Simulating the revenue elasticity of an individual income tax

The revenue elasticity of an idealized income tax depends upon the threshold, median income and income inequality. Numerical simulations facilitate comparison of elasticities in different economies and underline the dangers of the constant elasticity assumption in certain cross-sectional studies.     

Impacts of China's Accession to the World Trade Organization

This article presents estimates of the impact of China's accessionto the World Trade Organization. China is estimated to be thebiggest beneficiary (US$31 billion a year from trade reformsin preparation for accession and additional gains of $10 billiona year from reforms after accession), followed by its majortrading partners that also undertake liberalization, includingthe economies in North America, Western Europe, and Taiwan (China).Accession will boost manufacturing sectors in China, especiallytextiles and apparel, which will benefit directly from the removalof export quotas. Developing economies competing with Chinain third markets may suffer small losses. Accession will haveimportant distributional consequences for China, with the wagesof skilled and unskilled nonfarm workers rising in real termsand relative to those of farm workers. Possible policy changes,including reductions in barriers to labor mobility and improvementsin rural education, could more than offset these negative impactsand facilitate the development of China's economy.     

Capturing the Implications of Services Trade Liberalization

This paper evaluates the impact of service sector trade liberalization on the world economy by a ten-region, eleven-sector CGE model with import embodied technology transfer from developed countries to developing countries. Simulation results show that service sector trade liberalization not only directly affects world service production and trade, but also has significant implications for other sectors in the economy. The major channel of the impact is through inter-industry input-output relations and TFP growth induced from services imported by developing countries from developed countries, which may be embodied with new information and advanced technology.     

The pricing of real estate investment trust initial public offerings

This paper examines the pricing of Initial Public Offerings (IPOs) of Real Estate Investment Trusts (REITs). Unlike standard corporations, evidence suggests that REIT IPOs are correctly priced in the initial market. Significant negative initial-day return for mortgage REITs is found to be a function of using the bid price to calculate returns for those securities, which trade initially over the counter (OTC). If the bid-ask average or the ask price is used in calculating returns, any apparent overpricing disappears. Additionally, we find that once transactions costs are considered, an investor is better off purchasing a REIT on the offering.     

The Reconstruction of South East Europe,the Stability Pact and the Role of the EU: An Overview

In the aftermath of the Kosovo crisis, the international community agreed on a Stability Pact to provide a framework that will contribute to the long-term security and stability of the whole region of South-East Europe (SEE). The idea is to bring the region closer to the European integration process through new institutional relations with the European Union (EU), as well as through the provision of assistance for reconstruction and development. As a contribution to the Stability Pact, the EU has announced the upgrading of its regional approach to the countries of the so called Western Balkans: Albania, Bosnia-Herzegovina, Croatia, Macedonia (FYROM), and Federal Republic of Yugoslavia (Serbia/Montenegro). Under the new Stabilization and Association Process all these countries could in principle become eligible to start negotiations for a new type of association agreement with the EU. The new Stabilization and Association Agreements would offer the countries in the region improved prospects for international trade with the EU, which would potentially provide increased export revenues to finance the reconstruction of the region from its own resources. However, in keeping with the previous regional approach, strict conditions have been laid down for countries to open negotiations on the new association agreements, including progress in democratization and economic reform. In addition, the new policy framework also emphasises the need for the development of intra-regional cooperation between the countries concerned. The paper presents a discussion and evaluation of the new policy approach towards regional cooperation and prospects for European integration in the context of the problems of economic reconstruction, democratic transition and consolidation in South East Europe.     

The Introduction of the Euro and Derivative Use in French Firms

In January 1999 several European countries adopted a common currency, the “euro”. This important economic event provided an opportunity to examine the determinants of risk management in an environment where exposure to foreign exchange (FX) risk was considerably reduced. For a sample of French firms we found the decline in the use of FX derivatives was greater for firms with substantial sales within the euro zone and less for firms in industries that still had significant imports from outside the euro zone. The focus on derivatives adds to existing research, as it is a more explicit indicator of a reduction in the resources devoted to hedging. The reduction in hedging was not in direct proportion to the reduction in FX exposure, implying that euro risk was hedged more intensely than French franc risk in the sample of French firms over the chosen years.     

Measuring the Impacts of Global Trade Reform with Optimal Aggregators of Distortions

Aggregation of trade distortion measures is essential in applied work, but traditional trade‐weighted average measures are egregiously flawed. This paper shows how appropriate tariff aggregation can overcome underestimation of both efficiency and terms‐of‐trade gains from reform. The improvement is shown to result from better measurement of a distortion effect that is most important in the early stages of reform and a weighting effect that becomes more important as protection is reduced. Applications confirm that the technique can be applied relatively easily, and—with elasticity estimates suggested by the available econometric evidence—point to close to a doubling of the global welfare gains from global trade reform, and dramatic changes in the measured welfare impacts in many individual cases. Sensitivity analysis suggests that, for global trade reform, the ease of substitution between tariff lines is much more important than that between varieties from different countries. We provide an online aggregation tool to allow replication of our analysis or investigation of alternative scenarios for global reform. We hope that this paper will contribute both to wider use of optimal aggregators and improved estimates of the key elasticity parameters.     

Discussion of “Aggregate Margin Debt and the Divergence of Price from Accounting Fundamentals”

Burger and Curtis (2017) is an empirical investigation of whether aggregate margin debt correlates with aggregate stock prices and aggregate accounting‐based fundamentals. While the paper convincingly documents a significant relation: aggregate margin debt is higher when aggregate fundamentals‐to‐price ratios are low, it fails to document why. The documented relation could exist because margin traders are the overly exuberant noise traders that push stock prices higher away from fundamental values; or the documented relation could be spurious, and exist because aggregate margin debt rises with aggregate price levels simply because margin loan capacity increases as aggregate price levels increase. With insufficiently granular data (aggregate margin debt measured monthly), the authors are not able to sort out why the relation exists. Thus, interpretation of the findings documented in this paper is difficult.