The politics of progressive income taxation with incentive effects

This paper studies majority voting over quadratic taxation and investigates under which conditions marginal progressivity emerges as a voting outcome. In our model with endogenous income, there is no majority (Condorcet) winning tax schedule. We then investigate less demanding political equilibrium concepts in order to see under which conditions the set of equilibria is composed only of progressive tax functions. We follow three strategies: (i) reduction of the policy space to the tax functions that are ideal for some voter; (ii) elimination of weakly dominated strategies and the use of mixed strategies in a standard Downsian two-party competition game; (iii) assumption that political parties interact repeatedly and care about the size of their majority. Although each approach captures a different aspect of political behavior, they point to the same (simulation-based) conclusion that progressivity is more likely to emerge for most distributions of abilities and that it is actually the only possible voting outcome if the distribution is sufficiently concentrated at the middle.     

Strategic assessment of international partnership in ASEAN countries

Partnership under the form of joint-ventures and licensing agreements between a multinational company and a local entrepreneur has become a predominant mode of entry into growing markets of the developing world. This paper illustrates three major issues in the process of building partnerships in the international setting, namely, the strategic perspective of both parties, the selection of partners, and the negotiation of the partnership. Data for this study was drawn from an earlier investigation at the Euro-Asia Center of INSEAD.     

Democracy and dynamic welfare optima

We show that there exists a rule of deciding on random election dates, such that the solution of a welfare optimum computed on an infinite horizon, coincides with short-run economic policies chosen by a democratically elected government.     

A dynamic macroeconomic model with monopolistic behavior in the labor market

Is the monopolistic behavior of a wage setting labor union compatible, in the long and in the short run, with price stability and full employment? What is the effect, if any, of economic policies? The answers are strongly affected by the prevailing technology and by the union's objective function. With limited short run production possibilities, a short run trade-off may exist between full employment and maximum expected real wage revenues. In the long run, however, when expectations are fully adjusted, this trade-off disappears. Therefore, a labor union consistently pursuing maximum short run expected real wage revenues may not maximize long run effective real wage revenues. Price stability is granted in the long run, provided inflation is not induced by public policy. The only instrument a pure consuming government has to fight long unemployment is to reduce its share of aggregate demand.     

On the IASB comprehensive income project: an analysis of the case for dual income display

The IASB is presently involved in a project on reporting comprehensive income. Since the IASB accounting model mixes two income determination systems, namely, historical cost accounting and fair value accounting, an interesting question pertains to whether the display of comprehensive income should reflect the existence of these two paradigms. This article scrutinizes, from both the points of view of accounting theory and a valuation perspective, the typical arguments made by proponents of historical cost net income and comprehensive fair value income. It finds that claims for exclusive reliance on a single concept of income are untenable. The analysis provides arguments in defence of an income display that explicitly features both income concepts. Such a dual income display would correspond to a categorization of comprehensive income that is currently investigated in the IASB performance reporting project. However, given the importance of summarization in financial analysis, as is most extremely reflected in the focus on the earnings per share (EPS) number, the case for a dual income display should also be considered at the highest level of summarization of financial performance reporting. In other words, mandatory publication of two EPS numbers, one for net income, and one for comprehensive income, should be considered. Possible effects on perception and actual use of financial reports that should enter such a consideration are suggested as topics for experimental research.     

The financial content of inflation risks in the euro area

Recent studies have emphasized that survey-based inflation risk measures are informative about future inflation, and thus are useful for monetary authorities. However, these data are typically only available at a quarterly frequency, whereas monetary policy decisions require a more frequent monitoring of such risks. Using the ECB Survey of Professional Forecasters, we show that high-frequency financial market data have predictive power for the low-frequency survey-based inflation risk indicators observed at the end of a quarter. We rely on MIDAS regressions for handling the problem of mixing data with different frequencies that such an analysis implies. We also illustrate that upside and downside risks react differently to financial indicators.     

Physical infrastructure as a constraint on agricultural growth: The case of sub‐Saharan Africa

Abstract

The importance of agriculture in sub‐Saharan Africa, and the somewhat lagging development in other activities, suggests that particular significance attaches to the arrest of the drawn out crisis of agricultural production. Two opposing suggestions which are often made are that this is a matter either of price incentives, or of fundamental change designed to remove many infrastructural constraints and the lack of provision of other essential services. The issues are pursued, first, by an appraisal of the evidence relating to agricultural supply response. The long‐run response to price incentives is probably rather low, but it is suggested that it is very often constrained by non‐price factors. The paper then assesses the importance of infrastructural constraints, particularly in transport and communications. It is argued that the choices between improving price incentives and the need for infrastructure and other provision are not absolute since complementarities are important. Both, in effect, can also compete for public funds. The dilemma is particularly acute in sub‐Saharan Africa since low population densities and long distances result in the costs of transport and other essential services being comparatively high. It is therefore all the more necessary to seek cost‐effective ways of improving provision in order to maximize the impact on farm output. The paper suggests a number of ways in which this can be done, notably by better utilization of existing infrastructure.     

Japanese trade unions at the crossroads: dilemmas and opportunities created by globalization

Japanese trade unions have contributed much to the economic stability and success of Japanese enterprises. Globalization has, however, placed substantial pressure on the Japanese industrial relations system and, in turn, upon the enterprise union system. Not all changes can be directly attributed to globalization. We contend, however, that the success of Japanese firms, both in exports and in overseas production, has made the Japanese economy reliant on a strong world economy. Economic downturns that have been witnessed in a number of countries in 1990s have weakened the demand for Japanese export products. This, in combination with the Japanese banking and financial crises, has created pressure for an overhaul of employment and human resource management systems. This article examines these pressures and the response by trade unions.