money and monetization in china s economic reform in addition to privatization marketization liberalization and pragmatization monetization has been argued as the fifth feature in china s economic reform if monetization is taken to mean a process through which variations in money supply or interest rate are to affect macroeconomic variables the construction of four causality relationships between interest rate and investment and money and national income do not support the evidence of such a process in china between the late 1970s and early 1990s

conditional cooperation with negative externalities an experiment abstract empirically the commons are not as tragic as standard theory predicts the predominant explanation for this finding is conditional cooperation yet many real life situations involve insiders who are directly affected by a dilemma and outsiders who may be harmed if the insiders overcome the dilemma the quintessential illustration is oligopoly if insiders overcome their dilemma and collude this inflicts harm on the opposite market side in our experiment harm on outsiders significantly reduces conditional cooperation of insiders we can exclude that this result is driven by inequity aversion reciprocity or efficiency seeking only guilt aversion can rationalize our findings with guilt being most pronounced if the active insiders not only inflict harm on the outsider but increase their own payoff at the expense of the outsider

government spending and taxation what causes what in the past few years as federal deficits have risen to high nominal levels economists have argued about the effect that raising taxes ostensibly to reduce deficits might have on government spending some economists including milton friedman have argued that raising taxes will simply lead to more spending others including james buchanan and richard wagner have said that the high deficits themselves have been responsible for the growth of federal spending and that if that spending had to be financed completely by direct taxes people would demand that the federal government spend less a third group led by robert barro says that increased taxes and borrowing are results of increased government spending in section ii we briefly review various hypotheses about the relationship between federal government spending and revenues section iii describes the testing procedure used to discriminate between these hypotheses the results of four tests are presented in section iv section v contains a summary and major conclusions to foreshadow what follows we find no evidence that higher real federal taxes today lead to either higher or lower federal spending tomorrow on the other hand we find strong evidence that higher spending now will lead to higher taxes later our results support a view of the world in which the political system somehow determines how much to spend and then looks for revenue sources to finance that level of spending including direct taxation borrowing and money creation we also find evidence that real federal revenues are positively affected by real gross national product gnp real federal spending also rises with real gnp but it appears to be independent of the rate of inflation

coordination with third party externalities abstract when agents face coordination problems their choices often impose externalities on third parties if an agent cares about them or believes others do they can affect equilibrium selection we present evidence from lab experiments showing that changes in the size and the sign of third party externalities have a significant impact on tacit coordination decision makers are more willing to incur a cost to try to avoid imposing a large negative externality on a third party than they are to avoid a small negative externality or to generate a large positive externality however when decision makers incentives are at odds with the interests of third parties many of them appear to ignore third party externalities even if they are large in magnitude and ignoring them implies substantial earning inequalities and reductions in group earnings individuals revealed to be other regarding in a non strategic allocation task often behave as if selfish when trying to coordinate we discuss explanations for our findings

testing for the government s intertemporal budget restriction in brazil during 1823 1889 this article tests whether the government s intertemporal budget restriction was fulfilled during the brazilian imperial period 1823 1889 to accomplish this newly developed tests for cointegration with unknown structural breaks are applied it is found that government spending and government revenue are cointegrated if the effect of two unknown structural breaks is taken into account the estimated parameter vector reveals that the one by one relationship that is required for solvency does not prevail for the sub periods before and after the first break however it prevails for the sub period after the second break we interpret these findings as empirical support for the long run government solvency in brazil at the end of the imperial period

privatization and government size a budget constraint view of government shows that privatization need not alter spending when it is implemented without a rule forbidding re use of the funding backing newly privatized programs only when these funds are eliminated from the budget process e g tax rebates or permanent deficit reduction can these funds not back new programs or expand existing programs this is an important caveat since privatization proposals do not contain such rules with such rules privatization can increase allocational efficiency and lead to smaller government size

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

beyond the purchasing power parity testing for cointegration and causality between exchange rates prices and interest rates abstract this paper reexamines the causality between the dollar and the yen in a multivariate framework with the aid of cointegration and error correcting modeling for the 1951 94 period the phillips perron tests and johansen s tests are performed while causality from interest rates to exchange rates is found in the short run no causality between prices and exchange rates is found in the short run however causality is found running from relative prices to exchange rates along with interest rates between the u s and japan in the long run which supports the long run ppp hypothesis

rational cooperation in the finitely repeated prisoner s dilemma experimental evidence this paper presents experiments designed to examine the sequential equilibrium reputation hypothesis in the finitely repeated prisoner s dilemma the authors test the hypothesis by controlling the subjects ability to build reputations and by manipulating their beliefs that their opponent is irrational or altruistic the responses of subjects strongly support the sequential equilibrium prediction the results also suggest an important role for homemade altruism that is a natural tendency to cooperate that subjects bring to the experiment from the outside the authors find that there may be no difference between the beliefs that an opponent is altruistic and the actual chance it is so copyright 1993 by royal economic society

centralization and the size of government in canada the determinants of the growth of government in canada over the period 1926 90 are examined of particular interest is whether changes in the degree of centralization have affected the public sector s share of gdp unlike other studies using time series data the effect of decentralization toward the provincial state and toward the local levels of government are measured separately empirical estimates provide strong support for the conclusion that citizen mobility acts as an important constraint on the growth of government

the two faces of janus institutions policy regimes and macroeconomic performance in greece greece the two faces of janus institutions policy regimes and macroeconomic performance the clear change in policy regime in greece around 1974 offers an opportunity to assess the extent to which economic performance depends on institutional underpinning for twenty years up to 1974 greece enjoyed rapid growth high investment and low inflation during the next twenty years growth and investment collapsed and inflation became high and persistent i describe the political background to such clear institutional change and the nature of the two economic regimes the first providing coordination and commitment mechanisms to sustain adequate returns for high investment the second failing to do so the same change in political climate after 1974 raised public sector deficits and debt fuelling a trade deficit and monetary expansion entry to the ec did not cause the economic slowdown in greece but transfers from the ec did mask the underlying problem delaying necessary adjustment recent attempts to reverse greece s fortunes are in the right direction but as yet inadequate george alogoskoufis

manufacturers channel structures when selling asymmetric competing products abstract manufacturers often face the fundamental channel structure decision namely whether to sell their products directly to consumers or indirectly through an intermediary to address this issue extensive research has analyzed equilibrium channel structures for competing equally substitutable products however in reality many competing products are asymmetric in both substitutability and brand equity in this paper we study how these two asymmetric characteristics affect the equilibrium channel structures of manufacturers selling competing products following some recent studies we adopt a refined consumer demand model derived from the representative consumer utility function based on this model we examine three possible types of competition between the two supply chains cournot quantity competition bertrand price competition and bertrand cournot competition we find that brand equity substitutability as well as the type of competition all play important roles in determining the equilibrium channel structures specifically in equilibrium a manufacturer always sells directly when its rival competes on quantity moreover when there is sufficient asymmetry in either brand equity or substitutability manufacturers tend to sell directly our results demonstrate that the benefits of selling indirectly shown in previous studies depend critically on the assumptions of equally substitutable products and bertrand competition

co integration and error correction models the temporal causality between government taxes and spending several interesting papers have recently considered whether government taxes granger cause government spending or vice versa the findings based on standard granger 6 causality tests are not consistent manage and marlow 10 conclude that when evidence of one way causality exists federal taxes granger cause federal spending while anderson wallace and warner 1 conclude that the evidence supports one way causality in the opposite direction ram 11 reexamining the issue concludes that taxes granger cause spending at the federal level but that spending granger causes taxes at the state and local level von furstenberg green and jeong 13 in another related article examine the tax and spend spend and tax causality issue using a more general vector autoregressive var model they introduce in addition to federal taxes and spending two economic variables the gnp gap and the inflation rate decompose federal spending into several categories and remove the effects of automatic stabilizers when appropriate they find little evidence that taxes granger cause spending and limited evidence that spending causes taxes a finding which corresponds most closely to that of anderson wallace and warner 1 our purpose is to reconsider the causality issue with the aid of co integration and errorcorrection modeling our analysis illustrates with a specific example how sources of causality can be neglected in standard granger causality tests moreover addressing the question of temporal causality between government taxes and spending provides insight as to how different policies might or might not help control the growth of government the results of our estimating various co integration and error correction models with quarterly data suggest bi directional causality between government taxes and spending both for the federal and state and local sectors this finding counters the conclusions of previous studies when annual data are used however our

the cournot bertrand model and the degree of product differentiation abstract we consider a duopoly model with a cournot type firm and a bertrand type firm both survive and the equilibrium is stable when there is sufficient product differentiation with no differentiation only the cournot type firm survives and the outcome is perfectly competitive

endogenous timing in duopoly games stackelberg or cournot equilibria abstract simultaneous versus sequential play is studied in an extended game in a preplay stage players decide whether to select actions in the basic game at the first opportunity or to wait until observing their rivals first period actions in one extended game players first decide when to select actions without committing to actions in the basic game the equilibrium has a simultaneous play subgame unless payoffs in a sequential play subgame pareto dominate those payoffs in another extended game deciding to select at the first turn requires committing to an action both sequential play outcomes are the equilibria only in undominated strategies

expenditures and receipts in state and local government finances comment the aim of this note has been to show that marlow and manage s 1987 paper suffers from serious methodological problems due to the non stationary data series used and the arbitrary lag lengths employed use of appropriate stationarity tests and optimal lag lengths of the variables change some of the basic conclusions of their paper contrary to their suggestion the presence of a feedback between local tax receipts and expenditures imply that local governments should be concerned with the implication of their spending and revenue enhancing decisions on their budget decisions to increase current expenditures may lead to higher future taxes similarly efforts to impose higher taxes to reduce budget deficits at the local government level may be futile due to a subsequent increase in spending

is the budget deficit too large yes specifically we find that recent spending and taxing policies of the government if continued violate the government s intertemporal budget constraint as a result government spending must be reduced and or tax revenues must be increased these conclusions are based on tests of whether government spending and revenue are cointegrated in addition to examining real spending and revenue we also normalize these variables by real gnp and population for a growing economy these normalized measures are perhaps more pertinent we also test and find support for the hypothesis that deficits have become a problem only in recent years

dynamics of government revenues and expenditures in industrial economies the sources of growth in government revenues and expenditures in 22 oecd countries is addressed the question of whether the revenue constraint is binding on the growth of government expenditures or whether the displacement effect of expenditure growth is binding is considered controls for the effects of the output gap and inflation rate on government revenues and expenditures in each of the 22 countries are presented a major conclusion is that reductions in spending are essential to reducing budget deficits and controlling government size

bertrand vs cournot competition in distribution channels with upstream collusion abstract this paper applies repeated game theory to tacit collusion in dynamic distribution channels based on the grim trigger strategy we examine competitors choice of the strategic instruments in distribution channels comprised of two manufacturers distributing through two independent retailers respectively first the paper discusses the upstream manufacturers collusion incentives under different competition modes for downstream retailers and shows that the manufacturers collusion incentives critically depend on the retailers competition modes and the discount factor we then identify the endogenous competition modes in equilibrium we find that upstream collusion is easier to sustain under cournot competition than bertrand competition and it is least likely to be sustained under mixed bertrand cournot competition furthermore in equilibrium retailers can engage in bertrand cournot or mixed bertrand cournot competition depending on the discount factor and the degree of product differentiation this study provides the rationale behind the emergence of various modes of competition in practical dynamic distribution channels especially the recent mixed bertrand cournot competition mode finally the manufacturers collusion incentives and retailers competition modes jointly affect the manufacturers profitability and social welfare we also discuss how the manufacturers profitability and social welfare vary under different competition modes taking upstream collusion into consideration we find that upstream collusion increases decreases social welfare for complements substitutes

a note on price and quantity competition in differentiated oligopolies abstract in this note we show that the results developed in n singh and x vives 1984 rand j econ 15 546 554 are sensitive to the duopoly assumption if there are more than two firms prices may be higher under price competition than under quantity competition this will be the case if quality differences are large and goods are complements if goods are substitutes high quality firms may earn higher profits under price competition than under quantity competition hence it is not evident which kind of competition is more efficient journal of economic literature classification numbers d43 l13

cointegration and government borrowing constraints evidence for the united states testable implications are derived in a present value borrowing constraint model for the u s federal government critical values for unit root and cointegration tests are calculated with monte carlo studies cointegration techniques are employed to determine whether the government has been involved in perpetual debt financing in recent years the data reject this assertion

budget deficits rhetoric and reality w v t hatever the real or imagined ills of the economy the news media most politicians and a fair proportion of the economics profession are quick to point to the culprit the budget deficit no matter that few appear to know or care precisely what deficit they are talking about or how it is measured no matter that few bother to explain in terms of a relevant model just how government deficits may be expected to impact the economy no matter that few offer any empirical data to sustain their judgments so budget deficits cause inflation budget deficits raise interest rates budget deficits bring on the trade deficits budget deficits crowd out investment budget deficits are an irresponsible mortgage on the future and budget deficits caused the october 1987 stock market crash and now threaten further financial cataclysms is there truth in any of these assertions or does it all depend budget deficits do matter and their effects contrary to barro s ricardian equivalence theorem can be substantial as most economists have recognized for at least half a century budget deficits can however be too small as well as too large to know which you have to measure them right and you have to analyze their role in the world in which we live pure walrasian and rational expectation market clearing models may prove more useful for academic advancement than for promotion of economic health i need not repeat many of the objections to the equivalence theorem raised by bernheim and gramlich and addressed by barro in this symposium however there is

margin requirements and stock market volatility abstract it has long been recognized that margin requirements through leverage affect the volume of speculative activity controlling speculative behavior is one approach to inhibiting overvaluation in stocks and reducing the potential for a precipitate price decline fueled by the involuntary selling that stems for example from margin calls

government revenue government expenditure and temporal causality evidence from china dissatisfied with little evidence provided on various hypotheses concerning the revenue expenditure relation in china this paper is an empirical endeavour to fill the gap through a battery of econometric tests for causality based on vector error correction and vector autoregression models a more comprehensive testing strategy for unit roots and cointegration has been suggested and a bidirectional causality pattern has been found in china s government finance the paper thus concludes that attempts simply to change revenue or expenditure or both without taking into account of the interdependence between the two may be counter productive and the effects on aggregate demand of government debt financing in the presence of inflation may not be as detrimental as some economists would expect

estimating a fiscal reaction function the case of debt sustainability in brazil this article reviews recent trends in fiscal performance in brazil estimates fiscal reaction functions for the consolidated public sector and different levels of government and tests for the sustainability of the public debt dynamics the empirical analysis based on monthly data for the period 1995 2004 suggests that all levels of government react strongly to changes in indebtedness by adjusting their primary budget surplus targets in addition the central government appears to follow a spend and tax policy changes in revenue are affected strongly by expenditure about two thirds of changes in primary spending are offset by higher revenue over the longer term institutions are also found to matter for fiscal sustainability the responsiveness of the sub national fiscal stance to indebtedness as well as that of central government revenue to changes in primary spending appears to have become stronger after 1998 when ceilings on indebtedness were introduced

the causal relation between federal expenditures and receipts federal expenditures have consistently exceeded federal revenues since 1970 in fact the federal government has seen a surplus in only five years since 1950 the symptoms of such fiscal imbalance are of course budget deficits while budget deficits are nothing new in u s history the recent and projected size of the deficit during peacetime nonrecessionary years has been the cause of much concern to academics the news media and politicians this preoccupation with federal deficits has produced a variety of policy proposals to deal with them

public expenditure and national income causality further evidence on the role of omitted variables whether changes in public expenditure growth help predict changes in national income growth and or vice versa remains an important issue of sustained interest in the empirical public finance literature in recent years attention has mainly been confined to two specific areas namely estimation of the impact of the public sector on output growth by means of regression analysis and causality testing unfortunately the outcome of both types of analysis has been inconclusive focussing on the impact studies we note that a number of empirical investigations have attempted to measure the effect of the size of the public sector on overall economic growth for instance ram 19 utilizing a two sector model found that growth of government size has a positive effect on economic growth landau 14 15 however presented opposite evidence indicating that the government sector expansion led to a decline in output growth for many dcs and ldcs since 1960 in a recent study barth keleher and russek 4 estimated variants of ram s models with data for 30 countries their empirical results largely support a negative relationship between the scale of government and aggregate economic activity furthermore using the hausman procedure they rejected the hypothesis that the independent variables namely real government spending or other measures of the scale of the government depending on the specification in the regression equations are exogenous this strongly suggests that the conclusions reached by

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

measuring the importance of oil related revenues in total fiscal income for mexico revenues from oil exports are an important part of government budgets in mexico a time series analysis is conducted using monthly data from 1990 to 2005 examining three different specifications to determine how international oil price fluctuations and government income generated from oil exports influence fiscal policy in mexico the behavior of government spending and taxation is consistent with the spend tax hypothesis the results show that there is an inverse relationship between oil related revenues and tax revenue from non oil sources fiscal policy reform is urgently needed in order to improve tax collection as oil reserves in mexico become more and more depleted

exploring the oil price and real gdp nexus for a small island economy the fiji islands the goal of this paper is to examine the relationship between real gdp and oil prices using time series data for the period 1970 2005 our main finding is that an increase in oil has a positive albeit inelastic impact on real gdp inconsistent with the bulk of the literature we argue that this is not a surprising result for the fiji islands our central argument focuses on two aspects of the fijian economy 1 the fact that actual output in fiji has been around 50 per cent less than potential output thus fiji s actual output has not reached a threshold level at which oil prices can negatively impact output and 2 a rise in oil prices filters through to value added which in turn is reflected in a larger actual output

the emerging u s current account deficit in the 1980s a cointegration analysis this paper seeks to understand the recent history of u s external imbalances by identifying the long run tendency of the u s current account balance and investigating its behavior the procedure that is adopted is to estimate cointegrating regressions between u s exports and imports of goods and services estimates from cointegrating regressions between several measures of u s exports and imports show that up to about the end of 1983 the u s current account tended toward zero since that time there has been an apparent structural shift resulting in a long run tendency for a deficit in excess of 100 billion per year copyright 1992 by mit press

the empirical analysis of fiscal illusion this paper examines the empirical analysis of the five main hypotheses subsumed under the generic term fiscal illusion after placing these hypotheses within a common theoretical framework the paper attempts to evaluate empirical research into the revenue complexity hypothesis the revenue elasticity hypothesis the flypaper effect renter illusion and debt illusion

tax and spend or spend and tax empirical evidence from greece spain portugal and ireland the paper examines empirically the relationship between government revenues and expenditures in four european countries greece spain ireland and portugal in relative terms all four may be considered as the poorest members of the european union yet they present a fairly diverse picture as far as their macroeconomic performance and fiscal position is concerned the empirical findings from cointegration and causality tests that are reported here indicate that in the case of greece and ireland tax and spending decisions are taken simultaneously by the fiscal authority the tax and spend hypothesis is supported in the case of spain while absence of any causal ordering between government expenditure and tax revenues has been established for portugal

friedman tax cuts vs buchanan deficit reduction as the best way of constraining government i introduction both milton friedman and james buchanan believe that the federal government spends more than can be justified on the basis of economic efficiency both also agree that the reason for excessive government spending is that the political process allows people to realize the benefits from government spending without fully paying the cost of that spending but friedman and buchanan are in apparent disagreement on the effectiveness of alternative approaches at constraining government by considering friedman and buchanan s apparent disagreement at the level of fiscal policy it is possible to better understand their agreement at the level of constitutional policy milton friedman has argued that a reduction in taxes and tax revenues with an increase in the budget deficit serves the useful function of restraining government spending for example friedman 1982 60 61 has written i want to cut tax rates but if the lafferites were correct in the extreme form that a particular cut in taxes increased revenue then my conclusion would be that we hadn t cut tax rates enough because what i want to cut is government revenue that s what feeds government spending what they the big spenders want is to increase taxes so they will have more money to spend and won t have to cut spending the triumph in my opinion of the tax cutting policy that president reagan has been following is that he has made the big spenders talk on his terms for the first time they have to face up seriously to cutting spending 1 in contrast james buchanan argues that reducing taxes and increasing debt financing lowers the perceived cost of government spending and consequently increases government spending for example buchanan and wagner 1977 138 139 state the replacement of current tax financing by government borrowing has the effect of reducing the perceived price of government goods and services with the result that taxpayers increase their demands for such goods and services preferred budget levels will be higher and these preferences will be sensed by politicians and translated into political outcomes in discussing the economic policy of the reagan administration william niskanen who was a member and acting chairman of the president s council of economic advisers during the reagan presidency takes note of the conflicting views of friedman and buchanan according to niskanen 1988 109 milton friedman promoted a view that tax rates should be reduced at every opportunity believing that the resulting increase in the deficit would increase pressure to reduce federal spending james buchanan expressed a directly contrary view that a tax increase would reduce spending by increasing the perceived price of government services to the current voters niskanen continues by expressing his leanings toward the buchanan view a leaning based on his own research niskanen 1978 he points out however that recent empirical work is inconclusive with some supporting friedman s position and some supporting buchanan s niskanen 1988 109 concludes his discussion of the difference of opinion between friedman and buchanan by observing that economists and politicians unfortunately do not yet share a clear understanding of these taxing spending and budget deficit relations a simple model of taxation spending and deficit determination provides a framework for examining systematically the conflict between friedman and buchanan it makes clear that the relationships among these variables cannot be determined by empirical investigation alone because both the friedman and buchanan positions emerge as special cases of a more general model it is not surprising that empirical studies can be found to support either position indeed we demonstrate that historic episodes exist which support the positions of both men ii the model political decisions like market decisions are made in response to benefits and costs

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure

organizational structure communication and group ethics this paper investigates experimentally how organisational structure affects ethics inside a firm maximising firm profits harms outsiders in a vertical treatment one insider unilaterally sets the harm reduction strategy the other accepts or quits in a horizontal treatment the insiders decide by consensus communication treatments create a 2 by 2 design in the data communication makes vertical firms more ethical with voice subordinates feel responsible for what their firms do voice mitigates their responsibility alleviation vertical firms are then more ethical than horizontal firms for which bargaining data reveal a dynamic form of responsibility alleviation and chat data indicate a strong insider outsider effect

temporal causality and the dynamic interactions between terms of trade and current account deficits in co integrated var processes further evidence from ivorian time series this paper investigates the relationship between the terms of trade and current account deficits within a context of vecm the results indicate that for the coted ivoire there is a long run relationship between the terms of trade and current account deficits they also indicate that current account deficits in cote d ivoire cannot be explained by the terms of trade a strong unidirectional relationship exists between current account deficits and the terms of trade since the first one granger causes the second finally dynamic simulations have indicated that a significant portion of fluctuations in the terms of trade is explained by current account deficits in light of these findings it can be concluded that economic policy in cote d ivoire should be carried out with extreme caution due to the nature of international commodity markets the mechanism of the terms of trade s formation and the relative exogeneity of current account deficits

assessing ricardian equivalence this paper reviews the literature on ricardian equivalence this hypothesis may be interpreted as a generalisation to the short and the long run of the theories which put no weight on the real effects of public policies on aggregate demand we argue that ricardian equivalence relies on both permanent income hypothesis and the fulfilment of the intertemporal government budget constraint the theoretical literature emphasises several reasons for departures from this hypothesis however the empirical literature is inconclusive when ricardian equivalence is tested in a life cycle framework the hypothesis is usually rejected while when the empirical analysis is based on optimising models it is usually accepted

on the limitations of government borrowing a framework for empiricaltesting this paper seeks to distinguish empirically between two views on the limitations of government borrowing according to one view nothing precludes the government from running a permanent budget deficit paying interest due on the growing debt load simply by issuing new debt an alternative perspective holds that creditors would be unwilling to purchase government debt unless the government made a credible commitment to balance its budget in present value terms we show that distinguishing between these possibilities is mathematically equivalent to testing whether a continuing currency inflation might be fueled by speculation alone or is instead driven solely by economic fundamentals empirical tests which have been developed for this economic question lead us to conclude that postwar u s deficits are largely consistent with the proposition that the government budget must be balanced in present value terms this abstract was borrowed from another version of this item

the added worker effect abstract this paper uses the gross change data and cointegration error correction modeling to test the hypothesis of added worker effect in the u s labor market it is shown that prime age males unemployment u m and flows from unemployment to out of the labor force un m cause an increase in prime age and young females flows from not in the labor force keeping house to employment and decrease their flows into unemployment

upsetting national priorities the reagan administration s budgetary strategy we use simulations based on a multiequation model of federal budgetary outcomes to assess the reagan administrations impact on the federal budget during fiscal years 1982 86 reagan s aggregate budget priorities represent a significant departure from the priorities of prior postwar administrations the bulk of this shift in priorities had occurred by fiscal 1984 defense spending and uncontrollable domestic spending were higher and spending on domestic controllable programs lower under reagan than they would otherwise have been the distinctiveness of reagan s budgetary priorities can be attributed to his tax cuts and far from a strategy of starving the budget by reducing revenues to a failure to allow fiscal pressures to restrain spending the model projects that without tax cuts reagan s predecessors would have spent no less on defense than reagan cutting taxes increased the deficit by about 400 billion cumulatively during fiscal years 1982 86 and reduced expenditures by roughly 30 billion

outsourcing vertical integration and price vs quantity competition abstract we show that standard conclusions about duopoly competition can be reversed when the production of key inputs is outsourced to a vertically integrated retail competitor with upstream market power under such outsourcing bertrand competition can produce higher prices higher industry profit lower consumer surplus and lower total surplus than cournot competition in addition to limiting the intensity of retail competition bertrand competition can limit the extent of wholesale competition by reducing the incentive of retail providers to produce key inputs themselves

tax and spend or spend and tax an inquiry into the turkish budgetary process for resolving the budget deficit problem some economists have advocated spending cuts while others support either tax increases or tax cuts this paper investigates the interrelationship between the two fiscal variables for turkey using bivariate and multivariate cointegrating models the engle granger and johansen tests consistently support the existence of one nonzero cointegrating vector representing a stable long run relationship between government spending and revenues in turkey furthermore the multivariate error correction model suggests that taxes unidirectionally granger cause negative changes in spending in accordance with the buchananwagner hypothesis thus from the perspective of policy making and the deficit solution debate raising taxes in turkey is perhaps the optimal solution to the current budget deficit predicament contemporary economies perhaps without exception have been plagued with huge and escalating government budget deficits these deficits are expected to have adverse economic consequences including high real interest rates slow capital formation and high unemployment rates moreover to the extent that the deficit is financed through the issuance of government bonds the recurrent large deficits have further worsened the public debt problem which threatens the well being of numerous countries both developed and developing therefore researchers and policymakers have expended enormous efforts attempting to analyze the deficit problem and to suggest ways to resolve it some for example advocate cuts in government spending rather than tax increases as the optimal solution to the deficit dilemma they reason that governments often spend all that they receive in taxes and perhaps much more under this line of reasoning raising taxes would simply induce more spending leaving the deficit unchanged or even higher others however deny this implied tax and spend nexus and argue that it is taxes that adjust gradually to spending under this latter scenario tax increases will not lead to higher spending and thus could be used as an effective deficit cutting measure along with spending cuts still other researchers posit that changes in spending and taxes could occur simultaneously therefore focusing on one component of the government budget while ignoring the interdependence with the other component would have an ambiguous overall effect on the deficit

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

government expenditures and revenues evidence from asymmetric modeling 1 introductionexamining the empirical relationship between government revenues and expenditures is a crucial step in understanding the future path of the budget deficit four alternative explanations have been used to describe the relationship between these variables in the budgetary process i the tax and spend hypothesis ii the spend and tax hypothesis iii the fiscal synchronization hypothesis and iv the institutional separation hypothesis the issue of which hypothesis best describes the nature of the budgetary process has yet to be resolved in the literature however existing research has implicitly assumed that the state of the budget and whether or not the budget deficit or surplus is worsening or improving does not matter we argue that government decision makers may take these factors into account when determining expenditures and tax policy as such this article reexamines the tax spend debate by using a more robust econometric technique that allows for asymmetry in the relationship between revenues and expenditures until now the empirical evidence on the tax spend debate has focused almost exclusively on two conventional econometric techniques depending on the cointegrating properties between revenues and expenditures these techniques are based on either variations of the unrestricted vector autoregression uvar or the vector autoregression error correction model ecm 1 if for example the two budgetary variables are not cointegrated then the application of causality2 tests requires the use of stationary variables in the uvar model 3 on the other hand if the two budgetary variables are cointegrated then the application of causality tests requires an ecm specification it is important to note that the ecm specification implicitly assumes that the adjustment process of expenditures and revenues due to disequilibrium between the variables is strictly symmetric indeed if the adjustment is asymmetric then the symmetric adjustment implicitly assumed in the conventional techniques to ascertain causality implies model misspecification this specification error may lead to misguided and perhaps inappropriate fiscal policy decisions accurate estimation of the revenue and expenditure process is especially important as changes in taxes and spending alter incentives for work investment and productive activity cea 2004 thus the anticipated behavioral responses of households and businesses may be better captured by more general models that allow for asymmetry in the tax spend relationship to this end this article examines the existence of cointegration between revenues and expenditures and the corresponding ecm specification by using the recently developed techniques of asymmetric modeling in particular we employ the threshold autoregression tar and momentum threshold autoregression m tar models developed by enders and granger 1998 and enders and siklos 2001 within the context of these models we shed new light on whether budget surpluses versus budget deficits or an improving budget versus a worsening budget have asymmetric effects on the dynamic behavior of expenditures and revenues there is an a priori rationale for modeling asymmetry in the budget and for the response of its components to disequilibrium this rationale can be categorized into four factors first the fiscal policymakers may respond differently to a deviation of the deficit or surplus from its long run trend one would expect for example that the response would be more aggressive if the deficit was greater than its long run trend than if it was less than its trend second it is widely acknowledged that there is a very close connection between the budget and the business cycle through automatic fiscal stabilizers and discretionary fiscal measures to the extent that the business cycle is asymmetric the associated change in the budget may also be asymmetric

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

oligopoly games and the cournot bertrand model a survey traditional oligopoly models hold that firms compete in the same strategic variable output cournot or price bertrand alternatively a hybrid model allows some firms to compete in output and other firms to compete in price also known as the cournot bertrand model when the choice of strategic variable is endogenous the established dominant strategy is output competition a growing body of work demonstrates however that the cournot bertrand outcome can be a subgame perfect nash equilibrium in the presence of market asymmetries observations of real world markets consistent with cournot bertrand behavior bolster justification for the model and have stimulated an impressive and evolving literature on advances and applications we lay out the roots of the cournot bertrand model and explore a number of model developments we categorize 12 primary models in the literature based on alternative assumptions in particular some authors consider when the timing of play as well as the choice of strategic variable are endogenous altogether this research identifies when cournot bertrand behavior can emerge in a dynamic setting and under alternative market conditions we also review the cournot bertrand model applications in the fields of international economics industrial organization labor and public economics we expect the literature to continue to expand in the future

the intertemporal relation between government revenue and expenditure in the united kingdom 1750 to 2004 we examine the intertemporal relation between government revenue and expenditure in the uk during 1750 to 2004 we pay particular attention to long run trends by applying a battery of unit root and cointegration techniques to the data and we use a modified granger causality test on data spans organized around structural breaks in the series the results suggest that allowing for structural breaks uk real revenue and spending are i 1 series and cointegrated and that granger causality runs from government spending to revenue as such the spend tax hypothesis appears to best characterize the long run intertemporal relation between government revenue and spending in the uk

tax and spend spend and tax or fiscal synchronization new evidence for ten countries cointegration and vector autoregression are used to test the tax and spend spend and tax and fiscal synchronization for ten countries using annual time series data over the period 1951 to 1996 three of them are part of the newly industrialized countries of asia south korea taiwan and thailand and seven are industrialized countries australia canada japan new zealand south africa uk and the usa this paper includes gdp as a control variable into the model like baghestani and mcnown 1994 ross and payne 1998 and koren and stiassny 1998 the johansen 1988 and johansen and juselius 1990 cointegration test results indicate that these three variables are cointegrated with two cointegrating vectors for south korea one vector for australia canada south africa taiwan uk and the usa and no vector for japan new zealand and thailand the results from granger causality tests suggest unidirectional causality running from revenues to spending supporting the tax and spend hypoth

monetary vs credit aggregates an evaluation of monetary policy targets the past decade was characterized by increased emphasis upon monetary aggregates as intermediate targets for monetary policy although growth rate ranges were specified for both narrow and broad monetary aggegates as well as for bank credit the primary focus of the federal reserve was on the growth rate of narrow money however some policy makers 19 have recently expressed doubt about the viability of using narrow money as an intermediate target in particular it has been argued that recent financial innovations such as the introduction of the various now accounts the proliferation of money market mutual funds and the adoption of cash management techniques by both firms and consumers to name a few have distorted the ml1 gnp relationship thereby raising the question of whether broader monetary aggegates or even credit aggregates might bear a closer relationship to income furthermore the federal reserve has recently announced growth rate target ranges for a broad credit aggregate in addition to growth rate ranges for ml and m2 2 friedman 7 8 provides a general discussion of these issues while modiglianipapademos 18 provide a theoretical analysis of the conditions under which a credit aggregate is preferred to a monetary aggregate as an intermediate target however nothing conclusive can be said at the theoretical level since the choice between money and credit aggregates depends upon the true underlying structure of the macroeconomy hence the choice among money and credit aggregates is an empirical issue the aim of this paper is to provide evidence on the issue of credit aggregates versus monetary aggregates as intermediate targets for monetary policy the paper evaluates the characteristics of several monetary and credit aggregates in terms of two attributes of a

turkish budget deficit sustainability and the revenue expenditure nexus the sustainability of the turkish budget deficits as well as the dynamics of government revenues and expenditures in controlling the size of the deficit is examined using annual data from 1968 to 2004 the findings support the existence of a long run relation between government revenues and expenditures once allowance is made for an unknown structural break however the size of the slope parameter is significantly less than one suggesting that the government might face difficulties in financing its future debt with respect to the revenue expenditure nexus the empirical evidence is favourable to the tax spend hypothesis through the error correction term in the expenditures equation finally there is no evidence of asymmetries in the adjustment process in either the threshhold autoregressive or momentum threshold autoregressive specifications of the budgetary adjustment process

tax spend spend tax or fiscal synchronization a wavelet analysis in this article we use wavelet methodology to analyse the long term relationship between spending and taxes unlike the standard methodology that utilizes unit roots and cointegration with or with

common trends the government s budget constraint and revenue smoothing abstract the requirement that the government s budget be balanced in present value terms is shown to be equivalent to the condition that government expenditures inclusive of interest tax receipts and seignorage be cointegrated the condition is in fact stronger requiring that the deficit inclusive of interest be stationary stationarity of the net of interest deficit is neither necessary nor sufficient for intertemporal budget balance however it does have implications for barro s tax smoothing hypothesis data for the period 1890 1986 are consistent with intertemporal budget balance but not with tax smoothing

expenditures and receipts testing for causality in state and local government finances the results of our tests indicate similarities between the expenditure tax receipt relations of state governments to those previously reported for the federal government in manage and marlow 1986 the results reported here indicate support for the hypothesis that tax receipts cause expenditures at the state level of government for tests utilizing symmetric lag structures ranging from three to five years state expenditures appear to follow state tax receipts for the shortest lag length 2 2 the determination of bidirectional causality does not make us reject the hypothesis that higher spending levels result from higher revenue levels rather the causality appears to be in both directions for the shortest lag length

panel data modelling and the tax spend controversy in the euro zone this article attempts to differentiate between the debatable tax and spend spend and tax fiscal synchronization and institutional separation hypotheses in order to explore empirically the interplay between public expenditures and public revenues in the economic and monetary union emu member states for this purpose panel data models are derived to test the validity of the four hypotheses in emu countries a notable characteristic of this article is that the four hypotheses are tested by dividing emu countries into various subgroups and using disaggregated data for government expenditures and revenues seeking for the robustness of the empirical evidence the panel data methods of generalized two stage least squares gtsls and generalized method of moments gmm are accordingly applied to identify the relationship between public outlays and taxation receipts gtsls and gmm results strongly support the fiscal synchronization hypothesis implying that budget decision making is significantly influenced b

tests for parameter instability in regressions with i 1 processes this article derives the large sample distributions of lagrange multiplier lm tests for parameter instability against several alternatives of interest in the context of cointegrated regression models the fully modified estimator of phillips and hansen is extended to cover general models with stochastic and deterministic trends the test statistics considered include the supf test of quandt as well as the lm tests of nyblom and of nabeya and tanaka it is found that the asymptotic distributions depend on the nature of the regressor processes that is if the regressors are stochastic or deterministic trends the distributions are noticeably different from the distributions when the data are weakly dependent it is also found that the lack of cointegration is a special case of the alternative hypothesis considered an unstable intercept so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration the tests are applied to three data se

budget deficits and national saving are politicians exogenous during the thirty five year period following world war ii the federal budget deficit averaged less than one percent of net national product never once exceeding five percent for the five year period from 1982 86 the budget deficit never once fell below five percent of net national product there have been some modest cutbacks recently and the deficit is likely to fall to about four percent of net national product in 1988 further declines are now projected in the congressional budget office 1988 baseline forecast of the implications of present policies but both 1988 presidential candidates suggested many more policies that would increase than decrease the deficit these numbers indicate that after years of relative abstinence the united states has experimented with persistent budget deficits on a rather massive scale in the 1980s economists have generally been quite critical of this fiscal policy though there are at least three respectable minority views arguing that federal deficits are not so bad and quite possibly better than likely corrective measures the rationale for economists general opposition comes from those who hold what is called the neoclassical view of deficits according to this view if the united states should be treated as a closed economy persistent deficits will raise interest rates and lower investment if the united states should be treated as a small open economy persistent deficits will leave real interest rates and investment unchanged but the drop in national saving would be financed by higher foreign borrowing accomplished through a rise in the dollar and a drop in net exports either way net national saving falls and consumption rises at the expense of some combination of investment and net exports as a result living standards are higher in the present but lower in the future compared to what they would be in a world of no deficits

lag length selection and tests of granger causality between money and income one of the most widely accepred relationships in macroeconomics is the positive relationship between the rate of growth of the money supply and the rate of growth of income a diversity of opinion arises however with the attempt to identify a causal relationship between these variables while friedman and schwartz 1963 initiated the empirical investigation of money income causality sims 1972 made the most significant contribution to this literature with a practical application of the criterion developed by granger 1969 for identifying a causal relationship since the appearance of sims s approach and an alternative one advanced by sargent 1976 many researchers have applied these techniques to the investigation of the causal relationship between money and income l with two exceptions hsiao 1981 and mcmillin and fackler 1984 these researchers have arbitrarily chosen the lengths of their distributed lags the purpose of this paper is to test for granger causality between money and income this paper differs from previous work in that considerably more attention is focused on the effect of the lag specification on the test results in particular we investigate the extent to which rules of thumb arbitrary lag specifications and

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

controlling leviathan through tax reduction our paper seeks the strategy that allows the greatest ability to reduce public sector size within a political environment that does not want us to directly set limits on public sector size tax reduction through its quid pro quo effect offers high tangibility to taxpayers and may raise political power of groups that seek both tax reduction and greater opposition to lobbies that seek spending increases for their narrowly defined interests moreover as manage and marlow 1986 argues since the political response to balanced budget rules is likely to raise taxes this political bias of tax hikes suggests that balanced budget rules are offered as a means of changing the funding mix and not the actual budget constraint of government

an examination of the causal relationship between government spending and revenue a cointegration analysis this paper tests the validity of the proposition that there is a causal relationship between government expenditure and government revenue for greece over the period 1957 1993 the empirical analysis employs tests of cointegration as pre tests for granger tests of causality the empirical evidence suggests that there is a long run relationship between government spending and government revenue and expenditures cause revenues

does foreign aid promote the expansion of government building on the literature on public finance i seek to advance our understanding of variations in government size by exploring the impact of official development assistance on fiscal policy i hypothesize that foreign aid operates in accordance with the flypaper effect systematically generating incentives and opportunities for the expansion of government spending results from a time series cross sectional regression analysis of growth in government spending over the 1970 99 time period are consistent with the hypothesis for middle and lower income nations aid represents an important determinant of government expansion looking at the tax and revenue side of the equation however reveals a more perverse pattern of response aid promotes not only increased spending but also reduced revenue generation the results have important implications from both a theoretical and policy perspective inter alia they point to the potentially self defeating nature of efforts to promote market oriented programs of state retrenchment via development assistance as well as to the importance of incorporating international transfers into future research on government spending

budget balance through revenue or spending adjustments abstract the paper provides a historical perspective on the issue of whether budget deficits are typically eliminated by increased taxes or by reduced spending by examining u s budget data from 1792 1988 i conclude that about 50 65 of all deficits due to tax cuts and about 65 70 of all deficits due to higher government spending have been eliminated by subsequent spending cuts while the remainder was eliminated by subsequent tax increases in contrast to previous studies the empirical analysis uses error correction models in a way that the intertemporal budget constraint is imposed in the estimation stage

causality analysis and multivariate autoregressive modelling with an application to supermarket sales analysis abstract this paper describes a modelling methodology for multivariate stochastic processes the concept of multiple causality is discussed and a procedure to detect multiple causality is suggested the data of a major canadian supermarket is analyzed and a multivariate autoregressive model for this supermarket is constructed and estimated several empirical findings are reported

purchasing power parity in the presence of foreign exchange black markets the case of india the empirical validity of b ppp eb as a long run constraint between india and the us is examined in the preesence of foreign exchange black markets in a triariate model the official exchange rate is found to be coinergrated with both the price ratio and the black market exchange rate both the official exchange rate and price ratio respond to correct short run departures from b ppp eb also both the official and the black market exchange rates respond to correct departures from their own equilibrium relation the two sources of endogeneity in the official rate follow rate follow as indian authorities aimed to stabilize domestic prices and reduce uncertainty about the dollar price of rupees

betrayal aversion evidence from brazil china oman switzerland turkey and the united states comment in a series of binary choice problems we investigate how a chooser s risk taking changes when others share in their personal risk either equally or unequally we find that when the safe option yields inequality the risky option is taken significantly more often on the other hand the inequality resulting from the risky choice does not affect risk taking we also find that choosers tend to be less risk averse in a one person context compared to when the risk also affects the payoff of another c72 d81 z13

testing for causality between government spending and taxation in the past few years the public sector deficit in greece has reached alarmingly high levels in view of the various hypotheses about the relation between government spending and revenues we test for causality between these two determinants of public deficit

conditional cooperation and voluntary contributions to public goods we compare a partners condition where the same small group of subjects plays a repeated publi c good game to a strangers condition where subjects play this game in changing group formations subjects in the partners conditi on contribute from t he first period on significantly more to the publi c good than subjects in the strangers conditi on in the strangers conditi on contributions show a continual decay whil e in the partners conditi on contributions fluctuate on a high level until t hey decrease in the final periods we interpret subjects behavior in terms of conditional cooperation which is characterized by both future oriented and reactive behavior

on the difficulty of eliminating deficits with higher taxes some canadian evidence government budget deficits have increased along with government revenues from direct and indirect taxation both in absolute amounts and as a share of national income in canada as well as in several other countries especially since the 1960s this phenomenon also has coincided particularly since 1980 with skepticism over the notion that government deficit spending stimulates economic growth and employment instead many now expect deficits to produce negative effects on economic activity including high real interest rates reduced real capital formation and production increased unemployment and possible long term inflation 2 these expectations have produced a near concensus on the need to reduce government budget deficits but not on the means of achieving that goal some advocate reductions in government spending as the optimal solution while others call for increases in taxation to raise revenue although either policy in principle may achieve the same result for the deficit they arise from different theories of the determinants of government spending in particular those who advocate expenditure cuts suggest that increased taxation would increase government spending more than it would reduce the deficit arguing that there is a causal direction from increased tax revenues to increased government expenditures although the taxation spending causality hypothesis has assumed increased prominence over the last decade 3 little statistical testing has been done for canada studies by manage and marlow 18 and ram 21 lend support to the argument that expenditures are more responsive to revenues than the reverse on the basis of u s data indeed ram s work contradicts the earlier conclu

government revenue and government expenditure nexus evidence from developing countries the relationship between government revenue and government expenditure has attracted a lot of interest given its policy relevance particularly with respect to budget deficits the goal of this paper is to investigate evidence for causality between government revenue and government expenditure within a multivariate framework by modelling them together with gross domestic product for 12 developing countries our application of the toda and yamamoto 1995 test for granger causality reveals support for the tax and spend hypothesis for mauritius el salvador haiti chile and venezuela for haiti there is evidence for the spend and tax hypothesis while for peru south africa guatemala uruguay and ecuador there is evidence of neutrality

do revenues or expenditures respond to budgetary disequilibria the post world war ii increase in the size of the federal government has led to a number of theoretical and empirical investigations of the sources of this growth in particular economists have questioned whether increases in the size of the federal budget tend to be initiated by changes in expenditures followed by revenue adjustments by the reverse sequence or both friedman for example argues that governments adjust expenditures to the level of revenues so that control of taxation is essential to limit growth in government 13 alternatively the spend and tax model posits that revenues will be adjusted to finance any politically chosen level of expenditures a third perspective reflecting the institutional separation of allocation and taxation functions of the federal government hypothesizes the independent determination of revenues and expenditures the goal of this investigation is to test these three alternative theories of the budgetary process for the united states

economic growth and tax components an analysis of tax changes in oecd the paper examines empirically the changes in the tax mix of the oecd countries in response to economic growth from 1980 to 1999 it is found that economic growth measured by gdp per capita has had a significant effect on the tax mix of the oecd countries analysis reveals that different taxes respond differently to the growth of gdp per capita it is shown that while the shares of personal and property taxes have responded positively to economic growth shares of the payroll and goods and services taxes have shown a relative decline

u s federal indebtedness and the conduct of fiscal policy abstract this paper examines whether the conduct of u s fiscal policy since the 1920s has been influenced by constraints on the accumulated stock of outstanding federal debt the evidence is affirmative during most of the inter and post war period policy in effect stabilized the federal debt relative to gnp but after 1981 large debt and debt service costs failed to produce deficit reductions consistent with the pattern of previous decades

on the dynamic analysis of cournot bertrand equilibria abstract we consider a setting where firms in the first stage invest in cost reducing r d in the market stage one firm sets a quantity and another sets a price we prove that the quantity setting firm invests more in r d has a lower price and produces higher quantity than the price setting firm we also consider welfare implications

on the specification of granger causality tests using the cointegration methodology the application of granger causality tests to macroeconomic time series frequently necessitates filtering the data to induce stationarity if the relevant variables are cointegrated granger causality tests are misspecified if applied in standard vector autoregressive format to differenced data a common application is illustrated

public expenditure growth in greece and portugal wagner s law and beyond in the tradition of wagner s law this study examines the relationship between aggregate income and public expenditures in greece and portugal during the years 1958 85 unlike more conventional specifications our analysis focuses on the movement of different componenets of public expenditures permanent income relative prices stabilization policy and socio political factors emerge as thomain determinants of public expenditures while the results reveal significant difference in responses to these determinants across components of expenditures and between the two countries

guilt in games a clear conscience is a good pillow why does this old proverb contain an insight the emotion of guilt holds a key psychologists report that the prototypical cause of guilt would be the infliction of harm loss or distress on a relationship partner roy baumeister arlene m stillwell and todd f heatherton 1994 245 june price tangney 1995 moreover guilt is unpleasant and may affect behavior to render the associated pangs counterfactual baumeister stillwell and heatherton state if people feel guilt for hurting their partners and for failing to live up to their expectations they will alter their behavior to avoid guilt in ways that seem likely to maintain and strengthen the relationship avoided guilt is the down of the sound sleeper s bolster how can guilt be modeled how are human interaction and economic outcomes influenced we offer a formal approach for providing answers start with an extensive game form which associates a monetary outcome with each end node say that player i lets player j down if as a result of i s choice of strategy j gets a lower monetary payoff than j expected to get before play started player i s guilt may depend on how much he lets j down player i s guilt may also depend on how much j believes i believes he lets j down we develop techniques to analyze equilibria when players are motivated in part by a desire to avoid guilt the intellectual home for our exercise is what has been called psychological game theory this framework originally developed by john geanakoplos david pearce and ennio stacchetti 1989 and recently extended by battigalli and dufwenberg 2005 henceforth b d allows players utilities to depend on beliefs about choices states of nature