prices in Geneva were fairly stable throughout the 1970s, increased sharply during the 1980s, but gave back some of these gains in the early 1990s. Interestingly, the sharp rise in prices in the second half of the 1980s is very similar to that found in some regions of the United States. We also consider the problem, implicit in the repeat sales method, of revisions in previously estimated price indices as additional data become available in later years.     

Assessing the international spillover effects of capital income taxation

Changes in capital taxes by one economy spill onto other economies with internationally mobile capital. We evaluate these impacts using a two-region, intertemporal general equilibrium model. The foreign economy's unilateral reduction in corporate income taxation has positive but small effects on U.S. welfare. In contrast, unilateral reductions in personal income taxation impose large negative spillovers. The differences result from CIT being source-based and PIT residence-based. The CIT cut reduces tax burdens to U.S. residents who invest abroad, while the PIT cut reduces foreigners' tax burdens only. Through general equilibrium adjustments neglected in simpler models, the PIT cut lowers U.S. residents' welfare.     

Pareto-Improving Social Security Reform

It is generally accepted that moving from an unfunded to a funded social security system implies a welfare loss for the transition generation—that is, the generation that has to pay twice: first, saving for its own retirement and, second, contributing to the pensions of the then retired generation. This article shows that in a setting of endogenous growth with positive externality such a transition can be Pareto improving. But it argues also that social security reform is more a pretext than a requirement for internalizing such a positive externality.