a uk carbon energy tax a carbon energy tax has been proposed by the european commission to start as us 3 per barrel oil equivalent in 1993 rising to us 10 in 2000 the effects of this tax on the uk economy can be assessed by using a large scale energy environment economy model in which energy demand is treated by means of aggregate equations for energy users and fuel share equations for electricity and each of the main fossil fuels the electricity supply industry is represented in the model by simulating the characteristics of each existing generating station and of a range of new station types and by allowing the model to choose the fuels used from relative fuel prices and prices of capital inputs this approach contrasts with the multimodel approach used in most studies of the effects of the tax the tax is introduced as a tax on imports and domestic output of fossil fuels in proportion to their carbon and energy content with the tax being passed on through the economic system depending on the use of the fuels thus the electricity industry is faced with higher prices for coal gas and fuel oil and chooses to burn the different fuels according to their relative prices four scenarios are developed which vary according to the way the tax revenues are recycled through reductions in vat or in income tax rates and whether the tax is introduced throughout the european community or throughout the oecd if the tax is european it is assumed that the energy intensive industries will be exempt the outcome is that the tax is sufficient to stabilize co2 emissions over the period 1990 2005 at 12 below base levels by the end of the period there is an overall saving of energy compared to base and a further switch to gas in electricity generation the effects on the macroeconomy are rather small and as the revenues are recycled rather than saved by the government gdp growth is likely to increase under the tax by some 0 2 above base this confirms other studies in which revenues are recycled but contradicts many results from studies in which revenue recycling is ignored or incomplete the effects on the energy intensive industries are expected to be small in all the scenarios but 14 of tax revenues are lost if the industries are exempt

the hidden transformation the changing role of the state after the collapse of communism in central and eastern europe this article reviews the state s role in the transition economies of central and eastern europe among the countries poland is perceived as the leader because it was the first economy to emerge from the decline following the transition as well the only eu member state to survive the crisis without a recession this success is often attributed to the high quality of government however we show that this popular perception is false and that state malfunctions on numerous fronts may soon impede polish growth prospects in poland the only bright spot is the quality of the financial supervision which should serve as a role model for other countries we attribute the malfunctions to the eu accession period that resulted in an unchecked growth of the government and contributed to the weakening of political and legal institutions copyright 2011 oxford university press

on a tight leash does bank organizational structure matter for macroprudential spillovers abstract this paper examines whether the organizational form of multinational banks foreign affiliates affects cross border spillovers of macroprudential regulation we compare changes in the growth of lending provided by foreign banks branches versus subsidiaries in the united kingdom in response to changes in capital requirements lending standards and reserve requirements in foreign banks home countries our results suggest that a tightening of capital requirements at home reduces uk branches interbank lending growth by 5 7 pp more relative to subsidiaries we link this effect to the higher degree of control which parent banks hold over operations of their foreign branches compared to subsidiaries supporting this hypothesis a set of further tests illustrates that the response of foreign affiliates operating under a branch structure is stronger where parent banks are more likely to delegate more decision making authority to the board of directors of their subsidiaries

european banking bailout bail in and state aid control abstract more than 5 years after the fall of lehman brothers and at a time where the banking union will start with a balance sheet assessment several regulatory initiatives are trying to make bailouts harder and push forward bail in as an alternative this article discusses the pros and cons of these initiatives and stresses in particular looking at various cases of banking crises that financial instability can be much more costly than bailouts it therefore pleads for i not ruling out prefunded bailouts as an alternative complement to bail in especially to deal with negative macroeconomic shocks ii making sure markets will understand that the risk of bail in is concentrated on long term bank liabilities

environmental investment and policy with distortionary taxes and endogenous growth abstract recent studies consider public r d spending that affects abatement knowledge and endogenous growth distortionary taxes that affect capital formation pollution taxes that affect environmental degradation and regeneration that restores natural capital our model combines all those elements the combination affects prior results focusing on two parameters the need for distorting taxes and productivity of abatement knowledge relative to pollution first these two extensions can reverse prior findings that pollution tax revenue is always enough to pay for public r d second tax distortions and externalities alter prior findings that the ratio of public to private capital depends only on output elasticities third dynamics affect prior static findings about other public spending crowding out environmental public goods fourth a greater need for public spending can lead to greater increases in distorting taxes or pollution taxes fifth greater environmental regulation can mean growth is higher or lower even if welfare is higher

fiscal consolidation and climate policy an overlapping generations perspective abstract this paper examines the distributional and efficiency impacts of public debt consolidation financed through a carbon tax employing a dynamic general equilibrium model with overlapping generations of the u s economy the numerical model features government taxes and spending and a multi sectoral production structure including intermediate production specific detail on the energy sector both in terms of primary energy carriers and energy intensive industries and sector and fuel specific carbon inputs in contrast to revenue neutral carbon tax swaps using the carbon revenue for deficit reduction implies a relaxation of future public budgets as debt repayment results in lower future interest obligations while intergenerational welfare impacts depend importantly on what tax recycling instrument is used we find that combining public debt consolidation with a carbon policy entails the possibility of sustained welfare gains for future generations if social discount rates are sufficiently low or if social preferences exhibit a large aversion with respect to intergenerational inequality combining fiscal consolidation and climate policy may offer the chance for societal gains even without considering potential benefits from averted climate change

iceland on the rocks the mass political economy of sovereign debt resettlement we undertake an individual level analysis of mass political behavior toward sovereign debt resettlement by leveraging the unique circumstances of a 2011 referendum on debt repayment in iceland this allows us to engage broader questions about mass international political economy against the recent thrust of a growing literature we find evidence of material economic pocketbook effects self interest on voting behavior operating alongside symbolic sociotropic and partisan political logics contrary to expectations these self interest effects are not conditional on voter sophistication we conclude that conventional sampling frames may be inappropriate for understanding contemporary democratic contestation over international economic policy

drivers of cross border banking exposures during the crisis abstract the recent crisis highlighted the role of cross border banking linkages this paper analyzes these linkages through an examination of both banking systems foreign credit exposures and borrower countries reliance on foreign bank credit it does this by combining bis data with bank level data the results indicate that the proposed refinements on measuring those two exposures are important especially when foreign bank affiliates funding relies heavily on local deposits after developing novel and necessary break in series and exchange rate variation adjustments estimations looking at the driving factors of both measures during 2006 2012 highlight i the role of systemic banking crises and global financial conditions in the evolution of banks foreign credit exposures ii the role of a larger set of factors in the case of the evolution of borrower countries reliance on foreign bank credit how countries borrowed from whom they borrowed and global financial and domestic demand conditions

growth in post soviet russia a tale of two transitions abstract in the early stages of post soviet russia s economic transition small scale entrepreneurial activity appeared to be a strong engine of growth moreover striking regional variations in initial conditions and adopted policy reforms appeared useful in accounting statistically for observed regional variations in entrepreneurial activity here we investigate whether these relationships have persisted as russia s transition has continued to evolve and find that they have not we then document that the emergence of bank issued credit virtually non existent outside of moscow prior to 2000 has been an important engine of growth since 2000 thus to date russia s post soviet development appears as a tale of two distinct transition paths

distance constraints the limits of foreign lending in poor economies how far does mobility of multinational banks solve problems of financial development using a panel of 80 000 loans over 7 years i show that greater cultural and geographical distance between a foreign bank s headquarters and local branches leads it to further avoid lending to informationally difficult yet fundamentally sound firms requiring relational contracting greater distance also makes them less likely to bilaterally renegotiate and less successful at recovering defaults differences in bank size legal institutions risk preferences or unobserved borrower heterogeneity cannot explain these results these distance constraints can be large enough to permanently exclude certain sectors of the economy from financing by foreign banks

foreign activities of u s banks since 1997 the roles of regulations and market conditions in crises and normal times abstract using a unique newly constructed dataset on u s banks foreign activities since 1997 this paper examines how bank market and regulatory conditions in the u s and host countries affect u s banks choices of which foreign markets to enter and how much claims and liabilities to take on there using a two stage structural estimation framework the determinants of foreign market entry exit cross border claims and foreign affiliate claims and liabilities choices are examined in 107 host countries around the world it is shown that 1 the health of the balance sheet is the primary driver of foreign market entry exit choices especially so during the subprime crisis while host market and regulatory conditions play important roles in the choice of claims liabilities volumes 2 banks choose their foreign activities during banking and market crises differently than they do in normal times and 3 in addition to bank size previous experience with managing a global lending network significantly increases the intensity of banks foreign involvement structural estimates of the costs of foreign market entry exit and host market regulatory stringency are also derived

why do firms hide bribes and unofficial activity after communism abstract our survey of private manufacturing firms finds the size of hidden unofficial activity to be much larger in russia and ukraine than in poland slovakia and romania a comparison of cross country averages shows that managers in russia and ukraine face higher effective tax rates worse bureaucratic corruption greater incidence of mafia protection and have less faith in the court system our firm level regressions for the three eastern european countries find that bureaucratic corruption is significantly associated with hiding output

industrial complexes in mexico implications for regional industrial policy based on related variety and smart specialization abstractindustrial complexes in mexico implications for regional industrial policy based on related variety and smart specialization regional studies the goal of this paper is to identify and analyze the location of industrial complexes in mexico with the purpose of providing an analytical foundation for the construction of regionally based industrial policies based on the principles of related variety and smart specialization that complement current national level policy efforts to promote investment and stabilize the real exchange rate the results of this analysis highlight distinct complexes located in particular portions of the country the location of these complexes points to several regional policy options that will better address regional heterogeneities in the distribution of industry employment as well as regional differences in workforce competencies infrastructure quality and extra regional linkages than have national level industrial policies

the hotspots reference routes and research trends of marginal abatement costs a systematic review abstract as one of the most effective means of evaluating environmental policies marginal abatement costs macs have been adopted in a growing body of research this study characterizes the mac related literature from 1993 to 2018 on web of science based on a systematic review bibliometric analysis and mind mapping the results classify the research hotspots into influential factors methods and empirical applications the three most frequently mentioned influential factors are technical change discount rates and energy prices compared with top down models bottom up models including engineering model and expert based method are the most widely used improvements in the former focus on strengthening market behavior effect while those in the latter aim to overcome the weaknesses of negative costs and lack of interaction across measures mac applications focus on environmental policies with two new research areas recently emerging co benefits and sectoral abatement costs furthermore a reference route is proposed by summarizing the applicability of methods and matching relationships among influential factors methods and empirical problems finally potential research directions are summarized based on the identified research hotspots and a similar co word analysis in marginal cost field such as considering the effects of both multiple influential factors and the interaction among factors on maccs

how banks go abroad branches or subsidiaries the authors examine the factors that influence banks type of organizational form when operating in foreign markets using an original database of the branches and subsidiaries in latin america and eastern europe of the top 100 international banks they find that regulation taxation the degree of desired penetration in the local market and host country economic and political risks matter banks are more likely to operate as branches in countries that have higher corporate taxes and when they face lower regulatory restrictions on bank entry in general and on foreign branches in particular subsidiaries are the preferred organizational form by banks that seek to penetrate the local market establishing large and mostly retail operations finally there is evidence that economic and political risks have opposite effects on the type of organizational form suggesting that legal differences in the degree of parent bank responsibility vis a vis branches and subsidiaries under different risk scenarios play an important role in the kind of operations international banks maintain overseas

the invisible hand and the grabbing hand evidence from a survey of 105 shop owners in moscow and warsaw shows that the reliance on private protection as well as the burden of regulation and corruption are much greater in moscow the evidence suggests that the invisible hand model of government better fits the warsaw local government and the grabbing hand model is more appropriate for moscow the evidence implies that the singular focus on the speed of economic reforms to understand the success of transition is misplaced and that the quality of government may be as essential this abstract was borrowed from another version of this item

what affects new and established firms expansion evidence from small firms in russia research on financial constraints of very small firms is scarce because it is difficult to observe and measure their transactions previous studies on small enterprises in post communist countries have focused either on the effect of financing constraints on business growth budina et al 2000 economics of transition8 2 453 475 bratkowski et al 2000 economics of transition8 1 101 116 or on the effect of property rights johnson et al 2002 american economic review92 5 1335 1357 this paper provides evidence on both it turns out that financing constraints and property rights considerations affects investment in firms of different age differently younger firms face higher information costs and their expansion is more dependent on the availability of internal funds than is the expansion of older firms this paper also finds that while the financial sector did not channel funds to the most successful businesses there is evidence that loans were given to firms that had more transparent transactions results also indicate that the security of property rights does not influence investment in young firms which is interpreted to mean that only the most efficient entrepreneurs entered the market in older small firms investment is negatively influenced by the index of security of property rights suggesting that these firms might have secured their property rights by bribes improvements in the security of property rights therefore would help more micro enterprises to be born as well as decrease transaction cost of established enterprises

firm productivity innovation and financial development acknowledgment we are grateful to christopher kilby saul lizondo chris papageorgiou the strategy policy and review departments low income countries group the africa department s macro modeling debt and growth network and two anonymous referees for useful comments and suggestions kersting gratefully acknowledges financial support by the center for global leadership at the villanova school of business 1 introductioneconomists still struggle to explain the large differences in output per worker across countries the view that these differences are mostly the result of variations in investment rates has now largely been abandoned as cross country evidence suggests that total factor productivity tfp rather than capital accumulation accounts for observed per capita income differences hall and jones 1999 the largely unexplained cross country differences in tfp led to prescott s 1998 call for a theory of tfp in response barriers to innovation imitation and adoption e g parente and prescott 2000 and institutions e g acemoglu and johnson 2005 have often been offered as explanations for low tfp in poorer countries the global crisis and the resulting uncertainty have reinforced concerns about growth prospects in many low income countries after a decade of almost universally solid growth performance the medium term outlook for many low income countries appears increasingly uncertain at the same time the growth potential in many countries with low tfp remains dim even beyond the full conclusion of this crisis if tfp drives growth its determinants are the key to development prospects in low income countries some country specific direct determinants of tfp geography history or institutions such as the prevalent legal system are fixed or slow moving and the degree to which policy can influence these conditions is limited others such as innovation or the level of financial development can respond to both foreign and domestic forces external shocks globalization or government policy in this view tfp is not primarily the result of the endowment of a country but instead a direct result of purposeful actions by economic agents and as such can be influenced by policy innovation activity leads to technological progress in two distinct ways purposeful research and development can result in the invention of completely new products and processes this kind of innovative activity moves the global technological frontier and still mainly occurs in developed countries however innovation also consists of the adoption and adaptation of existing technology which can close the gap between countries converging toward the global technological frontier and those on the leading edge pushing the world frontier innovation shares a strong connection with the provision of financial services invention and adoption of technology are costly and risky activities which require financing it is therefore natural to study the impact of a country s financial development on tfp via the innovation channel 1in this article we follow that agenda in two separate steps i how do firm specific actions in particular innovation affect firm productivity ii what is the role of a country s level of development both financial and general in facilitating higher productivity using firm level data taken from the enterprise surveys covering over 14 000 firms in 63 countries we first establish a connection between a firm s innovative activities and its productivity we control for country industry and firm specific factors the countries in our data include low middle and high income countries while the firms span all sizes with a focus on small and medium sized enterprises sme innovation is defined broadly as the introduction of new production processes or product lines so that it includes the adaptation of existing technology we find that other things being equal firms that have introduced a new process or product are more productive

regional decentralization and fiscal incentives federalism chinese style abstract aligning the interests of local governments with market development is an important issue for developing and transition economies using a panel data set from china we investigate the relationship between provincial government s fiscal incentives and provincial market development we report three empirical findings first we find that during the period of fiscal contracting system the discrepancy between ex ante contracts and ex post implementation was relatively small suggesting that the fiscal contracts were credible second we find a much higher correlation about four times between the provincial government s budgetary revenue and its expenditure during 1980s and 1990s as compared to 1970s demonstrating that provincial governments faced much stronger ex post fiscal incentives after reform third we find that stronger ex ante fiscal incentives measured by the contractual marginal retention rate of the provincial government in its budgetary revenue are associated with faster development of the non state sector as well as more reforms in the state sector in the provincial economy this holds even when we control for the conventional measure of fiscal decentralization finally we compare federalism chinese style to federalism russian style

the impact of liberalization and foreign investment in colombia s financial sector abstract this study analyzes financial liberalization measures undertaken in 1990 of which an opening to foreign investment was a major component after a brief description of the major changes in legislation on foreign investment we compare performance of foreign owned vs domestic banks first using a descriptive approach then in a more systematic manner using econometric analysis panel data estimations reveal that financial liberalization in general had a beneficial impact on bank behavior in colombia by increasing competition lowering intermediation costs and improving loan quality although the positive contribution of foreign entry may be overstated in recent studies by not controlling for other liberalization factors foreign and domestic entry beginning in 1990 did improve bank behavior by enhancing operative efficiency and competition however the greater competition may have resulted in increased risk and a subsequent deterioration in loan quality particularly among domestic banks

information or regulation what drives the international activities of commercial banks information costs and regulatory barriers distinguish international financial markets from national ones using panel data on bilateral assets and liabilities of commercial banks i empirically determine the impact of information costs and regulations and i isolate intra eu financial linkages i confirm that information costs and regulations are important factors influencing international asset choices of banks but their relative importance differs among countries

bank lending to small businesses in latin america does bank origin matter recently foreign bank participation has increased significantly in developing countries fueling concerns that foreign banks might extend credit only to certain sectors leaving customers like small businesses unattended using bank level data for four latin american countries during the mid 1990s we investigate whether bank origin affects the share and growth of lending to small businesses while on average foreign banks seem to lend less to small businesses regression results reveal significant differences between small and large foreign banks in general we find that the latter surpass large domestic banks in their share and growth of lending to small businesses

organizational isomorphism and corruption in financial institutions empirical research in emerging countries the globalizations of capital markets in the last 20 years has led to a historic degree of financial integration in the world it is clear however that globalization is not conducive to a complete homogeneity of financial markets and institutions among others one element of diversity is the importance of the impact of corruption in emerging countries corruption decreases the credibility of financial institutions and markets scandals and unethical behavior in financial institutions erode confidence in such firms relying on neoinstitutional literature this article focuses on the link between corruption and organizational isomorphism in financial institutions in emerging countries therefore our aim is to examine the institutional reasons for corruption in financial institutions in emerging countries our structural equation model is based on empirical research in financial institutions in emerging countries a questionnaire was administrated to 70 top executives of financial institutions in 18 different emerging countries

the economic and budgetary impact of climate policy in portugal carbon taxation in a dynamic general equilibrium model with endogenous public sector behavior the objective of this paper is to study hbox co 2 taxation in its dual role as a climate and fiscal policy instrument using a dynamic general equilibrium model of the portuguese economy which highlights the mechanisms of endogenous growth and incorporates a detailed modeling of public sector behavior and accounts in addition to the conventional marginal abatement cost curve we present a pair of complementary marginal abatement cost curves which highlight the impact hbox co 2 taxation has on economic performance and public debt and are therefore directly relevant to the terms of the policy debate these marginal abatement cost curves provide an effective tool for understanding the rate at which the environmental effectiveness economic costs and budgetary effects change with the tax level our results indicate that hbox co 2 taxes can be an important policy instrument for reducing emissions and promoting fiscal consolidation although this will come at a cost in terms of economic performance simulation results suggest that a tax of 17 00 euros per hbox tco 2 can satisfy existing climate policy targets the tax revenue effects together with reductions in public spending yield a 4 8 reduction in public debt these desirable outcomes come at the cost of a 1 3 reduction in gdp over the long term our analysis highlights that limiting public consumption expenditures can contribute to larger reductions in public debt albeit at a marginally greater cost to economic activity in turn reducing public investment although effective in reducing public debt produces a much larger negative economic impact this evokes an important trade off particularly pronounced in the present debates regarding austerity measures in the eu between fiscal consolidation efforts and efforts to promote convergence to eu standards of living these results further highlight that modeling assumptions with respect to public spending decision are not innocuous an exogenous trajectory for public spending suggests substantially smaller gdp effects and substantially larger public debt effects for any given emissions target

location decisions of foreign banks and competitor remoteness this paper examines the role of competitor remoteness the weighted average distance of all competing banks to a host country on the location decision of a foreign bank it uses unique bilateral data on 1 199 foreign banks from 75 home countries present in 110 host countries it finds that besides bilateral distance competitor remoteness importantly drives foreign banks location decisions the impact of distance and competitor remoteness is stronger for non oecd home and host countries when the scale of foreign bank inward and outward investment is limited and for host countries where foreign banks dominate

does having a cadre parent pay evidence from the first job offers of chinese college graduates abstract we estimate the wage premium associated with having a cadre parent in china using a recent survey of college graduates carried out by the authors the wage premium of having a cadre parent is 15 and this premium cannot be explained by other observables such as college entrance exam scores quality of colleges and majors a full set of college human capital attributes and job characteristics these results suggest that the remaining premium could be the true wage premium of having a cadre parent

the regulator s trade off bank supervision vs minimum capital abstract we develop a simple model of banking regulation with two policy instruments minimum capital requirements and the supervision of domestic banks the regulator faces a trade off high capital requirements cause a drop in the banks profitability whereas strict supervision reduces the scope of intermediation and is costly for taxpayers we show that a mix of both instruments minimises the costs of preventing the collapse of financial intermediation once we allow for cross border banking the optimal policy is not feasible if domestic supervisory effort is not observable our model predicts a race to the bottom in capital requirement regulation therefore countries are better off by harmonising regulation on an international standard

liquidity management of u s global banks internal capital markets in the great recession abstract the recent crisis highlighted the importance of globally active banks in linking markets one channel for this linkage is through how these banks manage liquidity across their entire banking organization we document that funds regularly flow between parent banks and their affiliates in diverse foreign markets we show that parent banks when hit by a funding shock reallocate liquidity in the organization according to a locational pecking order affiliate locations that are important for the parent bank revenue streams are relatively protected from liquidity reallocations in the organization while traditional funding locations are more extensively used to buffer shocks to the parent bank balance sheets

advertising as a predictor of investment the collapse of iceland s financial system in october 2008 is used as a natural experiment to test whether advertising decisions have a forward looking component the results show that changes in the volume of advertisements precede changes in investment

how foreign participation and market concentration impact bank spreads evidence from latin america increasing foreign participation and high concentration levels characterize the recent evolution of banking sectors market structures in developing countries the authors analyze the impact of these factors on latin american bank spreads during the late 1990s their results suggest that foreign banks were able to charge lower spreads relative to domestic banks this was more so for de novo foreign banks than for those that entered through acquisitions the overall level of foreign bank participation seemed to influence spreads indirectly primarily through its effect on administrative costs bank concentration was positively and directly related to both higher spreads and costs

federalism as a commitment to reserving market incentives the authors advance a new perspective in the study of federalism their approach views federalism as a governance solution of the state to credibly preserving market incentives market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures the salient features of federalism decentralization of information and authority and interjurisdictional competition help provide credible commitment or these purposes in addition the authors suggest that some federalism are self sustaining

technology and technical change in the mit eppa model potential technology change has a strong influence on projections of greenhouse gas emissions and costs of control and computable general equilibrium cge models are a common device for studying these phenomena using the mit emissions prediction and policy analysis eppa model as an example two ways of representing technology in these models are discussed the sector level description of production possibilities founded on social accounting matrices and elasticity estimates and sub models of specific supply or end use devices based on engineering process data a distinction is made between exogenous and endogenous technical change and it is shown how because of model structure and the origin of key parameters such models naturally include shifts in production process that reflect some degree of endogenous technical change as a result the introduction of explicit endogenous relations should be approached with caution to avoid double counting

marginal abatement costs of greenhouse gas emissions a meta analysis in this paper we carry out a meta analysis of recent studies into the costs of greenhouse gas mitigation policies that aim at the long term stabilisation of these gases in the atmosphere we find the cost estimates of the studies to be sensitive to the stringency of the stabilisation target the assumed emissions baseline the way in which the time profile of emissions is determined in the model the choice of control variable co2 only versus multigas the number of regions and energy sources in the model and to a lesser degree the scientific forum in which the study was developed we find that marginal abatement costs of the stringent long term targets that are currently considered by the european commission are still very uncertain but might exceed the costs that have been suggested by recent policy assessments

lessons from a collapse of a financial system the paper draws lessons from the collapse of iceland s banking system in october 2008 the rapid expansion of the banking system following its privatization in the early 2000s is explained as well as the inherent fragility due to the size of the banking system relative to the domestic economy and the central bank s reserves market manipulation enabling bank capital to expand rapidly and the weak and understaffed public institutions most of iceland s banking system was traditionally in state hands but was privatized and sold to politically favoured entities at the turn of the century with laws and regulations subsequently changed to facilitate the expansion of the banking system political connections and the tacit support of the authorities enabled senior bank managers and key shareholders to extract significant private benefits while shifting risk to domestic and foreign taxpayers and foreign creditors these problems were exacerbated by symptoms of what the paper terms the small country syndrome the size of the banking sector made the central bank incapable of serving as the lender of last resort the domestic supervisor the central bank and the ministries in charge of economic affairs were understaffed and lacking in experience in how to manage a large financial sector the rapid growth was also ultimately unsustainable due to high levels of leverage and a weak capital base due to both the rapid expansion of balance sheets and lending to finance investment in own shares the episode demonstrates the importance of closely monitoring rapidly growing financial institutions and even possibly slowing growth when institutions are systemically important one lesson to be drawn from the crisis relates to the role of politics in a financial crisis the icelandic authorities as a matter of policy encouraged the creation of an international banking centre this involved the privatization and deregulation of the banking system rules and regulations being relaxed and the neglect of financial supervision another lesson is that floating exchange rates can be hazardous in the presence of large capital flows the central bank raised interest rates during the boom years in order to meet an inflation target this created an interest rate differential with other countries that encourages a large volume of carry trades and incentivized domestic agents to borrow in foreign currency both conspired to create an asset price bubble excessive currency appreciation and counter intuitively high inflation the result was that monetary policy as conducted was ineffective at curbing domestic demand the eventual large depreciation of the currency made a large section of the economy insolvent finally there are lessons about the european passport system in financial services and the common market the icelandic banks had the right to set up branches in the european union by means of the passport on the explicit assumption that home regulators were exercising adequate controls the collapse of the banks left the united kingdom and the netherlands with significant costs demonstrating the inherent weakness in the passport when one member country can undercut the supervisory standards of other member countries for the passport system to work the home supervisor must be trustworthy sigridur benediktsdottir jon danielsson and gylfi zoega

supervising cross border banks theory evidence and policy this paper analyses the distortions that banks cross border activities such as foreign assets deposits and equity can introduce into regulatory interventions we find that while each individual dimension of cross border activities distorts the incentives of a domestic regulator a balanced amount of cross border activities does not necessarily cause inefficiencies as the various distortions can offset each other empirical analysis using bank level data from the recent crisis provides support to our theoretical findings specifically banks with a higher share of foreign deposits and assets and a lower foreign equity share were intervened at a more fragile state reflecting the distorted incentives of national regulators we discuss several implications for the supervision of cross border banks in europe thorsten beck radomir todorov and wolf wagner

the narrow moving band the dutch disease and the competitive consequences of mrs thatcher notes on trade in the presence of dynamic scale economies abstract this paper presents a model of trade in which comparative advantage instead of being determined by underlying attributes of countries evolves over time through learning by doing in this model arbitrary patterns of specialization once established tend to become entrenched over time the model sheds light on three widely held views that do not make sense in more conventional models first is the view that temporary protection of selected sectors can permanently alter the pattern of comparative advantage in the protecting country s favor second is the view that seemingly favorable developments such as the discovery of exportable natural resources may lead to a permanent loss of other sectors and reduce welfare in the long run third is the possibility that a temporary overvaluation of a currency due to tight money can lead to a permanent loss of competitiveness in some sectors

banking finance and the role of the state this paper provides an overview of the issue it considers the existing structure of financial regulation the deficiencies that were encountered during the financial crisis and the proposed reforms it discusses whether these are likely to be adequate and argues that there are fundamental failures in product markets capital markets and government relations with financial institutions highlighted in the articles in this issue that question whether current reforms will prove sufficient in particular the article argues that a clearly defined partnership between the state and the banking system needs to be established by which the state protects certain core components of the banking system that perform key functions in an economic system and well specified rules are put in place to avoid renegotiation and lobbying copyright 2011 oxford university press

banking across borders abstract the international linkages between banks play a crucial role in today s global economy existing models explain these links largely on the basis of portfolio theory in which banks diversify lending these models have found limited empirical support and do not speak to several relevant dimensions of the data they do not explain heterogeneity in the degree to which banks operate through foreign affiliates fund their activities abroad or matter for local lending in foreign countries this paper proposes a complementary theory of banking across borders that is based on elements of international trade theory in the model banking across borders arises because countries differ in their relative factor endowments and in the efficiency of their banking sectors based on these differences the pattern of foreign bank asset and liability holdings emerges endogenously this parsimonious model provides a rationale for the observed heterogeneity in foreign bank activities and is consistent with key patterns in the data

a cost benefit analysis of the eu 20 20 2020 package the european commission did not publish a cost benefit analysis for its 2020 climate package this paper fills that gap comparing the marginal costs and benefits of greenhouse gas emission reduction the uncertainty about the marginal costs of climate change is large and skewed and estimates partly reflect ethical choices e g the discount rate the 2010 carbon price in the eu emissions trading system can readily be justified by a cost benefit analysis emission reduction is not expensive provided that policy is well designed a condition not met by planned eu policy it is probably twice as expensive as needed costing one in ten years of economic growth the eu targets for 2020 are unlikely to meet the benefit cost test for a standard discount rate 3 pure rate of time preference the benefit cost ratio is rather poor 1 30 so that benefits need to be very much higher or costs very much lower than typically assumed to justify the 2020 targets only a very low discount rate 0 prtp would justify the 20 emission reduction target for 2020

economic regulations red tape and bureaucratic corruption in post communist economies summary should state regulatory involvement in the economy necessarily generate corruption while excessive regulatory burden is often treated as a cause of corruption this paper argues otherwise it distinguishes regulatory policy or de jure regulatory regimes from regulatory implementation and offers a more nuanced argument about the relationship between state regulations and bureaucratic corruption the analysis of business survey data covering 25 post communist economies demonstrates that mechanisms of regulatory implementation rather than heavy handed regulatory policy are responsible for bribery this analysis draws attention to the theoretical distinction between different types of regulatory hurdles and their differential effects on the quality of governance

proximity effects and labour specialization transitions in mexico a spatial markov chain analysis this paper investigates the extent to which the manufacturing industries in mexico exert positive proximity effects on neighbouring states when transitioning to higher levels of labour specializati

political connections and firm value in china an event study on 19 october 2013 the chinese government issued the opinions on further regulation on party and political leaders and cadres working part time holding office in enterprises also known as the 18th decree to regulate government officials employment with businesses the 18th decree is widely perceived as having had a significant impact on the use of independent directors with political backgrounds by firms given the prevalence of this business practice this paper examines the market reaction to the 18th decree to ascertain the value effect of political connections in china we note a negative relationship between the political connections of independent directors and market reaction we also note that the negative relationship between political connections and market reaction is moderated by ownership type and state of regional development specifically we find that the negative relationship holds only for private firms in less developed regions these results support our prediction that political connections add value to chinese firms and that the value effect of political connection is contingent on institutional factors

banking crisis management in the eu an early assessment for well over a decade many observers had warned that the european union was ill prepared in case of a financial storm because its market integration far outpaced its policy integration this situation was well known to policy makers but it was hoped that financial crises would wait until policy integration occurred the reality turned out differently however we assess the management of the 2007 2009 banking crisis within the eu against this backdrop in a nutshell we find that europe has done better than could have been expected on the basis of existing arrangements the two federal institutions acted swiftly the european central bank by providing ample liquidity and the european commission by enforcing competition discipline flexibly however there was no institutional innovation in the form of an eu financed bail out of transnational financial institutions or a genuine eu financial stress test supervisory responsibilities remained entirely with individual countries and coordination problems were managed through a combination of ad hoc discretionary cooperation and reliance on eu rules and procedures it is not possible however to determine whether this relatively satisfactory situation is due to the fact that ad hoc coordination was fundamentally sufficient or because no complex case of cross border bank failure occurred jean pisani ferry and andre sapir

a lower vat rate on electricity in portugal towards a cleaner environment better economic performance and less inequality abstract this article addresses the budgetary economic distributional and environmental impact of increasing the vat on electricity in portugal the analysis is carried out in the context of a new multi sector multi household dynamic general equilibrium model simulation results suggest that a permanent increase from 6 to 23 improves the public budget and albeit marginally co2 emissions but it leads to detrimental economic and distributional effects as the economy in portugal begins to recover after the great financial crisis and the budgetary situation becomes less constraining pressure is mounting for this vat increase to be reversed this mixed bag of results is an important element for the debate reverting to a lower vat is desirable as it would improve economic performance and have positive distributional effects the question is how to compensate for the loss of tax revenues to offset the adverse budgetary effects of a lower vat we consider several revenue raising strategies our simulation results suggest that an offsetting increase in either the general vat tax rate or the tax on petroleum products would yield more favorable effects from all relevant perspectives economic distributional and environmental while mostly keeping intact the budgetary benefits

positive theories of multinational banking eclectic theory versus internalisation theory the choice of an appropriate paradigm to consider banks motivation to enter a new market and their subsequent performance is an important issue in multinational banking this paper discusses this issue within the context of two competing theories of the multinational enterprise and the special theories of banking as applied to the multinational enterprise the conclusion of this paper is that while it may not be possible to empirically distinguish between the propositions of eclectic theory and internalisation theory intemalisation theory offers a framework with greater internal consistency for the study of the multinational bank further any empirical studies must be conducted within the framework of the appropriate special theories consistent with internalisation theory these special theories have developed over time in an unstructured fashion and the application of internalisation theory provides a cohesive framework within which to analyse these theories

the location of financial sector fdi tax and regulation policy abstract this paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector fdi we use novel information on new financial services entities established by multinational firms in 83 host countries we find a negative effect of host country taxes on the probability of choosing a particular host location we can also confirm a significant influence of the regulatory environment for example stricter equity capital requirements negatively affect location probabilities our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross country tax and regulation elasticities

the welfare cost of capital income taxation in a growing economy the welfare cost of capital income taxation is analyzed in a general equilibrium framework where the private sector is represented by a competitive household endowed with perfect foresight and an infinite life the value of the welfare cost depends essentially on the elasticity of substitution between capital and labor in the production function numerical estimates are presented for different values of the parameters of the model the welfare gain obtained by the abolition of the capital income tax is smaller when the private sector is not endowed with perfect foresight it is reduced by about 40 percent when expectations are myopic the allocation efficiency cost of the corporate tax dwarfs the intertemporal welfare cost

sectoral effects of a green tax reform in portugal abstract economic downturn coupled with serious and persisting environmental problems require a new regulation system to tackle these problems the portuguese government created the commission for the green tax reform in 2014 following the guidelines of the european union in the sense that fiscal policy should contribute to public budget consolidation and sustainable growth the commission was commissioned to propose a simplification of taxation in order to promote economic competitiveness environmental sustainability and the efficient use of resources the aim of this paper is to present the results from one of the teams that have contributed to the commission for the green tax reform we have followed the european commission guidelines in order to simulate a green tax reform with a static general equilibrium model and aligned to the political context we found that i it is possible to enjoy a positive double dividend ii to achieve improvements in the energy trade balance and energy independence and iii to reduce the energy intensity of the portuguese economy

science technology and regional economic development review and prospects abstract this paper reviews the literature on the location and regional effects of science and technology st these pools of mobile workers are most attracted to large urban areas in only some of these areas however does the spin off process result in the generation of new technology based firms the availability of local venture capital appears to be the principal influence on this variation government policy regarding science and technology has impacts on regions by contributing to the agglomeration of r d government policy also often fails to recognize that s t policy and industrial policy have regional effects that may be long term in nature and most detrimental to those regions whose economies are least competitive finally some priorities for future research on innovation in a regional setting are identified

patterns in the expansion of u s banks foreign operations combining foreign direct investment theory with data on 32 countries from the federal reserve board we examined u s banks patterns of foreign operations including their levels of banking services and choice of organizational forms in host countries results generally supported predictions but only in developed countries the lack of support in rapidly growing markets of asia and latin america raises serious theoretical concerns and presents fresh research opportunities into the global banking industry

the determinants of us banking activity abroad abstract the banking industry provides an excellent example of the internationalization of world business and economic interdependencies across countries analysis of the past growth of international banking operations can also prove useful to banks interested in augmenting their current business or expanding their international coverage and to banks who anticipated future competition in their markets from new or strengthened foreign competitors this study provides the most comprehensive examination of the development of us bank branches in other countries is presented and tested in order to facilitate the understanding of the expansion of international banking

european banks and tax havens evidence from country by country reporting banks in the european union have recently started publicly reporting data on profit employee numbers turnover and tax on a country by country basis this new data source is capable of indicating

corporate social responsibility in the banking industry motives and financial performance abstract the current study investigates the association between corporate social responsibility csr and financial performance fp and discusses the driving motives of banks to engage in csr three motives namely strategic choices altruism and greenwashing suggest that the relationship between csr and fp is positive non negative and non existent respectively we obtained our sample which covered 2003 2009 from the ethical investment research service eiris databank and bankscope database the data consists of 162 banks in 22 countries we then classified the banks into four types based on their degree of engagement in csr this study proposes the use of an extended version of the heckman two step regression in which the first step adopts a multinomial logit model and the second step estimates the performance equation with the inverse mills ratio generated by the first step the empirical results show that csr positively associates with fp in terms of return on assets return on equity net interest income and non interest income in contrast csr negatively associates with non performing loans hence strategic choice is the primary motive of banks to engage in csr

the determinants of u s banks international activities abstract this paper develops a model and structural dynamic estimation of bank behavior to map the relationship between u s banks choices of foreign banking activities and bank and foreign market traits this estimation framework is applied to a unique bank level dataset compiled from regulatory sources covering u s banks foreign activities in 83 host markets over the 2003 2013 period bank traits are better able to explain the evolving patterns of foreign banking than host market characteristics after controlling for these traits the post financial crisis period shows a structural shift away from cross border claims towards foreign affiliate activities structural estimates of foreign market entry costs and regulatory attitudes towards risk are derived simulation exercises confirm the strong impact of banks and regulators risk stance on bank profits and portfolio composition

foreign bank behavior during financial crises one of the persistent policy problems faced by governments contemplating financial liberalizations is the question of whether to allow foreign banks entry into the domestic economy this question has become ever more urgent in recent times due to rapid financial globalization coupled with the credit contractions experienced as a result of the 2007 08 financial crisis this paper examines the question of whether opening the financial sector to foreign participation is a good idea for developing countries using a unique bank level database of foreign ownership in particular the authors examine whether the credit supply of majority foreign owned financial institutions differ systematically conditional on a crisis event in their home economies they show that foreign banks that were exposed to crises in their home countries exhibit changes in lending patterns that are lower by between 13 and 42 percent than their non crisis counterparts

guarantees leverage and taxes this paper considers the optimal joint decision on firm organization and capital structure under a tax bankruptcy trade off stressing the role of guarantees against default conditional guarantees which are embedded in parent subsidiary structures increase joint value and joint debt relative to unguaranteed stand alone firms such guarantees that are unilateral rather than mutual for moderate default costs may dominate the unconditional mutual guarantees built in mergers we study the optimal characteristics of both guarantors and beneficiaries as well as their impact on the self enforcement potential of conditional guarantees

reducing co2 emissions under fiscal retrenchment a multi cohort cge model for austria the stabilization of budget deficit and budget debt ratios by fiscal retrenchment in order to fulfill the maastricht criteria for the emu is of central focus in most eu countries at the same time the national policy dimension of acute environmental problems such as global warming has receded in the public eye the environmental dimension nonetheless remains urgent and a re evaluation of the prospects of co2 policy is needed against the background of fiscal retrenchment required by supranational obligations we shall do this for the small open austrian economy by constructing a dynamic multi cohort cge model enabling us to assess quantitatively the lifetime welfare impacts on the cohorts affected by three different options for using co2 permit revenues the distribution of welfare costs of toronto co2 policy across cohorts significantly differs with use this is explained by income inheritance and price effects

service offshoring and productivity evidence from the us the practice of sourcing service inputs from overseas suppliers has been growing in response to new technologies that have made it possible to trade in some business and computing services that were previously considered non tradable this paper estimates the effects of offshoring on productivity in us manufacturing industries between 1992 and 2000 it finds that service offshoring has a significant positive effect on productivity in the united states accounting for around 10 per cent of labour productivity growth during this period offshoring material inputs also have a positive effect on productivity but the magnitude is smaller accounting for approximately 5 per cent of productivity growth

the rural role in national value chains feser e and isserman a the rural role in national value chains regional studies industry clustering is a useful concept for understanding the interdependence among industries and its implications for regional economic development and growth the paper claims that the fullest understanding of the implications of industrial interdependence for rural economies requires viewing linked industries or value chains on a spatial continuum from those that are national in geographic scope to those that are highly localized in specific places as regional clusters from that perspective rural economies may depend on as well as contribute to the competitive success of value chains anchored elsewhere the perspective is operationalized using a new classification of 45 us industry value chains together with a new rural urban county typology the results demonstrate that rural america plays an integral part in a great variety of us value chains federal state or local development agencies must be careful n

on the environmental economic and budgetary impacts of fossil fuel prices a dynamic general equilibrium analysis of the portuguese case abstract this paper examines the influence of fossil fuel prices on carbon dioxide emissions economic activity and the public sector account in portugal it uses a dynamic general equilibrium model which highlights the mechanisms of endogenous growth and includes a detailed modeling of the public sector fuel price scenarios are based on forecasts by the us department of energy doe us the international energy agency iea oecd and ihs global insight inc the differences in relative fuel prices among the three scenarios lead to substantially different environmental impacts higher fuel prices in the doe us scenario lead to a 10 2 reduction in the policy effort required to meet the eu 2020 emission targets while relative price changes in the iea oecd scenario result in a 19 2 increase in the required policy effort and decreasing fuel prices increase the emissions deficit by 95 9 under the ihs scenario in terms of the long term economic impacts our results suggest a 2 2 reduction in gdp in the doe us scenario and 1 9 in the iea oecd scenario and an increase of 1 4 in the ihs scenario as to the budgetary impact higher fuel prices lead to lower tax revenues which coupled with a reduction in public spending translates to lower public deficits from a methodological perspective our results highlight the importance of the mechanisms of endogenous growth a scenario of higher fuel prices would under exogenous economic growth assumptions result in larger baseline emissions growth substantially smaller economic effects and rather different budgetary effects from a policy perspective our results highlight the importance of fossil fuel prices in defining the level of policy intervention required for compliance with international and domestic climate change legislation

what factors cause foreign banks to stay in london the banking literature focuses extensively on the phenomenon of bank entry and pays less attention to the factors driving the continuation of banking activities in foreign markets in this paper we analyze this important but overlooked issue by constructing a unique database of foreign banks that continue operating and those that have withdrawn from arguably the world s most international banking center london this new data set comprises information on 408 offices from 77 countries spanning the period from 1945 to 1999 giving us 4643 observations of which 2795 represent offices that continue operating and 1848 that withdrew from london during this period our empirical work shows that the continuation of international banking activity in london is positively related to the setup of locally integrated organizational forms at entry the experience in the local market and the size of local operations continuation of banking activities is however negatively related to the setup of organizational forms integrated into the parent bank at entry and to the geographic distance of the home country to london we also find that higher global economic activity increases the likelihood of international banking operations continuing in london however the more volatile the global economic environment the greater the prospect of a cessation of this activity

endogenous technological change in climate change modelling this article investigates the impact on optimal co2 abatement and carbon tax levels of introducing endogenous technological change in a macroeconomic model of climate change we analyse technological change as a function of cumulative capacity as incorporated recently in energy systems models our calculations confirm that including endogenous innovation implies earlier emission reduction to meet atmospheric carbon concentration constraints however the effect is stronger than suggested in the literature moreover the development of non fossil energy technologies constitutes the most important opportunity for emission reductions optimal carbon tax levels reducing fossil energy use are lower than usually advocated