Tax evasion and intertemporal choice

It has often been argued that the misreporting of regular wage income is limited by third-party withholding and reporting requirements. However, income arising from savings investment is often not subject to such withholding requirements. This paper uses a simple dynamic model to examine the problem of tax evasion of investment income. Assuming that individuals can misreport investment income but not wage income, it is shown that alterations in the audit rate and penalty rates affect an individual's saving (or investment) decisions. This suggests that parameters traditionally used to control tax evasion impact the aggregate output of an economy and the rate of economic growth. This paper is based on the author's dissertation completed at Virginia Polytechnic Institute and State University. The author is indebted to the dissertation committee, Helmuth Cremer (co-chair), Firouz Gahvari (co-chair), Catherine Eckel, Djavad Salehi-Isfahani, and Richard Steinberg for their guidance and suggestions. All remaining errors are the author's responsibility.     

Structural Analysis of a Developing Economy Using the Conventional and Augmented Input-Output Matrix Methods — A Comparison for Sri Lanka

This paper explains why and how the conventional Input-Output Method should be modified to develop the Augmented Input-Output Matrix Method in order to study the structure of a developing economy using Multiplier and Linkage Analysis. This alternative methodology with an endogenous Household Sector is expected to provide a better picture of the structure of the economy by treating demand as partially endogenous and allowing for induced linkage effects transmitted across various sectors of the economy. In contrast, such induced linkage effects are absent in the conventional methodology which is based on the technical relationships of production alone.

Applying the two methods on the economy of Sri Lanka using the Input-Output Tables for 1986 and 1994, we find that the Augmented Input-Output Matrix Method changes the relative importance of the various sectors in terms of their output multipliers and backward linkage strengths, for each of the two years. Overtime, however, the Augmented Input-Output Matrix Method shows less variations in the multipliers, linkages and the resulting key sectors of the economy while rendering the economy more traditional and service-oriented in character. Manufacturing and allied sectors are more often absent than present among the strong or key sectors of the economy.

Economic Liberalization was initiated in the 1970’s in Sri Lanka. But the economy has not yet experienced any fundamental change in its structure. The results of the Augmented Matrix Method suggest that the economy should be more diversified and modernized in order to fully reap the benefits of liberalization in terms of economic growth.

     

RCA indices,multinational production and the Ricardian trade model

The practice of using Revealed Comparative Advantage (RCA) Indices to determine the flow of goods trade among countries is well established. But an important issue that demands attention is whether the RCA indices reflect the essentials of comparative advantage theory. Deb and Basu Foreign Trade Rev 46(3):3–28, (2011) examined the consistency of alternative RCA indices with the Heckscher-Ohlin theory of comparative advantage, leaving scope for re-examination of the indices in the context of the Ricardian comparative advantage theory, which insists on relative factor productivity differences among countries contrary to Heckscher-Ohlin’s relative factor endowment differences. The other issue which has been overlooked in much of the existing literature is the importance of value-added trade. With the growing importance of global production chains, RCA indices based on gross export values may not portray an accurate picture of the underlying comparative advantage of countries. In this context, adjusting the RCA indices to incorporate domestic value-added in exports seems to be quite relevant. This paper explores the consistency of RCA indices based on domestic value-added in exports with the Ricardian theory of comparative advantage using a panel data approach. A brief review on the structures of alternative RCA indices is also provided. The Log-of-Balassa index is found to be the best performer in this empirical examination, although the deficiencies of the index for cross-country or cross-commodity comparison must be acknowledged. The index of Yu et al. Ann Reg Sci 43(1):267–282, (2009) does possess the latter feature but in our study its performance is quite poor and hence its consistency with the Ricardian theory of comparative advantage is questionable.     

Transfers, the terms of trade, and capital accumulation

Abstract .  In the context of a two-sector overlapping-generations model it is demonstrated that a steady-state transfer paradox may arise under commodity trade with stability and without distortions or bystanders. The existence of the paradox is due to the effect of the transfer on world capital accumulation, which is shown to always (i.e., for any ranking of factor intensities and savings rates) improve the donor's terms of trade. Transfers may also improve steady-state welfare for both donor and recipient and produce paradoxical welfare results along the transition path.     

The Welfare Economic Theory of Green National Accounts

This paper takes a critical look at the literature on green national accounts. The problem studied is to find a linear index of economic variables that responds to perturbations in the same direction as social well-being. The thesis of a large literature, that net national product (which is a flow) is that index in closed economies, is shown in some interpretations to be simply false and in others to suffer from deep estimation problems. It is argued that capital depreciation using shadow prices should certainly be included in national accounts, but that the right welfare index is a comprehensive measure of wealth, defined as the shadow value of an economy’s stock of all capital assets. It is shown that comprehensive wealth is usable as a criterion for policy evaluation as well as for determining sustainable economic development.     

The structure of coalitional power under probabilistic group decision rules

The paper extends the work of S. Barbera and H. Sonnenschein on probabilistic social welfare functions by permitting quasi-transitive and/or acyclic probabilistic social preferences. Allowing for quasi-transitivity it is shown that the social decision rule is characterized by a subadditive veto power structure. Gibbard's result on oligarchy is shown to be a special case. Similarly, Sen's theorem on Paretian Liberals is shown to be implied by the power structure in the acyclic case.     

Insider trading and firm-specific return volatility

Roll (J Financ 43:541–566, 1988) argues that firm-specific stock return volatility may result either from informed trading or from noise trading that is unrelated to information. In this paper we provide evidence that insider purchases are inversely related to the idiosyncratic volatility of stocks. We also find that stock idiosyncratic volatilities are generally inversely related to future 6- and 12-month returns. Our results are primarily driven by the timing of insider sales rather than insider purchases. The results are consistent with an information-based explanation of firm-specific return volatility.     

Testing alone is insufficient

Review of Economic Design - The fear of contracting a serious illness caused by a contagious disease limits economic activity even after reopening. Widespread testing alone will not alleviate this...