Are Current Account Deficits Sustainable? Evidence from Dynamic Panel Data Analysis

This paper examines two issues, namely, whether the current account deficit (CAD) is sustainable, and the degree of sustainability for a panel consisting of 129 countries over the period 1981–2013. To this end, we investigate the relationship between exports and imports for various income and region categories. Our finding from the pooled mean group estimator suggests that CAD is “weakly” sustainable in most of the country groups. This implies that sustainable current account is consistent with the sustainability of external debts. Further, the adjustment coefficient is found to be rather low for all the country groups. This indicates that the speed of convergence toward the long-run equilibrium in the event of short-run disturbances is faster. Finally, we discuss policy implications of our findings.

     

Are target date funds the easy bake option?

Target date funds provide a simple, automated approach to retirement savings in defined contribution plans. The passing of the Pension Protection Act of 2006 has seen an increase in the popularity of these funds in the United States, becoming the default option for many plans. However, recent research findings have challenged the easy bake or ‘set-and-forget’ nature of target date funds. This study explores some of the critical design features of target date funds (which shifts an individual’s asset allocation from growth to defensive assets following a pre-set glidepath) against a simple balanced (or target risk) fund design. Using both time-weighted and dollar-weighted returns, our results suggest that there is more to achieving successful retirement outcomes than the investor simply selecting a proposed year of retirement. Our findings can perhaps be summarized by Einstein’s famous epithet, that in the murky world of retirement product design, everything should be made as simple as possible, but not simpler.     

The dividend policies of all-equity firms: A direct test of the free cash flow theory

This paper finds support for Jensen's (1986) hypothesis that dividends and debt are substitute mechanisms for controlling the agency costs of free cash flow. We find that dividend payout ratios of a sample of all-equity firms are significantly higher than those of a control group of levered firms. Further, within the group of all-equity firms, firms with lower managerial holdings have higher payout ratios. These results hold after controlling for free cash flow and growth rates. Overall, our evidence suggests that dividends and managerial ownership are substitute mechanisms for reducing agency costs in all-equity firms.     

Corporate governance and firm performance relationship: Implications for risk‐adjusted return behavior

We examine the impact of corporate governance on firm performance and stock return behavior using panel data for Indian listed firms for 2006 to 2015. Our results suggest that corporate governance improves firm performance. However, corporate governance information fails to provide excess risk‐adjusted returns to investors, as governance information is well assimilated in prevailing stock prices. In addition to extending the scant literature focused on emerging markets, our findings will prove useful to investors, fund managers, and rating agencies in making investment decisions and regulators in assessing the impact of governance norms.     

The Case for Gender-Sensitive Superannuation Plan Design

A key feature of superannuation plan design is the assumption that members have long and continuous periods of employment over which contributions are made. This heroic design feature has led to debate on the adequacy of superannuation plans for those with interrupted employment, particularly the adverse impacts this has on the retirement income prospects of women. This paper employs non-parametric stochastic simulation to investigate two possible solutions to gender inequality in superannuation, higher contribution rates and more aggressive asset allocation. Our results suggest that while both these strategies in isolation are effective in reducing the current gender disparity in superannuation outcomes, they demand significant changes to current arrangements when employed individually to address the problem. A combined approach is found to be more powerful in ensuring a more equitable superannuation outcome for women, as it nullifies the relative disadvantage of interrupted employment with only modest changes to contribution rates and asset allocation.     

Cost-comparison of two trabecular micro-bypass stents versus selective laser trabeculoplasty or medications only for intraocular pressure control for patients with open-angle glaucoma

Aim: Patients with open-angle glaucoma (OAG) whose intraocular pressure is not adequately controlled by one medication have several treatment options in the US. This analysis evaluated direct costs of unilateral eye treatment with two trabecular micro-bypass stents (two iStents) compared to selective laser trabeculoplasty (SLT) or medications only.

Materials and methods: A population-based, annual state-transition, probabilistic, cost-of-care model was used to assess OAG-related costs over 5 years. Patients were modeled to initiate treatment in year zero with two iStents, SLT, or medications only. In years 1–5, patients could remain on initial treatment or move to another treatment option(s), or filtration surgery. Treatment strategy change probabilities were identified by a clinician panel. Direct costs were included for drugs, procedures, and complications.

Results: The projected average cumulative cost at 5 years was lower in the two-stent treatment arm ($4,420) compared to the SLT arm ($4,730) or medications-only arm ($6,217). Initial year-zero costs were higher with two iStents ($2,810) than with SLT ($842) or medications only ($996). Average marginal annual costs in years 1–5 were $322 for two iStents, $777 for SLT, and $1,044 for medications only. The cumulative cost differences between two iStents vs SLT or medications only decreased over time, with breakeven by 5 or 3 years post-initiation, respectively. By year 5, cumulative savings with two iStents over SLT or medications only was $309 or $1,797, respectively.

Limitations: This analysis relies on clinical expert panel opinion and would benefit from real-world evidence on use of multiple procedures and treatment switching after two-stent treatment, SLT, or polypharmaceutical initial approaches.

Conclusions: Despite higher costs in year zero, annual costs thereafter were lowest in the two-stent treatment arm. Two-stent treatment may reduce OAG-related health resource use, leading to direct savings, especially over medications only or at longer time horizons.     

The size of the lifetime excess burden of a tax

We consider a consumer intertemporal choice problem in which it is possible for the consumer to be constrained by debt limits at some time during life. By using simulation methods, we then compare the excess burden that results as debt limits become weaker until, in the limit, they do not bind. The principal finding is that the size of the excess burden is significantly affected by the presence of effective debt limits. In fact, even with a high interest rate and a high tax rate, the excess burden is insignificant if the debt limits bind in a stringent manner.