the sustainability of south african fiscal policy an historical perspective this article examines the issue of long run fiscal sustainability in south africa by applying a battery of recently developed unit root and cointegration tests to real revenue and spending data for the period 1895 to 2005 the results provide evidence that allowing for structural breaks south african revenue and spending during this period were i 1 series and cointegrated with the estimated long run equilibrium relation supporting the presence of a weak deficit sustainability condition the views expressed in this article are those of the authors and should not be attributed to the international monetary fund

the u s evidence on optimal taxation over time abstract this paper considers a tax rule in which a uniform tax rate over time becomes optimal its implications are that 1 changes in the tax rate should arise only when there are changes in permanent government expenditures and 2 no variable other than permanent government expenditures should be of any value in predicting the tax rate these implications are tested using u s data for 1937 82 empirical results of the tests reveal that in addition to responding to permanent government expenditures the tax rate also responds to temporary defense purchases the general price level and a time trend

the experience of some oecd economies on tax smoothing observed random walk behaviour of a tax rate does not necessarily support the tax smoothing hypothesis though the latter implies the former this article presents a direct test of tax smoothing by showing that if the tax smoothing hypothesis holds then the future tax rate should cointegrate with the current permanent government expenditure rate even though the tax rate is a random walk this test is a direct and robust test of a number of random walk models available in the literature this procedure also enables us to differentiate among strong tax smoothing weak tax smoothing and no tax smoothing all of which are consistent with the random walk behaviour of a tax rate application of this test to australia canada italy japan the netherlands new zealand the uk and the us show evidence in support of weak forms of tax smoothing

deficits government expenditures and tax smoothing in the united states 1929 1988 abstract barro s tax smoothing hypothesis tsh implies that the government runs a budget deficit whenever it anticipates the growth rate of national income to increase or the growth rate of its expenditure to decline we test this implication of the hypothesis by examining the implied cross equation restrictions on a vector autoregression var model using u s data for the period ranging from 1929 to 1988 our formal tests reject the hypothesis for the full sample period but cannot reject it for the post 1947 period further investigations show that the statistical rejection should be attributed to sharp differences in the statistical properties of the pre 1947 and the post 1947 data rather than the failure of the hypothesis itself

confronting the environmental kuznets curve t he environmental kuznets curve posits an inverted u relationship between pollution and economic development kuznets s name was apparently attached to the curve by grossman and krueger 1993 who noted its resemblance to kuznets s inverted u relationship between income inequality and development in the first stage of industrialization pollution in the environmental kuznets curve world grows rapidly because people are more interested in jobs and income than clean air and water communities are too poor to pay for abatement and environmental regulation is correspondingly weak the balance shifts as income rises leading industrial sectors become cleaner people value the environment more highly and regulatory institutions become more effective along the curve pollution levels off in the middle income range and then falls toward pre industrial levels in wealthy societies the environmental kuznets curve model has elicited conflicting reactions from researchers and policymakers applied econometricians have generally accepted the basic tenets of the model and focused on measuring its parameters their regressions typically fitted to cross sectional observations across countries or regions suggest that air and water pollution increase with development until per capita income reaches a range of 5000 to 8000 when income rises beyond that level pollution starts to decline as shown in the conventional ekc line in figure 1 in developing countries some policymakers have interpreted such results as conveying a message about priorities grow first then clean up numerous critics have challenged the conventional environmental kuznets curve both as a representation of what actually happens in the development process and as a policy prescription some pessimistic critics argue that crosssectional evidence for the environmental kuznets curve is nothing more than a

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

unit roots structural breaks and cointegration in the uk public finances 1750 2004 in this article we report results from several traditional and more recently developed unit root and cointegration tests allowing for structural breaks which indicate that uk government revenue and spending during 1750 2004 were i 1 series and cointegrated and that the uk public finances have been on a consistently sustainable path over the long run

social protection and economic integration the politics of pension reform in an era of capital mobility in the past two decades of the 20th century governments around the world began to apportion greater responsibility for old age income provision to individuals and market forces through the privati

intertemporal tax smoothing and the government budget surplus canada and the united states this paper shows that if the government smooths taxes then the budget surplus should equal the present discounted value of expected changes in government expenditure this implication of the tax smoothing hypothesis imposes more stringent restrictions on the data than the more usual method of testing whether changes in tax rates follow a random walk the tax smoothing model is applied to the federal government budgets of canada and the united states and in each case receives considerable empirical support copyright 1995 by ohio state university press

trade based diffusion of labor rights a panel study 1986 2002 this article investigates the nature of the linkages between trade and labor rights in developing countries specifically we hypothesize that a california effect serves to transmit superior labor standards from importing to exporting countries in a manner similar to the transmission of environmental standards we maintain that all else being equal the labor standards of a given country are influenced not by its overall level of trade openness but by the labor standards of its trading partners we evaluate our hypothesis using a panel of 90 developing countries over the period 1986 2002 and we separately examine the extent to which the labor laws and the actual labor practices of the countries are influenced by those of their export destinations we find that strong legal protections of collective labor rights in a country s export destinations are associated with more stringent labor laws in the exporting country this california effect finding is however weaker in the context of labor rights practices highlighting the importance of distinguishing between formal legislation and actual implementation of labor rights

optimal taxation when consumers have endogenous benchmark levels of consumption i examine optimal taxes in an overlapping generations economy in which each consumer s utility depends on consumption relative to a weighted average of consumption by others the benchmark level of consumption as well as on the level of the consumer s own consumption the socially optimal balanced growth path is characterized by the modi ed golden rule and by a condition on the intergenerational allocation of consumption in each period a competitive economy can be induced to attain the social optimum by a lump sum pay as you go social security system and a tax on capital income

political equilibrium income distribution and growth this paper analyzes the impact of income distribution on growth when investment in human capital is the source of growth and individuals vote over the degree of redistribution in the economy the model has three main features first very different patterns of income distribution are conducive to high growth at different levels of per capita income second growth is associated with an externality whereby investment in human capital by one group increases the productivity of other groups thus potentially enabling them to invest in human capital third the initial pattern of income distribution and the resulting political equilibrium are crucial in determining whether the transmission of this externality is promoted in which case growth is enhanced or prevented in which case growth is stopped using a non overlapping generations model with voting i derive several empirical implications in particular the model implies an inverted u relation between levels of inequality and levels of income in cross sections but not necessarily in time series a result that seems consistent with a number of empirical studies

fair income tax fairness is a key concept in redistribution issues in this paper we study how particular requirements of fairness can shed light on the design of the optimal income tax schedule we consider a population of heterogeneous individuals or households who differ in two respects first they have unequal skills and therefore unequal earning abilities second they differ in terms of their preferences about consumption and leisure and as a consequence typically make different labour time choices both kinds of differences generate income inequalities we study how to justify and compute a redistribution income tax in this context redistribution through an income tax usually entails distortions of incentives but the resulting efficiency loss has to be weighed against potential improvements in the fairness of the distribution of resources we address this efficiency equity trade off here by constructing social preferences which obey the standard pareto principle in addition to fairness conditions

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

policy diffusion of emission standards is there a race to the top in a dramatic example of policy diffusion the past three decades have witnessed the spread of automobile emission standards throughout the world contrary to fears that global competition would produce a race to the bottom there appears to be a race to the top not only among rich countries but also among poor ones using econometric analysis of the adoption of automobile emission standards over the past twenty years for 129 countries the author argues that this global diffusion results from countries efforts to stay competitive in the international market due to the pressure from importing countries that have adopted stringent emission standards even developing countries have rapidly moved to adopt rich country standards the evidence shows that adoption of automobile emission standards correlates with an increase in the total value of automobile exports under some conditions economic incentives in a global market can be a complement to environmental protection

international evidence of tax smoothing in a panel of industrial countries a panel of industrial countries is examined for evidence of tax smoothing tax smoothing results when governments minimize tax distortions over time the model provides a positive theory of government debt and is due primarily to barro unit root tests are performed in panel data to test the null hypothesis of nonstationary tax rates panel regressions are then undertaken to test the null hypothesis that tax rate changes are unpredictable and test for evidence of an alternative hypothesis political and economic variables are examined for their ability to predict tax rate changes overall the results cannot reject the null hypotheses and support tax smoothing by national governments

why trade liberalisation is good for growth there are three titles that might have been assigned for this paper 1 why is growth so rapid with outer oriented trade strategies 2 do countries with outer oriented trade strategies grow faster and 3 the one actually assigned they are not the same of the three the first is probably the most difficult to answer the second is a factual question and the empirical demonstration is straightforward sachs and warner 1995 the third by focussing on trade liberalisation implies that developing countries have highly restrictive trade regimes and thus asks if a move away from those regimes is good for growth it is far easier to show why especially over time liberalising a restrictive trade regime is conducive to more rapid growth than it is to show why outer oriented trade strategies have been so highly successful trade strategies and development strategies are closely related and it is useful to start by defining a few terms an import substitution is industrialisation strategy was adopted by most developing countries in the years following the second world war in most cases those countries were then predominantly agricultural and exporters of primary commodities the belief then was that rapid industrialisation was the essential if not the sole feature of economic growth and that only by domestically producing goods then imported could developing countries industrialise 1 under is it was intended to provide protection to new industries during their developmental period until they could compete with their counterparts in industrialised countries in practice the is strategy pulled most new resources into import competing activites with a number of negative consequences discussed later and one result was that export earnings grew less rapidly than the demand for foreign exchange and usually less rapidly even than real gdp an almost universal policy response was then to impose restrictive import licensing in response to foreign exchange shortage the stated reasons for this were the need to conserve scarce foreign exchange for essential developmental needs the outcome was of course a restrictive trade regime for reasons to be discussed below as is strategies continued trade regimes increased in restrictiveness and growth slowed hence to discuss trade liberalisation is to address the removal or at least reduction of incentives for is industrialisation and because again to be discussed below growth spurred under an is industrialisation strategy slows

economic growth trade and energy implications for the environmental kuznets curve abstract the environmental kuznets curve ekc hypothesis asserts that pollution follows an inverted u path with respect to economic growth the ekc has been explained in terms of structural changes in the composition of economic output and increased environmental regulation at higher income levels while some authors have incorporated the impact of trade policy orientation on the ekc the impact of the actual movement between countries of goods that embody pollution has not been considered this paper attempts to econometrically quantify the effect using pooled cross country and time series data the ekc hypothesis is examined with respect to commercial energy consumption the source of many serious environmental problems it was found that while both industrializing and industrialized countries have added to their energy requirements by exporting manufactured goods the growth has been substantially higher in the former at the same time industrialized countries have been able to reduce their energy requirements by importing manufactured goods exports of manufactured goods by industrialized countries has thus been an important factor in generating the upward sloping portion of the ekc and imports by industrialized countries have contributed to the downward slope

alliances preferential trading arrangements and international trade c oncerns about the stability of the international trading system have become widespread in recent years many observers feel that the relatively liberal system forged after world war ii is being undermined by the proliferation of preferential trading arrangements these concerns have spawned a great deal of empirical research much of which has found that such arrangements exert a substantial effect on trade flows yet these studies have neglected the role political military alliances play in shaping patterns of commerce this omission is important because there is ample reason to expect that alliances guide trade flows and preferential trading arrangements often are comprised of allies as a result extant analyses risk confusing the effects of alliances and preferential trading arrangements on commerce and systematically overstating the effects of the latter in this study we analyze the effects of alliances and preferential trading arrangements on bilateral trade flows both factors are likely to promote trade among members but we argue that the interaction between them is central to explaining patterns of commerce the combination of an alliance which creates political incentives for participants to engage in trade and a commercial institution which liberalizes trade among members is expected to provide a considerable impetus to commerce among parties to both 1

the globalization of liberalization policy diffusion in the international political economy one of the most important developments over the past three decades has been the spread of liberal economic ideas and policies throughout the world these policies have affected the lives of millions of people yet our most sophisticated political economy models do not adequately capture influences on these policy choices evidence suggests that the adoption of liberal economic practices is highly clustered both temporally and spatially we hypothesize that this clustering might be due to processes of policy diffusion we think of diffusion as resulting from one of two broad sets of forces one in which mounting adoptions of a policy alter the benefits of adopting for others and another in which adoptions provide policy relevant information about the benefits of adopting we develop arguments within these broad classes of mechanisms construct appropriate measures of the relevant concepts and test their effects on liberalization and restriction of the current account the capital account and the exchange rate regime our findings suggest that domestic models of foreign economic policy making are insufficient the evidence shows that policy transitions are influenced by international economic competition as well as the policies of a country s sociocultural peers we interpret the latter influence as a form of channeled learning reflecting governments search for appropriate models for economic policy

institutions in international relations understanding the effects of the gatt and the wto on world trade the general agreement on tariffs and trade gatt and the world trade organization wto have been touted as premier examples of international institutions but few studies have offered empirical proof this article comprehensively evaluates the effects of the gatt wto and other trade agreements since world war ii our analysis is organized around two factors institutional standing and institutional embeddedness we show that many countries had rights and obligations or institutional standing in the gatt wto even though they were not formal members of the agreement we also expand the analysis to include a range of other commercial agreements that were embedded with the gatt wto using data on dyadic trade since 1946 we demonstrate that the gatt wto substantially increased trade for countries with institutional standing and that other embedded agreements had similarly positive effects moreover our evidence suggests that international trade agreements have complemented rather than undercut each other an earlier version of this article was presented at the 99th annual meeting of the american political science association philadelphia august 28 31 2003 we thank tim buthe joanne gowa miles kahler andrew rose arthur stein richard steinberg and seminar participants at stanford university the university of chicago pipes the university of california los angeles the university of california san diego and the university of virginia for many helpful comments we especially thank claire adida ashley conner moonhawk kim erin krampetz james morrison mike nardis natan sachs rachel rubinfeld and jessica weeks for excellent research assistance we are grateful for financial support from the national science foundation career grant ses 0548285 to tomz the stanford center for international development and the vice provost for undergraduate education at stanford

optimal redistributive taxation in a search equilibrium model this paper characterizes optimal non linear income taxation in an economy with a continuum of unobservable productivity levels and endogenous involuntary unemployment due to frictions in the labour markets redistributive taxation distorts labour demand and wages compared to their efficient values gross wages unemployment and participation are lower average tax rates are increasing marginal tax rates are positive even at the top finally numerical simulations suggest that redistribution is much more important in our setting than in a comparable mirrlees type setting

introduction epistemic communities and international policy coordination the growing technical uncertainties and complexities of problems of global concern have made international policy coordination not only increasingly necessary but also increasingly difficult if decision makers are unfamiliar with the technical aspects of a specific problem how do they define state interests and develop viable solutions what factors shape their behavior under conditions of uncertainty what are the origins of international institutions and how can we best study the processes through which international policy coordination and order emerge while a variety of analytic approaches have been used to address the problems of international cooperation the approaches have yielded only fragmentary insights at its core the study of policy coordination among states involves arguments about determinism versus free will and about the ways in which the international system is maintained and transformed among the overlapping topics of debate are whether national behavior is determined or broadly conditioned by system level factors unit level factors or some complex interplay between the two whether state policymakers can identify national interests and behave independently of pressures from the social groups they nominally represent and whether states respond consistently to opportunities to create defend or expand their own wealth and power to enhance collective material benefits or to promote nonmaterial values a related question of

is democracy good for the poor many scholars claim that democracy improves the welfare of the poor this article uses data on infant and child mortality to challenge this claim cross national studies tend to exclude from their samples nondemocratic states that have performed well this leads to the mistaken inference that nondemocracies have worse records than democracies once these and other flaws are corrected democracy has little or no effect on infant and child mortality rates democracies spend more money on education and health than nondemocracies but these benefits seem to accrue to middle and upper income groups

dynamic optimal taxation with private information we study dynamic optimal taxation in a class of economies with private information optimal allocations in these environments are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is similar to that in bewley 1986 agents supply labour and trade risk free claims to future consumption subject to a budget constraint and a debt limit optimal taxes are conditioned only on two observable characteristics an agent s accumulated stock of claims or wealth and her current labour income we show that optimal taxes are generally non linear and non separable in these variables and relate the structure of marginal wealth and income taxation to the properties of agent preferences this paper studies optimal taxation in a class of dynamic economies with private information we consider an environment in which agents preferences are defined over consumption and labour and each agent receives a privately observed sequence of i i d preference shocks incentivecompatibility constraints stemming from private information imply that socially optimal or constrained efficient allocations in this environment are complicated and history dependent yet we show that they can be implemented as competitive equilibria in market economies supplemented with simple tax systems the market structure in these economies is identical to that in bewley 1986 huggett 1993 or aiyagari 1994 agents can trade current consumption for claims to future consumption subject to a budget constraint and a borrowing limit these claims have a non contingent pre tax return crucially taxes are conditioned upon only two observable characteristics of an agent current wealth given by the agent s accumulated stock of claims and current labour income they do not depend on any other aspect of an agent s past history most models of dynamic optimal taxation follow the ramsey approach in which the set of fiscal instruments available to the government is exogenously specified 1 linear labour and capital income taxes are typically included in this set while lump sum taxes are ruled out the exclusion of the latter is justified by appealing to incentive or administrative constraints but these are not explicitly modelled these exogenous restrictions on fiscal instruments represent frictions that the government seeks to ameliorate through its optimal choice of tax rates the approach we adopt in this paper builds on the optimal taxation literature initiated by mirrlees 1971 mirrlees assumes that agents receive privately observed shocks to their

optimal indirect and capital taxation we consider an environment in which agents skills are private information and follow arbitrary stochastic processes we prove that it is typically pareto optimal for an individual s marginal benefit of investing in capital to exceed his marginal cost of doing so this wedge is consistent with a positive tax on capital income we also prove that it is pareto optimal for the marginal rate of substitution between any two consumption goods to equal the marginal rate of transformation this lack of a wedge is consistent with uniform taxation of consumption goods within a period

possible adverse effects of increasing block water tariffs in developing countries ture in which a commodity is priced at a low initial rate up to a specified volume of use block then at a higher or several increasingly higher rates for additional blocks used the ordinary household municipal water bill in developing countries is often calculated on some sort of ibt structure and donor organizations and consultants continue to recommend this practice for town and city water systems the majority of world bank sponsored water tariff studies conducted since 1970 for example have recommended the use of increasing block water tariffs there are two commonly accepted justifications for using ibts the first based on a rationale of equity is that ibts should assist low income households and ensure an equitable allocation of the costs of water production and distribution the argument in this case is that low income households use less water than high income households because they have fewer water using appliances and are less likely to have large lawns and gardens an ibt results in higher marginal prices to the customer and thus higher average prices for higher income households the price of water in the initial block may be set very low usually at a subsidized rate to ensure that the poor are not discouraged from using the amount of water considered essential for human needs typically estimated at 25 50 liters per capita per day the price of water in the initial block is thus sometimes termed the lifeline rate the second justification for ibt structures is that the higher prices charged beyond the initial block discourage extravagant water use and promote water conservation both these justifications for ibts assume that each household has

corruption in public service delivery experience from south asia s water and sanitation sector summary this paper presents empirical information regarding the types and magnitude of corrupt behaviors documented in water supply and sanitation service provision in several south asian localities it also examines the strengths and weaknesses of current strategies to reduce corruption among several public water and sanitation bureaucracies in south asia drawing on interviews and focus group discussions with more than 1 400 staff customers and key informants where corruption has been reduced two concomitant drivers are observed a shift in the accountability networks of service providers and a change in the work environment that increases the moral cost of misconduct 2003 elsevier ltd all rights reserved

the mechanisms of policy diffusion local policy adoptions provide an excellent opportunity to test among potential mechanisms of policy diffusion by examining three types of antismoking policy choices by the 675 largest u s cities between 1975 and 2000 we uncover robust patterns of policy diffusion yielding three key findings first we distinguish among and find evidence for four mechanisms of policy diffusion learning from earlier adopters economic competition among proximate cities imitation of larger cities and coercion by state governments second we find a temporal component to these effects with imitation being a more short lived diffusion process than the others third we show that these mechanisms are conditional with larger cities being better able to learn from others less fearful of economic spillovers and less likely to rely on imitation

income distribution and infant mortality comparing two countries in which the poor have equal real incomes the one in which the rich are wealthier is likely to have a higher infant mortality rate this anomalous result does not appear to spring from measurement error in estimating the income of the poor and the association between high infant mortality and income inequality is still present after controlling for other factors such as education medical personnel and fertility the positive association of infant mortality and the income of the rich suggests that measured real incomes may be a poor measure of social welfare this paper considers and tests several possible explanations such as the provision of medical services the degree of urbanization the extent of female literacy and differences in the composition of births among different income groups none of these factors adequately accounts for the positive association between the incomes of the rich and infant mortality the geographical scope is worldwide excerpt

openness and the politics of potable water improving access to potable water has become an increasingly urgent concern for developing nations in the current era of globalization according to standard wisdom if developing countries undertake certain domestic reforms such as investing in infrastructure and engineering then safe and clean drinking water will improve this analysis uncovers however that in addition to such domestic efforts one of the greatest factors affecting water uncertainty is in fact internationally induced trade surprisingly both scholars and practitioners have neglected the potential impacts of expanding trade on access to potable water this analysis is the first large n cross national study of water that focuses on the interplay of trade and politics both international and domestic as the primary driving forces behind improvements in or constraints to water access the author hypothesizes that growing export pressures are constraining drinkable water in poor countries but a particular domestic condition can mit

product oriented climate policy learning from the past to shape the future abstract product oriented climate policies such as labels financial incentives and emission standards for vehicles and buildings have achieved considerable reductions in emissions and triggered innovations that offer very low emissions during the use phase in contrast to other climate policy instruments these policies are successfully applied in an increasing number of regions however a major proportion of global emissions namely those from industry remain outside the scope of most current forms of product oriented climate policies all economic activities could be included by extending product oriented policies to embodied emissions i e emissions resulting from manufacturing products to guide such a development we need a better understanding of the current state and potential future development of this policy approach therefore in this paper we review and evaluate policy evolution over the past decade in terms of both measures implemented and emissions addressed on this basis we synthesize a framework for developing policy towards greater stringency and broader scope the framework describes a step wise process to achieve increasingly stringent standards once established standards can extend their scope to include additional similar products and related embodied emissions our framework and policy review informs the reinforcement and extensions of current product oriented climate policies a relevant implication for international climate policy is that the regional adoption of such policies incentivizes the global diffusion of low ghg products international climate policy can foster this development by supporting the harmonization of carbon footprint norms for products in order to enhance conformity with international trade and facilitate the extension of product oriented climate policy to embodied emissions

free to trade democracies autocracies and international trade trade relations we address this issue by analyzing the relationship between regime type and trade policy in a formal model of commercial policy we establish that the ratification responsibility of the legislature in democratic states leads pairs of democracies to set trade barriers at a lower level than mixed country pairs composed of an autocracy and a democracy we test this hypothesis by analyzing the effects of regime type on trade during the period from 1960 to 1990 the results of this analysis accord with our argument democratic pairs have had much more open trade relations than mixed pairs t he effects of domestic political institutions on trade policy have long been a source of controversy among social scientists despite the widespread interest that this debate has prompted however remarkably few studies have addressed the links between political regime type and commercial policy 1 most work on the political economy of trade policy that examines institutional factors focuses only on variations in policy among democracies and avoids comparing democracies with other types of regimes moreover many analyses of trade barriers especially those by economists ignore the effects of domestic political

a numerical investigation of the potential for negative emissions leakage leakage of greenhouse gas emissions increased emissions in unconstrained regions due to regulations in other regions undermines the effectiveness of sub global climate regulations reduces incentives for unilateral climate initiatives and can result in distortionary trade measures winchester 2012 these concerns are expressed in measures to reduce leakage included in the eu emissions trading scheme and draft legislation in the united states the now defunct waxman markey bill two sources of leakage include changes in fossil fuel prices and trade flows carbone helm and rutherford 2009 leakage via fossilfuel price effects occurs when reduced energy demand in constrained regions decreases fuel prices and increases fuel use in unconstrained regions trade changes contribute to leakage when production increases in unconstrained regions as a result of increased exports to and reduced imports from constrained regions

the tax smoothing hypothesis evidence from sweden 1952 1999 this paper tests barro s 1979 tax smoothing hypothesis using swedish central government data for the period 1952 1999 according to the tax smoothing hypothesis the government sets the budget surplus equal to expected changes in government expenditure when expenditure is expected to increase the government runs a budget surplus and when expenditure is expected to fall the government runs a budget deficit the empirical evidence suggests that the model provides a useful benchmark and that tax smoothing behavior can explain about 60 percent of the variability in the swedish central government budget surplus