do external grants to district governments discourage own revenue generation a look at local public finance dynamics in ghana summary using rich panel data on all of ghana s districts local public finances over 11 years this paper investigates the way that intergovernmental and other transfers to local governments affect local governments incentives to collect internally generated revenues and funds igf we find that despite an incentive scheme built into one of the major intergovernmental grants the flow of all grants taken together discourages rather than encourages igf this is reflected both in the depressing effect of transfers on igf levels as well as on igf growth

the comparison between destination and origin principles under imperfect competition abstract especially but not only in the european union closer economic integration is putting increasing pressure on the destination principle under which goods entering international trade are normally taxed this has raised the possibility of switching to the origin principle which dispenses with problematic border tax adjustments this paper compares destination and origin principles under conditions of imperfect competition previous analyses which have considered only the competitive case have led to a qualified presumption in favour of the destination principle a series of results are established here for both cooperative and non cooperative tax setting which challenge that presumption under imperfect competition

births deaths and marriages in the u s commercial banking industry i introduction the twentieth century witnessed two periods of dramatic regulatory and structural change in the u s banking industry the great depression and the events of the 1980s and 1990s while many important regulations were enacted during the great depression the 1980s and 1990s experienced the repeal or reversal of most depression era financial regulations the 1980s and early 1990s experienced severe financial turbulence the savings and loan crisis followed by another crisis in the commercial banking industry those crises led to failure rates among financial institutions not seen since the great depression as a consequence the 1980s and 1990s saw deregulation that transformed the banking industry from one with much geographic limitation on banking and branching to one now characterized by interstate banking and branching 1 the theory of industrial organization addresses several stylized facts or empirical regularities of industry dynamics 1 entry is common 2 entry is small scale 3 survival is low probability and 4 entry and exit are highly correlated dunne et al 1988 and pepall et al 2002 chap 6 provide more details moreover the fourth empirical regularity contradicts standard microeconomic theory where entry associates with high performing profitable expanding industries and exit associates with low performing unprofitable contracting industries the empirical evidence implies that the process resembles a lottery where many firms buy tickets i e enter the market most firms eventually lose i e exit the market and only a few firms win i e stay in the market in other words long term permanent penetration into an existing market presents significant barriers and thus few new firms succeed because incumbent firms possess significant advantages urban et al 1984 and pepall et al 2002 chap 6 provide additional discussion the commercial banking industry during the recent two decade period of deregulation experienced those standard empirical regularities with some variations that is entry occurred frequently and involved small banks generally only a minority of those banks survived the number of entries and exits both increased dramatically during the past two decades although exits typically exceeded entries as the number of banks traversed a downward trend in addition exits in the regulated banking industry mostly involve mergers even for failing banks 2 the u s commercial banking industry possessed institutional characteristics that affect how the industry dynamics corresponded to and differed from those empirical regularities first the founding fathers exhibited much concern about preventing concentrations of power they adopted rules and regulations in an attempt to prevent such concentrations of power from emerging that concern bore fruit in the banking industry in the peculiar pattern of bank charters a dual banking system and the regulation of banking activity on a geographic basis thus as we entered the last two decades of the twentieth century the united states possessed many more banks per capita than most other countries in the world 3 the deregulation of geographic restrictions on banking activity expectedly led to a decline in the number of banks thus although both entries and exits played a significant role over the past two decades exits exceeded entries so that the total number of banks fell as noted second the banking industry plays a critical role in any nation s economy the loss of confidence in the banking industry that led to subsequent bank panics and runs provided the typical scenario for recession and depression throughout the nineteenth century 4 consequently the banking industry in the twentieth century exhibited significant control on entry and exit by the various banking regulators that is the number of bank entries and exits fell below those that would have naturally occurred in an unregulated banking industry

the revenues expenditures nexus panel data evidence from swedish municipalities this paper examines the dynamic relationship between local government revenues and expenditures in sweden results from a panel of 265 municipalities covered over the time period 1974 87 show that i expenditures cause revenues while revenues do not cause expenditures ii intergovernmental grants both cause and are caused by expenditures and revenues iii lags of four years are needed to describe the dynamics among the fiscal variables and iv the parameters of the expenditures equation are time varying these results cast doubt on static modeling of local government activities and on models imposing time invariant parameters without ever testing for it

synthetic or real the equilibrium effects of credit default swaps on bond markets we provide a model of nonredundant credit default swaps cdss building on the observation that cdss have lower trading costs than bonds cds introduction involves a trade off it crowds out existing demand for the bond but improves the bond allocation by allowing long term investors to become levered basis traders and absorb more of the bond supply we characterize conditions under which cds introduction raises bond prices the model predicts a negative cds bond basis as well as turnover and price impact patterns that are consistent with empirical evidence we also show that a ban on naked cdss can raise borrowing costs

credit frictions and participation in over the counter markets abstract this paper formalizes a nash bargaining game between two players constrained by capacity decisions made prior to entering the negotiation in equilibrium strategic interactions drive capacity choices to zero and shut trade down despite the existence of gains from trade the game is embedded in a general equilibrium model of decentralized asset trade with credit frictions to investigate the interaction between availability of credit and investors participation modeled through their choices of inventory and payment capacity partial access to credit is sufficient to restore trade the strategic interactions between payment capacity and inventory generate endogenous heterogeneity in holdings trade sizes and prices and complementarity between money and credit

harmonization of commodity taxes destination origin and restricted origin principles abstract the three tax principles are compared using a multiproduct custom union model it is shown that if member countries use the destination or origin principles no distortion or redistribution of income occurs even if their tax rates differ however under the restricted origin principle different tax rates result in distortion and income redistribution equal tax rates still result in a redistribution of real income an exact measurement of this redistribution is derived given these results it seems possible to conclude that the origin principle is superior to the other tax principles

do business cycles affect state appropriations to higher education 1 introduction and motivation business cycles affect higher education in a number of important ways anecdotal evidence from college admissions officers and administrators as well as empirical evidence on the behavior of students and institutions of higher education suggest that enrollment in higher education is countercyclical for example betts and mcfarland 1995 recently showed that enrollments in community colleges are highly responsive to changes in local labor market conditions these authors found a 1 increase in the unemployment rate among all adults associated with a 4 increase in enrollment at community colleges in a large panel of community colleges across the united states leslie and ramey 1986 found a similar relationship between economic conditions and enrollment using data aggregated to the regional level this paper examines the relationship between state appropriations to higher education and state specific measures of business cycle conditions in order to better understand the effects of the business cycle on government funding of higher education 1 i further investigate the relationship between the business cycle and state government appropriations to higher education reported by betts and mcfarland 1995 and leslie and ramey 1986 both of these studies aggregated state and local government appropriations to higher education to the regional and national level while data aggregated to the regional and national levels are readily available decisions about government funding to higher education are made at the state and local levels and these decisions may be affected more by local economic conditions than by aggregate economic conditions if the timing of turning points in the business cycle varies across states then aggregating government appropriations data across states may obscure important statespecific phenomena most research has focused on the effects of economic conditions on demand for higher education one notable exception is leslie and ramey 1986 who examined the relationship between enrollment business cycles and state appropriations to higher education using regional appropriations and enrollment data and a national measure of business cycle conditions that study found a procyclical relationship between the nber coincident index and regional level government appropriations to higher education for one region the estimated elasticity of appropriations with respect to changes in the coincident index was three suggesting that a 1 change in the nber coincident index was associated with a 3 change in appropriations to higher education in that region this study also highlighted the complex relationship between state funding for higher education enrollment and business cycle conditions by documenting a statistically significant relationship between enrollment and state appropriations at the regional level although they found that the appropriations enrollment relationship weakened after 1977 betts and mcfarland 1995 also describe in an informal way using aggregate data a procyclical relationship between the business cycle and funding for higher education these authors report that aggregate state and local government appropriations to higher education fell in the years 1971 1975 1980 1982 as well as in several years in the early 1990s all of these years are either coincident with or immediately following years when the nber dating committee has identified a cyclical downturn in the economy the transmission mechanism linking business cycles and government appropriations to higher education during recessionary periods seems clear recessions reduce tax revenues state and local governments most of which operate under legally required balanced budget restrictions reduce appropriations to institutions of higher education as well as other types of expenditures in order to balance their budgets betts and mcfarland point out that these cyclical patterns of government support for higher education may place tremendous financial pressure on institutions of higher education during economic downturns because the cuts in government funding happen at the same time enrollments are increasing

equilibrium pricing and trading volume under preference uncertainty information collection processing and dissemination financial institutions is challenging this can delay the observation by traders of the exact capital charges and constraints of their institution during this delay traders face preference uncertainty in this context we study optimal trading strategies and equilibrium prices in a continuous centralized market we focus on liquidity shocks during which preference uncertainty is likely to matter most preference uncertainty generates allocative ineficiency but need not reduce prices traders progressively learning about the preferences of their institution conduct round trip trades which generate excess volume relative to the frictionless market in a cross section of liquidity shocks the initial price drop is positively correlated with total trading volume across traders the number of round trips is negatively correlated with trading profits and average inventory

entry and exit in otc derivatives markets we develop a parsimonious model to study the equilibrium and socially optimal decisions of banks to enter trade in and possibly exit an otc market although we endow all banks with the same trading technology banks optimal entry and trading decisions endogenously lead to a realistic market structure composed of dealers and customers with distinct trading patterns we decompose banks entry incentives into incentives to hedge risk and incentives to make intermediation profits we show that dealer banks enter more than is socially optimal in the face of large negative shocks they may also exit more than is socially optimal when markets are not perfectly resilient

the revenues expenditures nexus evidence from local government data this paper examines the intertemporal linkages between local government expenditures and revenues the main results that emerge from an analysis of fiscal data from 171 municipal governments over the period 1972 80 are that 1 one or two years are sufficient to summarize the relevant dynamic interrelationships 2 there are important intertemporal linkages between expenditures taxes and grants and 3 past revenues help predict current expenditures but past expenditures do not alter the future path of revenues this last finding is contrary to results that have emerged from previous analyses of federal fiscal data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

causality and comovement between taxes and expenditures historical evidence from argentina brazil and mexico abstract this paper presents empirical tests for stationarity of fiscal deficits for three latin america countries it also examines the causality patterns between government expenditures and government revenues long historical series covering most of the 20th century for argentina brazil and mexico are used the findings suggest that deficits were stationary in argentina and mexico but not in brazil

efficiency and stability of a financial architecture with too interconnected to fail institutions abstract the regulation of large interconnected financial institutions has become a key policy issue to improve financial stability regulators have proposed limiting banks size and interconnectedness i estimate a network based model of the over the counter interbank lending market in the us and quantify the efficiency stability implications of this policy trading efficiency decreases with limits on interconnectedness because the intermediation chains become longer while restricting the interconnectedness of banks improves stability the effect is non monotonic stability also improves with higher liquidity requirements when banks have access to liquidity during the crisis and when failed banks depositors maintain confidence in the banking system

credit default swaps and the credit crisis many observers have argued that credit default swaps contributed significantly to the credit crisis of particular concern to these observers are that credit default swaps trade in the largely unregulated over the counter market as bilateral contracts involving counterparty risk and that they facilitate speculation involving negative views of a firm s financial strength some observers have suggested that credit default swaps would not have made the crisis worse had they traded on exchanges i conclude that credit default swaps did not cause the dramatic events of the credit crisis that the over the counter credit default swaps market worked well during much of the crisis and that exchange trading has both advantages and costs compared to over the counter trading though i argue that eliminating over the counter trading of credit default swaps could reduce social welfare i also recognize that much research is needed to understand better and to quantify the social gains and costs of derivatives in general and credit default swaps in particular

an examination of the dynamic behaviour of local governments using gmm bootstrapping methods an examination of the dynamic behavior of local governments using gmm bootstrapping methods

competitive and responsible the relationship between corporate social and financial performance in the energy sector abstract our key research objective in this study is to examine whether investments in corporate social responsibility csr have an effect on corporate financial performance cfp or vice versa the context is the energy industry in which sustainability issues are of vital importance our data set is compiled from the kld database and thomson one we use panel data on energy sector companies covering the years 1991 and 2009 in order to assess granger causality between csr strengths concerns and cfp we consider strengths and concerns separately and use both accounting and market based measures of cfp our findings indicate differing impacts on financial performance csr concerns granger cause both profitability and market value whereas csr strengths seem only to granger cause market value these effects appear after different delays furthermore as cfp does not seem to granger cause csp in most of the model specifications our results do not support bidirectional causality between csp and cfp

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

frictional intermediation in over the counter markets we extend duffie et al s 2005 search theoretic model of over the counter otc asset markets allowing for a decentralized inter dealer market with arbitrary heterogeneity in dealers valuations or equivalently inventory costs we develop a solution technique that makes the model fully tractable and allows us to derive in closed form theoretical formulas for key statistics analysed in empirical studies of the intermediation process in otc markets a calibration to the market for municipal bonds allows us to quantify important unobservable characteristics of this market including the severity of search and bargaining frictions and the nature of heterogeneity across dealers we use our calibrated model to study the effect of these market characteristics on total welfare and the distribution of gains from trade across customers and dealers

welfare effects of commodity tax harmonisation abstract the european commission is currently seeking a rapid accelaration of the process of commodity tax harmonisation within the european community substantial changes in domestic tax structures are envisaged yet the welfare theoretic basis of the policy has remained obscure this note goes some way towards suggesting a welfare argument for harmonisation as a collective response to tax induced trade distortions intentional or otherwise it is shown that a programme of multilateral domestic tax reform involving convergence towards an appropriately weighted average of pre existing tax structures a kind of harmonisation is potentially pareto improving

the dynamics of municipal fiscal adjustment abstract the dynamic fiscal policy adjustment of local jurisdictions is investigated empirically using a panel of more than 1000 u s municipalities over a quarter of a century distinguishing own source revenue grants expenditures and debt service the analysis is carried out using a vector error correction model which takes account of the intertemporal budget constraint the results indicate that a large part of the adjustment in response to fiscal imbalances takes place by offsetting changes in future expenditures in addition the results show that fiscal imbalances are financed to a significant extent by subsequent changes in grants decomposition of the sample according to average city population reveals that the basic pattern of fiscal adjustment is robust although intergovernmental grants play a much more pronounced role in maintaining budget balance for large cities

births deaths nexus of firms estimating var with panel data this paper investigates dynamic interrelationships between the births and deaths of firms at the level of the 88 finnish subregions during 1989 1993 the births deaths nexus of firms is analysed using vector autoregressions var and an instrumental variable estimator the main findings are first that the firm births equation has a two year lag structure which means that firm deaths cause firm births and firm births cause subsequent births following two year lags and second that according to the firm deaths equation which has a one year lag structure firm births do not cause firm deaths but firm deaths cause subsequent deaths a further finding is that the use of the ordinary least squares estimator produces inconsistent and clearly different results from those produced by the instrumental variable estimator