Microfinance Interest Rates and Client Returns

The interest rates of microfinance institutions (MFIs) are widely criticized, although they are lower than those of many short‐term lenders in ‘developed’ countries. The criticisms are not usually related to the returns on micro‐investments. Little data is available, but earnings from farming seem generally to be below or little above the interest charged for microcredit. Returns from petty trade, a more frequent use of such credit, are well over the price that micro‐borrowers pay for their loans. Microfinance is not a replacement for subsidized farm credit; farming is subsidized, everywhere, and efforts should be made to improve and revive the provision of low‐cost agricultural finance.     

Taxation and Life Insurance: A Theoretical Analysis*

Taxation of life insurance is generally considered to pose special and complex problems. These are alleged to stem from the special nature of life insurance. This paper challenges the notion that there is anything inherently special about the economics of life insurance and disputes the claim that it warrants special tax treatment. A model of the life insurance firm is presented and the appropriate basis for taxing life insurance companies and their policyholders is derived. This is compared with the system of taxation currently operating in Australia.     

OCCUPATIONAL ATTAINMENT OF MEN IN BRITAIN

The occupational attainment of men aged 33 is examined usinglongitudinal cohort data. We find that family background andearly child development has a much stronger effect on occupationalattainment than found in previous studies for Britain. Testsin maths and reading taken at age 7, 11, and 16 provide importantinformation regarding the likelihood of occupational success.Our results appear to be insensitive to whether we measure attainmentusing mean earnings or occupational status. Failure to controlfor unobserved person-specific fixed effects causes significantdownward bias in estimated returns to educational qualificationsacquired after age 23.     

The Impact of Inflation and Taxation on Tenure Choice and the Redistributive Effects of Home-Mortgage Interest Rate ReguIation*

Judy Yates (1981) notes the regressive redistributive impact of home-mortgage interest rate regulation and offers some explanations. This paper provides an alternative explanation of Yates' observations in terms of the interaction of inflation with the current tax system in Australia. A model of tenure choice in the context of inflation and taxation is developed. In explaining this phenomenon, the model also establishes the regressive nature of the tax subsidy to owner-occupation. Home-mortgage interest rate regulation is then introduced. This reinforces the redistributive bias in the housing finance market. The model is used finally to predict the impact of deregulation. It is concluded that deregulation by itself can only remove redistributive bias resulting from regulated mortgage interest rates. Reform of the tax system is required to eliminate the regressive redistributive effects of the tax subsidy to owner-occupation .     

CERCLA AND DEEP POCKETS: MARKET RESPONSE TO THE SUPERFUND PROGRAM

This paper uses event study methods to estimate wealth effects upon shareholders who are named by the U.S. Environmental Protection Agency (EPA) as potentially responsible parties at a Superfund site. Impacts appear to be divided into three periods: an initial program period where stock market effects depend largely on prior visibility of the site, a second period where likely financial impact is more important, and a third period where notification has little association with either visibility or financial measures. However, the expected remediation cost burden is not borne evenly. "Deep-pocket" firms appear to be disproportionately penalized by the market during the second period.     

The SRD Requirement and Monetary Policy*

This paper considers the role of the SRD requirement as an instrument of monetary policy. It argues that the mere presence of the SRD requirement and neither the value of the SRD ratio nor its variability over time defines the significance of the SRD for monetary policy. A decision to abolish the SRD requirement may destabilize the demand for cash and complicate the task of the monetary authorities. Payment of interest on SRD accounts would serve to alleviate the distorting effect of the SRD requirement on the pattern of financial intermediation.     

Financial System Size in Transition Economies: The Effect of Legal Origin

Gorton and Winton (1998) link the size of the banking system in transition economies to financial stability. We provide empirical evidence consistent with their notion that the size of the financial system will be smaller in these countries. This effect holds even after controlling for the effect of rule of law and/or legal origin, and other relevant variables. Transition economy status, thus adds additional explanatory power to traditional law and finance explanations of financial development. Classification of transition economies by legal origin reveals that Russian legal origin has a strong negative effect on financial development. Regression analysis shows claims on the private sector/gross domestic product (GDP) to be 46 to 60 percentage points lower in the countries of the former Soviet Union, and 23 to 39 percentage points lower in non-Soviet transition economies compared to countries of English legal origin. There is a positive relation between claims on the private sector and the rule of law for a broad cross section of countries.