trade openness tax reform and tax revenue in developing countries this article investigates empirically whether the effect of tax reform involving the progressive replacement of trade tax revenue with domestic tax revenue in developing countries tax revenue performance measured by tax revenue to gdp ratio depends on the degree of trade openness of these countries the analysis has used an unbalanced panel data set of 95 developing countries over the period 1981 2015 and the two system gmm approach results suggest that tax reform is positively and significantly associated with tax revenue performance in developing countries with the magnitude of this positive effect increasing as countries experience a higher development level additionally and more importantly countries that further open up their economies to international trade enjoy a higher positive effect of tax reform on tax revenue than countries that experience a lower degree of trade openness therefore these findings should help dissipate the concerns of policymakers in developing countries that greater openness to international trade would further erode their tax revenue including by lowering their international trade tax revenue in fact the implementation of an appropriate tax reform in the context of greater trade openness would generate higher tax revenue while concurrently allowing countries to reap the well known benefits of international trade

wto membership and the shift to consumption taxes abstract this paper explores tax policy effects and revenue implications of joining the world trade organization wto and its predecessor the general agreement on tariffs and trade gatt it documents that countries joining gatt wto after 1990 have implemented tariff cum tax reforms lowering tariff rates and raising consumption tax rates in particular through reform or introduction of a value added tax vat employing a panel of 97 developing and transitional countries 31 of which joined gatt wto between 1990 and 2011 using robust difference in difference specifications as well as the synthetic control method we find a statistically and economically significant decline in revenues from import duties this finding supports concerns about revenue losses but also corroborates the efficacy of the late uruguay gatt and the wto trade regimes in promoting free trade among new members regarding consumption taxes we find robust evidence that revenue substitution was successful since revenue losses from import duties were more than compensated for by enhanced revenues from consumption taxes with regard to the timing of the revenue effects our results show that revenue losses in import duties mostly take place at the time of membership or later changes in consumption taxation however exhibit pre membership effects as revenues are increased and vat is adopted often a few years ahead of losses in import duties no such effects are found before the start of the accession negotiations indicating that consumption tax reforms are initiated once a country is on the road to gatt wto membership

tax collection with agency costs private contracting or government bureaucrats historically governments contracted with private agents known as tax farmers to collect taxes this paper develops a theoretical framework for determining when a welfare maximizing government should choose tax farmers over bureaucratic tax collectors while bureaucratic collectors have an incentive to shirk and raise collection costs above least costs profit maximizing private collectors tend to reduce tax evasion below the optimal level generally the choice of collection methods depends on a comparison of the welfare loss associated with monitoring in the bureaucratic setting and the welfare loss associated with overdetection of evasion in the private setting copyright 1992 by the london school of economics and political science

credit supply and the housing boom an increase in credit supply driven by looser lending constraints in the mortgage market is the key force behind four empirical features of the housing boom before the great recession the unpreced

did dubious mortgage origination practices distort house prices zip codes with high concentrations of originators who misreported mortgage information experienced a 75 larger relative increase in house prices from 2003 to 2006 and a 90 larger relative decrease from 2007 to 2012 compared with other zip codes several causality tests show that high fractions of dubious originators in a zip code lead to large price distortions originators with high misreporting gave credit to borrowers with high ex ante risk yet further understated the borrowers true risk overall excess credit facilitated through dubious origination practices explain much of the regional variation in house prices over a decade

marginal commodity tax reforms a survey as noted 30 years ago by martin feldstein optimal taxes may be useless for practical purposes and emphasis should instead be placed on the possibility of enhancing welfare by reforming existing tax rates in this perspective marginal commodity tax reforms are gaining increasing attention due to political and economic constraints on large reforms of direct or indirect taxation in this paper we summarize the main features and results of the literature on marginal commodity tax reforms pioneered by ahmad and stern further developed by yitzhaki and thirsk and recently reinterpreted by makdissi and wodon we establish new links to other fields of research namely the literature on the use of equivalence scales and on poverty measurement we also critically examine some issues associated with the implementation of marginal tax reforms with special reference to the calculation of welfare weights and revenue effects finally we suggest directions for future research on poverty reducing commodity tax reforms

preference erosion government revenues and non tariff trade barriers developing countries benefiting from developed country unilateral trade preferences fear that doha round tariff cuts will erode the value of those preferences that these programmes confer significant benefits however is not clear studies indicate that the impact of preference erosion would be minimal for most developing countries but for a small subset of middle income and least developed countries concern may be warranted wto members should address affected countries concerns perhaps by tailoring wto tariff negotiations to lessen adjustment pressures and providing development assistance developing countries also are anxious that lower tariffs will reduce government revenues dependence on tariff revenue is diminishing and trade liberalisation need not result in lower total tax revenues or even lower customs revenues much depends on a country s current tariff and trade regime its tax structure and its overall economic structure at some point a country does need to broaden its tax base and look to other revenue sources to offset declining tariff revenues tax reform therefore complements trade reform a third area of developing country concern is non tariff barriers ntbs which may limit market access even after tariffs are reduced despite prior wto work in this area ntbs remain a thorny issue for all wto members

growth and defense pooled estimates for the nato alliance 1951 1988 in two provocative and influential contributions emile benoit 4 5 uncovered a net positive association between defense spending and economic growth for 44 less developed countries ldcs during the 1950 65 period apparently a larger defense burden as measured by the share of national income devoted to defense may have promoted growth for these countries this finding was controversial and generated an extensive literature that either found fault with benoit s methodology or else investigated the relationship between growth and defense with alternative methodologies one such methodology relied on an aggregate production function to derive an equation for the sources of growth owing to technological change labor growth investment productivity differences among sectors and externalities this supply side approach was associated with feder 13 and ram 22 when a feder ram model was used researchers typically discovered either a small positive effect or else no impact of defense on growth except for alexander 1 the feder ram approach has been applied to large cross sections of ldcs to cross sections of ldcs and developed countries or to individual countries over time the purpose of this paper is fivefold first we extend the three sector feder ram model to allow for the influence of defense spillin externalities as the defense expenditures of a nation s allies affect the nation s own defense and civilian sectors in either a positive or negative fashion spillin externalities can stem from input complementarity or substitutability procurement practices joint ventures or operational considerations second we check the data for unit roots and when appropriate cointegration these tests help us to avoid a dynamic misspecification third we estimate a three sector feder ram growth equation for each of ten nato allies for the 1951

the effect of large investors on asset quality evidence from subprime mortgage securities abstract fannie mae and freddie mac the gses the dominant investors in subprime mortgage backed securities before the 2008 crisis substantively affected collateral composition in this market mortgages included in securities designed for the gses performed better than those backing other securities in the same deals holding observable risk constant consistent with the transmission of private information these effects are concentrated in low documentation loans and for issuers that were highly dependent on the gses and were corporate affiliates of the mortgage originators additional analysis of yield spreads shows that these performance differences were not reflected in prices

ending food subsidies nutritional welfare and budgetary effects governments faced with growing budget deficits are cutting many social expenditures including costly food subsidy programs that have provided benefits to the rich and poor alike since the poor spend a larger share of their income on food than do the rich these cuts usually have negative distributional welfare and nutritional effects this article discusses the methodological issues in estimating the effects of price and tax reforms in developing countries the author applies a model that deaton developed 1988 to estimate price elasticities from cross section data the only reliable and detailed data available in most developing countries measures of both real income and nutrition are used to evaluate the effects of changes in the moroccan food subsidy program the analysis suggests that subsidies on inferior foods not consumed by the wealthy would reduce the welfare costs to the poor and limit the budgetary expenditures required

tax perceptions and preferences over tax structure in the united kingdom do voters know their tax liabilities accurately or do they systematically misperceive them could such misperceptions influence voters choices over alternative tax structures proposed by politicians this paper assesses the accuracy of individuals tax perceptions in the uk using micro data from the british social attitudes survey 1995 and tests an empirical model of the determinants of tax structure preferences including tax misperceptions a systematic bias towards over estimation of income and expenditure tax vat liabilities is found and individ uals tax preferences appear to be both dominated by self interest and distorted by tax misperceptions whether using a traditional utility maximisation framework or a variety of public choice frameworks economists agree that consumer voters or taxpayer voters dislike taxes taxes lower the consumption possibility set and thereby utility politicians proposing higher taxes expect to lose votes unless they can persuade voters that the utility gain from the use of those taxes will exceed the tax induced utility loss of course the extent of individuals losses will depend on their circumstances and how revenues are raised the tax structure traditional tax incidence and excess burden analyses and models of political costs associated with the tax structure hettich and winer 1984 1988 each provide guidance on the extent to which different individuals may be expected to suffer and vote differently under alternative tax structures much will depend on attitudes towards and perceptions of specific taxes especially personal income taxes and consumption taxes underlying most such analyses are two common presumptions i tax preferences are dictated by self interest and ii individuals accurately assess their tax liabilities and so make informed choices two largely independent areas of literature have challenged these assumptions first models incorporating altruism

wall street and the housing bubble we analyze whether mid level managers in securitized finance were aware of the housing bubble and a looming crisis in 2004 2006 using their personal home transaction data we find little evidence of them timing the bubble or exercising cautious behavior in purchasing homes relative to two uninformed control groups one composed of non housing equity analysts and the other of non real estate lawyers to the extent that the practice of securitization may have led to lax screening of subprime borrowers the average person in our sample did not expect it to lead to problems in the wider housing market our findings suggest the need to expand the incentives based view of the crisis to incorporate a role for distorted beliefs

a theory of disclosure in speculative markets this paper presents a theory of disclosure in a market where investors have heterogeneous beliefs and face short sale constraints assets trade above fundamentals reflecting the value of the option to sell to more optimistic investors in the future the initial seller has an incentive to commit to an imprecise disclosure policy despite the negative effect this has on the fundamental value of the asset in order to increase the potential for disagreement and hence the magnitude of the speculative premium i show that there is a strategic complementarity between sellers in their disclosure decisions this explains why financial misreporting and episodes of speculation occur together in waves and demonstrates that the endogenous choice of imprecise disclosure amplifies the extent to which assets are overpriced this paper was accepted by amit seru finance

political regimes and the extractive capacity of governments taxation in democracies and dictatorships recent political and economic transformations in latin america africa asia and eastern europe have brought about a renewed interest in the incentives and capabilities of different types of political regimes to implement policies that are deemed necessary for economic development in particular policies aimed at increasing tax revenue one central question is whether democracies can collect as much in taxes as dictatorships this article addresses this question by examining whether regime type classified as democracy or dictatorship has a causal impact on a government s capacity to mobilize resources through taxation on the basis of data gathered for 108 countries for the period between 1970 and 1990 the article concludes that observed differences across countries regarding the level of taxes collected by the government are not due to the fact that some are under a democracy and others under a dictatorship concerns about the inability of democratic regimes to collect taxes are therefore unfounded

tax expenditures and other programs to stimulate housing do we need more abstract discussions to aid the housing industry raise several questions first does stimulation of housing demand require new direct subsidy programs and second are any programs to increase demand worth their costs to society the results in this paper indicate that the answer to both questions is no the existing subsidy to homeownership in the tax code is when combined with mortgage instruments that offset cash flow problems fully capable of generating large increases in demand at the cost of significant tax expenditures and the social benefits of increased housing demand are shown to be worth only about 60 of their costs consequently increasing housing demand can be readily achieved but doing so will be costly to the government and inefficient for society

lender screening and the role of securitization evidence from prime and subprime mortgage markets this article examines the link between mortgage securitization and lender screening during the boom and bust of the u s housing market using comprehensive data on both prime and subprime securitized and bank held loans we provide evidence that securitization affected lenders screening decisions in the subprime market for low documentation loans through two channels the securitization rate and the time it takes to securitize a loan the change in decision making by subprime lenders occurs on dimensions that are unreported to investors examining the time series evolution of the securitization market further reinforces these findings we exploit heterogeneity across subprime and prime markets to illustrate that the potential for moral hazard may be reduced with greater collection of hard information and increased monitoring of lenders our results suggest that the policy debate regarding securitization and lenders underwriting standards should separately evaluate the agency and non agency markets with special attention toward the extent of soft information in assets being securitized the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

the theory of taxation for developing countries tax policy has far reaching implications for economic development and public administration this book which presents a modern theory of public finance brings together many of the most distinguished economists who have written on the subject they provide coherent principles for tax design and a systematic framework for the analysis of practical questions of tax reform and pricing policy in developing countries the book is especially timely as countries experience increasing shortages of government revenue and the distortions brought about by poorly designed tax systems it pays particular attention to the special problems of developing countries such as the taxation of agriculture the aim throughout is to develop techniques that can be quantitatively applied given the data available and empirical case studies illustrate the methods in action the authors analyze the links between tax theory social cost benefit analysis and the pricing of publicly supplied goods and services they also explore the empirical and econometric problems of identifying the tradeoffs between equity and efficiency other topics treated include the analysis of labor markets the taxation of foreign private investment and of fuel and the pricing of education although the models used concentrate on developing countries most of the methods and discussion apply as well to the problems of more affluent countries

corporate governance of banks a survey this paper reviews the empirical literature on the corporate governance of banks we start by highlighting the main differences between banks and nonfinancial firms and focus on three characteristics that make banks special i regulation ii the capital structure of banks and iii the complexity and opacity of their business and structure next we discuss the characteristics of corporate governance in banks and how they differ from the governance of nonfinancial firms we then review the evidence on three governance mechanisms i boards ii ownership structures and iii executive compensation our review suggests that some of the empirical regularities found in the literature on corporate governance of nonfinancial institutions such as the positive negative association between board independence size and performance do not hold for banks also existing work provides no conclusive results regarding the relationship between different governance mechanisms and various measures for banks performance we discuss potential explanations for these mixed results

the effect of trade openness on women s welfare and work life summary this study of 134 countries analyzes whether women are generally the losers or winners of globalization the results show that economic integration does not directly improve women s life expectancies women s access to primary and secondary education may improve slightly although women s welfare does not seem to improve more than that of men on the other hand economic integration does influence women s professional lives in developing countries trade openness increases female labor force participation in industrialized states it decreases the share of working women trade openness in developed countries increases the number of women employed in the service sector while in developing states it increases the number of women working in industrial jobs and in agriculture

fiscal faux pas an analysis of the revenue implications of trade liberalization abstract this paper examines the argument that trade liberalization depresses tax revenue gdp ratios in developing countries this occurs because the structural characteristics associated with developing countries limit their ability to make the transition from trade to domestic taxes using a panel of 80 developing and industrialized countries over 1970 98 the econometric analysis carried out employs a fixed effects regression framework to examine the evidence the results indicate that low income and upper middle income countries have experienced declining tax revenues as a result of falling income and trade tax revenues and that structural characteristics have been significant in explaining the decline

the combined incidence of taxes and public expenditures in the philippines incidence studies of fiscal policy in developing countries typically examine either the distribution of tax burdens or the incidence of public expenditures but the central issue for policymakers is the combined or net incidence of fiscal activities one reason that combined incidence studies are so rare is that they require detailed data on both taxation and public spending the authors show that the net incidence of fiscal policy in a country with average data the philippines can be estimated using a variety of data sources and tools using simplifying assumptions for 20 years the philippine economy has experienced a series of balance of payments crises triggered by fiscal crises it has had an unsatisfactory record of poverty alleviation the authors examine net fiscal incidence to find out how poverty will be affected by the rise in taxes and the cut in spending they found that 1 the incidence pattern of taxes is basically neutral contrary to expectations indirect taxes are only slightly regressive and 2 it is the pattern of expenditures that drives the combined incidence which is progressive

economic consequences of housing speculation by exploiting variation in state capital gains taxation as an instrument we analyze the economic consequences of housing speculation during the u s housing boom in the 2000s we find that housing speculation anchored in part on extrapolation of past housing price changes led not only to greater price appreciation economic expansions and housing construction during the boom in 2004 2006 but also to more severe economic downturns during the subsequent bust in 2007 2009 our analysis supports supply overhang and local household demand as two key channels for transmitting these adverse effects

rainfall shocks local revenues and intergovernmental transfer in mali summary this paper explores the implications of rainfall shocks for municipal tax revenues and intergovernmental transfers in mali i found that exogenous phenomena such as weather not under the control of local actors could affect the way de facto decentralization plays out by influencing the fiscal capacity of local governments in a panel data of 692 municipalities from 2000 to 2008 i found that rainfall shocks through the fluctuations they induce in agricultural incomes affect revenue collection of local governments and in turn drive further revenues local governments receive through transfer by the central government

the welfare cost of bank capital requirements abstract capital requirements are the cornerstone of modern bank regulation yet little is known about their welfare cost this paper measures this cost and finds that it is surprisingly large i present a simple framework which embeds the role of liquidity creating banks in an otherwise standard general equilibrium growth model a capital requirement limits the moral hazard on the part of banks that arises due to deposit insurance however this capital requirement is also costly because it reduces the ability of banks to create liquidity the key insight is that equilibrium asset returns reveal the strength of households preferences for liquidity and this allows for the derivation of a simple formula for the welfare cost of capital requirements that is a function of observable variables only using us data the welfare cost of current capital adequacy regulation is found to be equivalent to a permanent loss in consumption of between 0 1 and 1

small business loan securitization and interstate risk sharing do credit risk transfers in general and loan sales and securitizations in particular by financial institutions enhance credit availability and financial stability or do they allow assets of poor credit quality to spread to unprotected investors and thus create financial crises and destroy values in this paper we contribute to the continuing debate by examining the effect of small business loan securitizations on interstate personal income insurance using data of u s banks for the period 1995 2008 we find that small business loans securitizations contribute to the smoothening of state personal income volatility and that this contribution is stronger in states where small businesses play a more important role in the local economy

the inefficiency of refinancing why prepayment penalties are good for risky borrowers abstract this paper provides a theoretical analysis of the efficiency of prepayment penalties in a dynamic competitive lending model with risky borrowers and costly default when considering improvements in the borrower s creditworthiness as one of the reasons for refinancing mortgages we show that refinancing penalties can be welfare improving and that they can be particularly beneficial to riskier borrowers in the form of lower mortgage rates reduced defaults and increased availability of credit thus a high concentration of prepayment penalties among the riskiest borrowers can be an outcome of efficient equilibrium in a mortgage market we also provide empirical evidence that is consistent with the key predictions of our model

house price expectations alternative mortgage products and default rapid house price depreciation and rising unemployment were the main drivers of the huge increase in mortgage default during the downturn years of 2007 to 2010 however mortgage default was also partly driven by an increased reliance on alternative mortgage products such as pay option arms and interest only mortgages which allow the borrower to defer principal amortization the goal of this paper is to better understand the forces that spurred use of alternative mortgages during the housing boom and the resulting impact on default patterns relying on a unifying conceptual framework to guide the empirical work the conceptual framework allows borrowers to choose the extent of mortgage backloading the postponement of loan repayment through various mechanisms that constitutes a main feature of alternative mortgages the model shows that when future house price expectations become more favorable reducing default concerns mortgage choices shift toward alternative contracts this prediction is confirmed by empirical evidence showing that an increase in past house price appreciation which captures more favorable expectations for the future raises the market share of alternative mortgages in addition using a proportional hazard default model the paper tests the fundamental presumption that backloaded mortgages are more likely to default finding support for this view the views expressed in this paper are those of the authors and do not necessarily reflect those of the federal reserve bank of philadelphia or the federal reserve system this paper is available free of charge at http www philadelphiafed org research anddata publications working papers

securitization and distressed loan renegotiation evidence from the subprime mortgage crisis abstract we examine whether securitization impacts renegotiation decisions of loan servicers focusing on their decision to foreclose a delinquent loan conditional on a loan becoming seriously delinquent we find a significantly lower foreclosure rate associated with bank held loans when compared to similar securitized loans across various specifications and origination vintages the foreclosure rate of delinquent bank held loans is 3 to 7 lower in absolute terms 13 to 32 in relative terms there is a substantial heterogeneity in these effects with large effects among borrowers with better credit quality and small effects among lower quality borrowers a quasi experiment that exploits a plausibly exogenous variation in securitization status of a delinquent loan confirms these results

capital requirements monetary policy and aggregate bank lending theory and empirical evidence capital requirements linked solely to credit risk are shown to increase equilibrium credit rationing and lower aggregate lending the model predicts that the bank s decision to lend will cause an abnormal runup in the borrower s stock price and that this reaction will be greater the more capital constrained the bank i provide empirical support for this prediction the model explains the recent inability of the federal reserve to stimulate bank lending by increasing the money supply i show that increasing the money supply can either raise or lower lending when capital requirements are linked only to credit risk the motivation of this article is first to examine the impact of risk based capital requirements namely those that link mandatory capital to asset ratios for banks to their loans on aggregate bank lending these requirements called the basle capital rules or bis guidelines went into effect in march 1989 for banks in the leading industrialized nations these rules initially required banks to maintain capital equal to 7 25 percent of business and most consumer loans with the requirement increasing to 8 percent by the end of 1992 secondly i wish to understand the link between monetary policy and aggregate bank credit in the presence of risk based capital requirements my curiosity is sparked in part by two recent phenomena one is the experience of the u s economy which displayed sluggish growth during 1989 93 despite a monetary policy that attempted to spur bank lending and economic activity and the other is the striking decline in loans relative to security holdings mostly government bonds in the asset portfolios of u s

banks and loan sales marketing nonmarketable assets theories of financial intermediation predict that bank loans should not be marketable because of moral hazard problems banks will not conduct credit risk analysis or monitor borrowers if they are not at risk for failing to perform these services throughout most of history bank loans have not in fact been marketable yet by the end of the 1980 s the amount of commercial and industrial loan sales outstanding had grown to over 250 billion from trivial amounts at the beginning of the decade to explain the opening of this loan sales market we present a model of incentive compatible loan sales that allows for implicit contractual features between loan sellers and loan buyers we then test for the presence of these features using a sample of over 800 recent loan sales

directly unproductive profit seeking dup activities this paper propses directly unproductive profit seeking dup activities as a general concept that embraces a wide range of recently analyzed economic activities including the subset of rent seeking activities considered by krueger it then proceeds to provide a synthesis and generalization of the welfare theoretic analysis of such activities by developing a fourfold categorization of cases depending on the levels of distortions before and after the dup activity thus a unification and overview of the subject are achieved

what fuels the boom drives the bust regulation and the mortgage crisis the weakly regulated independent mortgage companies imcs had a vastly disproportional contribution to the expansion in risky credit during the mortgage boom and to the ensuing foreclosure crisis we exploit a quasi experimental setting created by the inconsistency of state lender regulations between banks and imcs and their heterogeneity across states to isolate the impact of regulation on lending standards using county pairs straddling state borders we find that weaker state regulation of imcs is associated with a sharper expansion of imcs particularly in risky high yield loans which were also of worse quality in the weakly regulated states based on subsequent delinquency

bank funding securitization and loan terms evidence from foreign currency lending we examine how bank funding structure and securitization activities affect the currency denomination of business loans we analyze a unique data set that includes information on the requested and granted loan currency for 99 490 loans granted to 57 464 firms by a bulgarian bank our findings document that foreign currency lending is at least partially driven by bank eagerness to match the currency structure of assets with that of liabilities our results also show that loan currency as well as loan amount and maturity are adjusted to make loans eligible for securitization

economic impacts of new unionization on private sector employers 1984 2001 economic impacts of unionization on employers are difficult to estimate in the absence of large representative data on establishments with union status information estimates are also confounded by selection bias because unions could organize at highly profitable enterprises that are more likely to grow and pay higher wages using multiple establishment level data sets that represent establishments that faced organizing drives in the united states during 1984 1999 this paper uses a regression discontinuity design to estimate the impact of unionization on business survival employment output productivity and wages essentially outcomes for employers where unions barely won the election e g by one vote are compared with those where the unions barely lost the analysis finds small impacts on all outcomes that we examine estimates for wages are close to zero the evidence suggests that at least in recent decades the legal mandate that requires the employer to bargain with a certified union has had little economic impact on employers because unions have been somewhat unsuccessful at securing significant wage gains

securitization and moral hazard evidence from credit score cutoff rules abstract a growing literature exploits credit score cutoff rules as a natural experiment to estimate the moral hazard effect of securitization on lender screening however these cutoff rules can be traced to underwriting guidelines for originators not for securitizers moreover loan level data reveal that lenders change their screening at credit score cutoffs in the absence of changes in the probability of securitization credit score cutoff rules thus cannot be used to learn about the moral hazard effect of securitization on underwriting by showing that this evidence has been misinterpreted our analysis should move beliefs away from the conclusion that securitization led to lax screening

from the static to the dynamic some problems in the theory of taxation abstract this paper considers problems and issues that arise when we attempt to extend the static theory of taxation and production planning to a dynamic context and to combine that theory with theories of growth the reasons dynamic theory is less developed include problems with the analytical tractability of even those dynamic models which attempt to retain the basic structure of the static model furthermore difficult and interesting issues arise in a dynamic context which are either not present or are much less severe in the static theory special attention is paid to these new issues and the difficulties they pose

bank valuation and accounting discretion during a financial crisis this paper shows that banks overstate the value of distressed assets and their regulatory capital during the us mortgage crisis real estate related assets are overvalued in banks balance sheets especially those of bigger banks compared to the market value of these assets banks with large exposure to mortgage backed securities also provision less for bad loans furthermore distressed banks use discretion over the classification of mortgage backed securities to inflate their books our results indicate that banks balance sheets offer a distorted view of the financial health of the banks and provide suggestive evidence of regulatory forbearance and noncompliance with accounting rules

financial regulation and securitization evidence from subprime loans we examine the consequences of existing regulations on the quality of mortgage loans originations in the originate to distribute otd market the information asymmetries in the otd market can lead to moral hazard problems on the part of lenders we find using a plausibly exogenous source of variation in the ease of securitization that the quality of loan origination varies inversely with the amount of regulation more regulated lenders originate loans of worse quality we interpret this result as a possible evidence that the fragility of lightly regulated originators capital structure can mitigate moral hazard in addition we find that incentives which require mortgage brokers to have skin in the game and stronger risk management departments inside the bank partially alleviate the moral hazard problem in this setting finally having more lenders inside a mortgage pool is associated with higher quality loans suggesting that sharper relative performance evaluation made possible by more competition among contributing lenders can also mitigate the moral hazard problem to some extent overall our evidence suggests that market forces rather than regulation may have been more effective in mitigating moral hazard in the otd market the findings caution against policies that impose stricter lender regulations which fail to align lenders incentives with the investors of mortgage backed securities

the rise in student loan defaults abstract we examine the rise in student loan defaults in the great recession by linking administrative student loan data at the individual borrower level to student loan borrowers individual tax records a blinder oaxaca style decomposition shows that shifts in the composition of student loan borrowers and the massive collapse in home prices during the great recession can each account for approximately 30 of the rise in student loan defaults falling home prices affect student loan defaults by impairing individuals labor earnings especially for low income jobs by contrast when comparing the default sensitivities of homeowners and renters we find no evidence that falling home prices affect student loan defaults through a home equity based liquidity channel the income based repayment ibr program introduced by the federal government in the wake of the great recession reduced both student loan defaults and their sensitivity to home price fluctuations thus providing student loan borrowers with valuable insurance against negative shocks

credit rationing income exaggeration and adverse selection in the mortgage market we examine the role of borrower concerns about future credit availability in mitigating the effects of adverse selection and income misrepresentation in the mortgage market we show that the majority of additional risk associated with low doc mortgages originated prior to the great recession was due to adverse selection on the part of borrowers who could verify income but chose not to we provide novel evidence that these borrowers were more likely to inflate or exaggerate their income our analysis suggests that recent regulatory changes that have essentially eliminated the low doc loan product would result in credit rationing against self employed borrowers abstract from author

the role of demandable debt in structuring optimal banking arrangements demandable debt finance by banks warrants explanation because it entails costs of bank suspension liquidation and idle reserve holdings an explanation is developed in which demandable debt provides incentive compatible intermediation where the banker has comparative advantage in allocating investment funds but may act against the interests of uninformed depositors demandable debt attracts funds by giving depositors an option to force liquidation its usefulness in transacting follows from information sharing between monitors and nonmonitors copyright 1991 by american economic association

when is fiscal adjustment an illusion fiscal adjustment is an illusion when it lowers the budget deficit or public debt but leaves government net worth unchanged conventional measures of the budget deficit largely show the change in public sector debt ideally the measured deficit would reflect the change in public sector net worth many people consider it impractical to try to measure public sector assets my paper does not discuss what the deficit should measure but instead proposes a positive and testable theory of how governments actually behave when an outside agent forces a reduction in a government s conventional deficit and debt accumulation the government responds by lowering asset accumulation or increasing hidden liabilities since government net worth is unchanged such fiscal adjustment is an illusion using data from countries with world bank and imf fiscal adjustment programmes and case studies of emu countries compliance with the maastricht criteria i confirm my theoretical predictions fiscal adjustment in these countries was at least partly an illusion

are market based measures of global systemic importance of financial institutions useful to regulators and supervisors we analyze whether four market based measures of the global systemic importance of financial institutions offer early warning signals during three financial crises the tests based on the 2007 2008 crisis show that only one measure covar consistently adds predictive power to conventional early warning models however the additional predictive power remains small and it is not normally confirmed for the asian and the 1998 crises we conclude that it is problematic to identify a market based measure of systemic importance that remains valid across crises with different features the same criticism also applies to several conventional proxies of systemic importance of which size is the most consistent performer

maize and the free trade agreement between mexico and the united states setting the price of maize in rural mexico above the world price is inefficient and likely to have negative distributional effects because many subsistence producers and all landless workers are net buyers in fact it screens out the relatively poor rather than the relatively rich the policy objective therefore should be to move toward free trade this would yield large gains in efficiency the free trade agreement provides an ideal opportunity to pursue this objective it will provide freer entrance into the united states for other agricultural products as well as a broad range of manufactured products ensuring secure and sustained access for labor intensive agricultural and manufactured products can help ease the impact on the labor market of a transition away from subsistence maize cultivation

dalton improving tax reform when households differ in ability and needs abstract in a previous paper we suggested a method for identifying tax reforms that adhere to dalton s principle of transfers approving a small enough transfer from rich to poor however even the weak requirement from that method namely prescribing a uni dimensional ordinal ranking of households by how deserving they are of a marginal income transfer is con fining here we extend the approach by formulating a two dimensional criterion for a dalton improving tax reform when there is social approval for transfers when other things are equal from the more able to the less able and from less needy households to more needy ones the possibility of applying this extended criterion in practice and a comparison with other criteria is carried out using the example of u k excise taxes

comment on financial regulation and securitization evidence from subprime loans by benjamin keys tanmoy mukherjee amit seru and vikrant vig

asymmetric information in securitization an empirical assessment abstract asymmetric information in securitization deals is analyzed based on a unique dataset comprising a million mortgages both securitized and not and using a methodology previously applied to insurance data that looks at the correlation between risk transfer and default probability the main finding is that for given observable characteristics securitized mortgages have a lower default probability than non securitized ones we show that this finding is consistent with banks caring about their reputation for not selling lemons

social welfare of alternative controlled price policies recent developments in social welfare analysis provide insights into the selection of price policies in the presen t paper a ces social welfare function and a weighted average of utilitarian and leximin rules are used to identify optimal producer prices in an economy where government is the price setter and agents are risk averse the analysis distinguishes between the interests of commercial producers peasant producers consumers and taxpayers a n application to zimbabwe indicates that a maize producer price in the low medium to medium portion of the historical range would be social ly optimal if egalitarian preferences are moderate this outcome is somewhat insensitive to group weighting schemes and to interpersonal utility correspondences copyright 1993 by mit press

if agricultural land taxation is so efficient why is it so rarely used the land tax enjoys a distinguished pedigree in the theoretical literature on tax efficiency yet it is rarely used as a serious revenue source in rural areas of developing countries this article considers three drawbacks of the land tax relative to taxes on exports or marketed output 1 capitalization effects of the land tax impose a large burden on the current generation 2 land taxation increases the riskiness of net farmer income and 3 administration of the land tax entails costly informational requirements this article demonstrates that only the second and third drawbacks are valid economic arguments against the land tax simulations based on an economic model of farm behavior suggest that farmers may still prefer a land tax to an export tax despite the increased uncertainty of their after tax income administrative costs are therefore the best explanation of the weak link between the theoretical and practical aspects of land taxation

securitization and lending competition we study the eects of securitization on interbank lending competition when banks see private signals of local applicants repayment chances if banks cannot securitize the outcome is e cient they lend to their most creditworthy local applicants with securitization banks lend also to remote applicants with strong observables in order to lessen the lemons problem they face in selling their securities this reliance on observables is ine cient raises the mean default risk and may lead to a deceptive rise in credit scores

tax revenue and or trade liberalization abstract with the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues further trade liberalization may be hindered unless they are able to develop alternative sources of revenue against a background of and to inform heightened theoretical controversy as to the appropriate balance between trade and other taxes not least the vat this paper uses panel data for 117 countries over 32 years cleaned for a variety of problems in standard data sources to address a central question of fact have countries recovered from domestic taxes the revenues they have lost from past episodes of trade liberalization for high income countries the answer is clearly yes for middle income countries there are robust signs of strong replacement both concurrently with the revenue loss and essentially dollar for dollar in the long run signs of significant recovery by low income countries are flimsier however and their experiences appear to have varied widely the picture that emerges for low income countries is thus that replacement has been and become higher than previous studies have suggested but sufficiently incomplete in many cases to give cause for concern

monetary policy and the global housing bubble what caused the housing boom of the 2000s a number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run up in house prices in many countries however using a common statistical approach we find that monetary policy was not the main factor that should not be surprising although low interest rates raise house prices the increase in prices during the mid 2000s was much larger than the historical relationship between the two variables would suggest instead we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices this link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms jane dokko brian m doyle michael t kiley jinill kim shane sherlund jae sim and skander van den heuvel

the front men of wall street the role of cdo collateral managers in the cdo boom and bust i study the incentives of the collateral managers who selected securities for abs cdos securitizations that figured prominently in the financial crisis specialized managers without other businesses that could suffer negative reputational consequences invested in low quality securities underwritten by the cdo s arranger these securities performed significantly worse than observationally similar securities managers investing in these securities were rewarded with additional collateral management assignments diversified managers who did assemble cdos suffered negative reputational consequences during the crisis institutional investors withdrew from their mutual funds overall the results are consistent with a quid pro quo between collateral managers and cdo underwriters this article is protected by copyright all rights reserved

loan sales and relationship banking firms raise money from banks and the bond market banks sell loans in a secondary market to recycle their funds or to trade on private information liquidity in the loan market depends on the relative likelihood of each motive for trade and affects firms optimal financial structure the endogenous degree of liquidity is not always socially optimal there is excessive trade in highly rated names and insufficient liquidity in riskier bonds we provide testable implications for prices and quantities in primary and secondary loan markets and bond markets further we posit that risk based capital requirements may be socially desirable the term collateralized loan obligations clos was coined in 1989 when corporate loans were first used as collateral in collateralized debt obligations cdos 1 since then the growth in loan sales has been enormous according to lucas et al 2006 1 1 trillion of cdos were outstanding as of 2005 and 50 of their collateral was comprised of loans in addition to pooled securities banks also trade first loss positions on single names through direct sales of individual loans in the united states loan sales have grown from 8 billion in 1991 to 154 8 billion by 2004 2 if a bank securitizes or sells a loan that it originated it is buying insurance on credit events over which it has either more control or more information than the buyer in the face of this informational friction why did the secondary market for corporate loans develop in the 1990s what effect has this had on relationship banking in this paper we characterize when a liquid secondary market for loans arises when a liquid secondary loan market is socially desirable and we provide testable predictions on the effect of the emergence of this market on prices and quantities in bond and primary loan markets our predictions are based on both changes in the parameters that lead to higher loan liquidity and changes in the contracts that are written between banks and firms given this higher liquidity

optimal taxation and optimal tax systems the theory of optimal taxation has for the pas two decades been the reigning normative approach of taxation this paper argues that in its current state optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy it is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist the coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy the paper first presents the three cornerstone propositions of optimal tax theory and then it discusses the influence of these propositions on recent tax policy developments it concludes by sketching an alternative to optimal taxation called the theory of optimal tax systems which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology the optimal tax systems perspective is shown to shed light on the choice of tax instruments the problem of tax evasion and the appropriate tax treatment of capital income this abstract was borrowed from another version of this item

optimal trade taxes on agriculture in developing countries subsistence foodcrops and incomes are hard to tax in developing countries it is easy and common to tax agricultural imports and exports if domestic transactions cannot be taxed how should agricultural trade taxes be set and how should indirect taxes on nonagricultural consumer goods be set this paper derives and quantifies formulas for the optimal export tax on a nonfood agricultural product ghanaian cocoa in which the country has market power and the level of indirect taxes on taxable consumer goods it asks whether starting from free trade on cereals there should be import tariffs or subsidies copyright 1990 by royal economic society

does inflation affect real behavior the case of housing an important tradition in economics is to assume that demand depends upon relative prices and is homogenous of degree zero for the most part this has been interpreted as meaning inflation changes in the price level leaves demand unchanged recent work by a number of economists has challenged this position for the case of housing demand two arguments have been made that inflation acting in concert with existing institutions alters the quantity of housing demanded and the decision to rent or own a house the first argument states that inflation and the standard fixed payment mortgage combine to reduce the size of the mortgage loan a household can obtain for the purpose of buying a home this works to reduce the quantity of owner occupied housing demanded given the importance of mortgage finance to the demand for owner occupied housing the second argument focuses on the inflation adjusted after tax cost of owner occupied housing it simply states that an increase in the rate of anticipated inflation of the general price level reduces the after tax cost of housing thus increasing the demand for housing and the demand for homeownership there has been little empirical testing of these two arguments the purpose of this paper is to formulate and estimate a model which will give an indication of the quantitative significance of the two arguments a housing demand equation and a tenure choice equation own versus rent are estimated using a sample of about 6000 households from the 1975 annual housing survey 10 the estimates suggest that inflation dampens housing demand and homeownership opportunity for most households even though the inflation adjusted after tax cost of owner occupied housing declines as inflation heats up the paper consists of six sections including the introduction section two examines the ways inflation affects housing choices in more detail the third section contains the specification of the econometric model that forms the basis of the study section four is a discussion of econometric problems and the data used the results of the estimates are discussed in the fifth section the paper concludes with a presentation of the major conclusions and policy implications of the study

alternative mortgage instruments the tilt problem and consumer welfare mortgage instrument in the united states for the last 50 years and for much of this period it has performed well however during periods of high and volatile rates of inflation the sfpm suffers from severe weaknesses 1 foremost among these problems from the standpoint of the borrower is the tilt in the stream of real mortgage payments toward the initial years of the mortgage for consumers unconstrained by capital market imperfections this tilt is unimportant however a consumer is typically unable to borrow against expected higher future income or against the nominal capital gains that accrue to the owner of a house over the life of the mortgage in addition common practices of mortgage lenders often limit mortgage payments to some fraction of income at the time of purchase together these liquidity constraints create a mismatch between the time se quence of mortgage payments and income a mismatch that reduces the number of borrowers who qualify for financing and that limits the value of the house purchased by those who do obtain financing 2 in an attempt to reduce the problems created by this mismatch a variety of alternative mortgage instruments amis has been suggested three of the most important are the graduated payment mortgage gpm the shared appreciation mortgage sam and the price level adjusted mortgage plam 3 with the gpm mortgage payments rise at some specified rate during a portion of the mortgage life the sam enables the lender to share in the appreciation of the university of colorado boulder and syracuse university respectively this paper was writ ten while the first author was at syracuse university funding for the research was shared by the office of the comptroller of the currency the federal horne loan bank board and the department of housing and urban development mary anne beeman served as research assistant and the manu

short term safety or long term failure empirical evidence of the impact of securitization on bank risk based on a sample of u s commercial banks from 2002 to 2012 this paper shows that bank loan securitization has a significant and positive impact on both z scores and the likelihood of bank failure indicating a short term risk reduction and a long term risk increase effect we also find disparate impacts between mortgage and non mortgage securitization loan sale activities are found to have a similar impact to securitization

agricultural policies in the presence of distorting taxes this article analyzes how distortionary factor taxes affect the welfare impacts of production subsidies production quotas acreage controls subsidies for acreage reductions and cash transfers to farmers pre existing taxes substantially raise the costs of all these policies these additional costs reflect the welfare losses from financing certain policies by distortionary taxes they also reflect interactions with factor markets caused by changes in the costs of producing agricultural output previous studies ignore the latter types of effect consequently they significantly overstate the costs of production subsidies and understate the costs of production quotas acreage controls and subsidies for acreage reductions

securitization of mortgage debt domestic lending and international risk sharing securitization makes mortgage related risks internationally tradeable and thus contributes considerably to the international diversification of macroeconomic risk in the years 2003 2008 the increase in international cross holdings of securitized mortgage debt has lowered industrialized countries conditional consumption volatility relative to the united states by about 10 15 percentage points we turn to the role of domestic credit in explaining this result domestic credit leads to better international risk sharing only if debt is securitized and traded internationally conversely the risk sharing benefits from securitization seem to evaporate if credit dries up as it did in the recent financial crisis la titrisation fait que les risques attaches aux hypotheques peuvent etre transiges internationalement voila qui contribue de maniere significative a la diversification internationale des risques macroeconomiques dans les annees 2003 2008 l accroissement dans la dette hypothecaire titrisee detenue dans d autres pays a reduit la volatilite de la consommation relative par rapport aux etats unis des pays industrialises de 10 15 points de pourcentage on examine le role du credit domestique dans l explication de ce resultat on montre que le credit domestique entraine un meilleur partage international du risque seulement si la dette est titrisee et negociee internationalement a contrario les avantages de la titrisation semblent s evaporer si le credit s asseche comme ce fut le cas dans la recente crise financiere

real and nominal interest rates and the demand for housing abstract this paper is an empirical study of the relationship between inflation expectations and the demand for housing the major findings are that housing demand is a function of both expected inflation and the real interest rate but that demand cannot be specified as a function of the nominal rate it is also shown that expected inflation has a larger impact on those households that are likely to be constrained by capital market imperfections

introduction tax policy issues for the 1990s in recent years in the wake of fiscal crisis developing countries have increasingly begun to restructure their tax systems to seek higher revenues or to improve the revenue elasticity and buoyancy of the tax structure chhibber and khalilzadeh shirazi 1988 these reform movements have also aimed to eliminate the disincentive effects of onerous levels of taxation to reduce the economic inefficiencies induced by the distortionary taxation of assets and sectors to protect the poorest of the poor from the tax net and to provide partial relief from the unwelcome effects of inflation this introduction to the following articles on tax policy first gives an overview of tax reform in developing countries it then distills lessons for tax reform from past developing country experiences and reviews selected issues that are expected to dominate tax policy research and discussions in the 1990s the five other articles in this symposium provide an in depth review of applications of tax policy models in developing countries and analysis of tax policy toward foreign direct investment taxation of agricultural land and financial assets and the redistributive impacts of various taxes

fraudulent income overstatement on mortgage applications during the credit expansion of 2002 to 2005 treating fraudulently overstated income on mortgage applications as true income can lead to incorrect conclusions on the nature of the mortgage credit supply expansion toward marginal borrowers from 2002 to 2005 a positive gap between zip code level income growth calculated from mortgage applications and income growth from the irs likely reflects mortgage fraud not an improvement in home buyer income in support of the credit supply view mortgage credit for home purchase expanded significantly more in low credit score neighborhoods on both the extensive and intensive margins from 2002 to 2005 even though these neighborhoods deteriorated on many measures of income prospects

the incidence of agricultural policies abstract a general equilibrium model is used to analyze agricultural policy incidence in the presence of distortionary income taxation the incidence of lump sum transfers to farmers supply control through input retirement and production subsidies are considered partial equilibrium incidence calculations are shown to systematically overstate the benefits farmers receive from farm programs kaldor s compensation test is used to judge the relative efficiency inefficiency of alternative farm programs at the margin supply control through input retirement may dominate decoupled lump sum transfers if the tax system is very inefficient and subsidy payments are high

land taxes output taxes and sharecropping was henry george right economists have generally argued that if a land tax is administratively feasible then to increase efficiency it should be used to the exclusion of output taxes this article shows that underlying this policy prescription is the assumption that institutions for pooling and spreading production risks are perfect when account is taken of the imperfections in those institutions some use of output taxes will be pareto superior to a pure land tax regime and may induce higher output as well henry george was wrong these results generally apply even when the land tax is indexed to regional output and when land is farmed under sharecropping even in these cases a move from a pure land tax to a mix of land and low output taxes will reduce pre existing distortions in both consumption and production arising from the imperfection in risk markets

mortgage modification and strategic behavior evidence from a legal settlement with countrywide abstract we investigate whether homeowners respond strategically to news of mortgage modification programs we exploit plausibly exogenous variation in modification policy induced by settlement of us state government lawsuits against countrywide financial corporation which agreed to offer modifications to seriously delinquent borrowers using a difference in differences framework we find that countrywide s monthly delinquency rate increased more than 0 54 percentage points a 10 percent relative increase immediately after the settlement s announcement the estimated increase in default rates is largest among borrowers least likely to default otherwise these results suggest that strategic behavior should be an important consideration in designing mortgage modification programs jel d14 g21 k22 r31

the failure of models that predict failure distance incentives and defaults statistical default models widely used to assess default risk fail to account for a change in the relations between different variables resulting from an underlying change in agent behavior we demonstrate this phenomenon using data on securitized subprime mortgages issued in the period 1997 2006 as the level of securitization increases lenders have an incentive to originate loans that rate high based on characteristics that are reported to investors even if other unreported variables imply a lower borrower quality consistent with this behavior we find that over time lenders set interest rates only on the basis of variables that are reported to investors ignoring other credit relevant information as a result among borrowers with similar reported characteristics over time the set that receives loans becomes worse along the unreported information dimension this change in lender behavior alters the data generating process by transforming the mapping from observables to loan defaults to illustrate this effect we show that the interest rate on a loan becomes a worse predictor of default as securitization increases moreover a statistical default model estimated in a low securitization period breaks down in a high securitization period in a systematic manner it underpredicts defaults among borrowers for whom soft information is more valuable regulations that rely on such models to assess default risk could therefore be undermined by the actions of market participants