the real exchange rate conundrum the case of central america abstract this paper evaluates alternative measures of the real exchange rate for mexico and central american countries bilateral and multilateral real exchange rates using the consumer price index wholesale price index and gross domestic product deflator are calculated there are often significant differences between the bilateral and multilateral measures of the real exchange rate real exchange rates based on consumer price indexes and gross domestic product deflators were found to be more closely related to each other than either one was to the wholesale price index

the effects of real exchange rate depreciation on stochastic producer prices in low income agriculture abstract this paper considers the effects of real exchange rate depreciation on stochastic agricultural producer prices in low income agriculture conventional wisdom that real depreciation achieved through nominal currency devaluation stimulates tradables production does not universally hold in the presence of stochastic prices in fact real depreciation is only stimulative in two cases importables that remain importable and nontradables that become exportable garch estimation of time series price data on several commodities from madagascar support the hypotheses generated by the analytical model

politics time and the laffer curve why should a rationally motivated political decision process generate an inverse relationship between tax rates and tax revenues there would never seem a logical reason for increasing tax rates beyond maximum revenue limits in this note we explain how such a position can emerge and show why once in such a position political decision makers may find it difficult to escape

immiserized growth in liberalized agriculture abstract this paper offers a simple model that reconciles rivalrous claims about liberalization s impact on low income agrarian economies growth can accompany smallholder welfare reduction the model developed here reverses the causality of bhagwati s immiserizing growth model price shocks cause welfare effects that drive output response rather than output shocks causing price shocks and then welfare effects as in the trade theoretic original immiserized growth seems a plausible explanation for some important cases e g the malagasay case considered here in which liberalization appears to have engendered both real agricultural growth and heightened food security stress among smallholder food producers

exchange rate management and manufactured exports in sub saharan africa this paper presents an overview of the evolution of exchange rate regimes in africa and then attempts to assess empirically the impact of exchange rate policy on manufactured export performance on a panel of major sub saharan africa countries over the 1970 92 period we examine the impact of three exchange rate policy indicators real effective exchangerate changes real exchange rate volatility and model based measures of real exchange rate misalignment export supply functions are estimated for three manufacturing industries textile chemicals and metals and two exchange rate regimes a fixed rates regime including six cfa franc countries and a more flexible regime represented by five non cfa countries our findings show that exchange rate management matters for export performance this is evidenced both by the significant impact of changes in the real effective exchange rate and by the negative influence exerted independently by real exchange rate misalignment on the

trade and factor movements with three factors and two goods abstract with three factors and two goods there are two extreme and one middle factor regardless of technical complementaries in the individual production functions the extreme factors must be enemies and the middle factor the other factor s friend with constant product prices

the nature of government expenditures and the shape of the laffer curve abstract the existence of a negatively sloped section on the tax revenue tax rate relationship is shown to crucially depend on the nature of government expenditures it is proved that a sufficient condition for existence is that the government expenditures should take the form of cash transfers to consumers rather than being used to provide a government good

nature of transfers income tax function and empirical estimation of elasticity of taxable income for brazil abstractthis article aims to estimate the elasticity of taxable income eti taking into account the nature of transfers and their use as a redistribution package involving cash and in kind transfers to households in brazil our contributions are twofold first we provide a simple model with balanced budget government that reveals the role played by cash and in kind transfers on the labour supply and income tax revenues thereof next in order to estimate eti in the presence of cash and in kind transfers brazilian population surveys pesquisa nacional por amostra de domicilios pnad are used to explore a limited tax reform that was implemented between 1997 and 1998 this reform only affected the higher income tax bracket our findings suggest that in kind cash transfers are positively negatively associated with reported taxable income and precise estimation of eti requires estimates of both types of transfers last we estimate the eti for brazil in the range from 0 4 to 1 3 not different fro

how does exchange rate policy affect manufactured exports in mena countries this paper shows that during the 1970s and 1980s mena economies were characterized by a significant overvaluation of their currency this overvaluation has had a cost in terms of competitiveness to determine the degree of overvaluation of the mena currencies an indicator of misalignment was developed based on the estimation of an equilibrium exchange rate edwards exchange rate misalignment in developing countries the johns hopkins university press baltimore 1988 the empirical work was based on a panel of 53 developing countries ten of which are mena economies although overvaluation decreased in the 1990s probably due to flexibilization of the exchange rate regime in some mena countries and to better macroeconomic management in others misalignment remained higher than in other regions this may be explained by the mena countries delay in adopting more flexible exchange rates as well as in reforming their economies in terms of competitiveness the estimation of an export equation has shown

on the possibility of an inverse relationship between tax rates and government revenues abstract when arthur laffer and other supply side advocates plot total tax revenue as a function of a particular tax rate they draw an upward sloping segment called the normal range followed by a downward sloping segment called the prohibitive range a brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates high elasticity parameters or both the labor tax rate which maximizes total revenue for example will depend on the assumed labor supply elasticity this paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues separating the normal area from the prohibitive area a general purpose empirical u s general equilibrium model is used to plot the laffer curve for several elasticities and to plot the newly introduced curve using the labor tax example results indicate that the u s could conceivably be operating in the prohibitive area but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest

factor price convergence in the late nineteenth century the authors examine a dramatic historical episode of factor price convergence in the late nineteenth century their focus is convergence between old world and new and the analysis centers on land and labor wage rental ratios boomed in the old world and collapsed in the new moving the resource rich labor scarce new world closer to the resource scarce labor abundant old world the authors use econometrics and simulations to identify proconvergence forces which include commodity price convergence factor accumulation and factor saving biases the results confirm that open economy characteristics and international market integration are important sources of convergence copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

some analytics of the laffer curve abstract it is shown that in a general equilibrium model with one private good one public good labour and an income tax certain widely assumed properties of the laffer curve do not necessarily hold for well behaved functional forms it may not be continuous and may not have an interior maximum its slope depends on technology as well as on the tax elasticity of labour supply for certain technologies a more negative elasticity may imply a more positive slope moreover the relevant tax elasticity is a general equilibrium one which may differ in sign from the widely quoted partial equilibrium one

indirect tax evasion and product efficiency though a number of papers have considered the issues of income tax evasion few have considered indirect tax evasion one of the exceptions is a paper which considers the very special case of a risk averse monopolist producer the present paper addresses the issue of indirect tax evasion in competitive markets evasion in such a market is shown to be associated with production inefficiency the results also suggest that laffer type curves could arise due to evasion

the design of direct taxation and family benefits abstract the subject of this paper is the design of the personal income tax and social security benefits that vary with the size of the family it is concerned with the analytical problems of policy design that arise from constraints on the instruments which may be used from differences in social judgements about the desirability of redistribution and from differences of view about the disincentive effects of taxation the paper considers these issues in the context of the french tax benefit system and the implications of the french system being harmonised towards certain features of the british system

on the analytics of the dynamic laffer curve in this paper we analyze government budget balance within a simple model of endogenous growth for the ak model simple analytical conditions for a tax cut to be self financing can be derived the critical variable is not the tax rate per se but the transfer adjusted tax rate we discuss some conceptual issues in dynamic revenue analysis and we explain why previous studies have arrived at seemingly contradictory results finally we perform an empirical study of the transfer adjusted tax rates of the oecd countries to see which country has the highest potential for fiscal improvements it turns out that only a few countries have any potential for such dynamic scoring

tax rates and labor supply in fiscal equilibrium tax rates and labor supply in fiscal equilibrium i introduction if the government changes the tax on wage income what happens to aggregate labor supply this question is at the core of debates between proponents of supply side and keynesian approaches to government fiscal policy it is unfortunate therefore that previous attempts to resolve the issue have obscured decisive assumptions regarding the preference relation between leisure and public spending one argument exposited recently by gwartney and stroup 1983 1986 and ehrenberg and smith 1988 179 80 descends from an older literature represented by the works of friedman 1949 1954 goode 1949 scitovsky 1951 and bailey 1954 and emphasizes the importance of a balanced budget framework for addressing the question this approach reveals the presence of an income effect caused by the change in government spending that must accompany the tax change at optimum according to this view this income effect exactly offsets the income effect of the tax change so that only the substitution effect of the tax remains as a consequence a balanced budget increase in the wage tax unambiguously decreases economy wide labor supply provided the increase in public spending is valued the same as the forgone private spending a different approach was initiated by winston 1965 and subsequently elaborated upon by lindbeck 1982 fullerton 1982 hanson and stuart 1983 bohanon and van cott 1986 and gahvari 1986 this approach stresses the importance of the preference relation between public spending and private spending rather than the role of the public spending income effect in determining the change in aggregate labor supply as a special example gahvari 1986 assumes a preference structure which implies that public spending does not have any influence on labor supply so there is only the partial equilibrium effect of the tax however the general conclusion of this line of reasoning is that the theoretical ambiguity of the labor supply response arises from both tax and spending effects in this paper a simple formal model is used to develop a careful accounting of the various income and substitution effects the model is sufficiently general to permit a rigorous comparison of earlier studies and to expose implicit assumptions responsible for their conclusions we show that the two approaches outlined above are associated respectively with the focal cases of compensated independence and ordinary independence between leisure and public spending the pan of the paper is as follows section ii contains a model of labor supply in the presence of wage taxation and public spending in section iii the effect on aggregate labor supply of a balanced budget change in wage taxation is analyzed section iv provides an interpretation of several previous analyses of these issues section v contains a summary of our results ii the model consider an economy with n identical consumers who derive utility from leisure l a pure private good x which serves as numeraire and a publicly provided good z the utility function u l x z is assumed to be twice continuously differentiable and strictly quasi concave everyone is endowed with t units of time which are allocated either to labor market work or leisure nonmarket activities the marginal product of labor in producing the private good is the constant real gross of tax wage rate w because agents are identical we can confine attention to allocations of equal consumption as a consequence the production possibilities frontier assumed to be linear can be expressed in per capita terms as wl x p n z wt 1 where p is the constant marginal cost of z with identical agents and only two goods not publicly provided it may be assumed without loss of generality that public spending is financed by a wage tax with constant marginal and average ad valorem rate t

factor intensities and factor substitution in general equilibrium abstract this article examines how factor intensity rankings between industries and the economy wide asymmetry in the degree of factor substitution combine to influence the manner in which changes in relative commodity prices affect the factoral distribution of income the reciprocal influence of factor endowment changes on the composition of outputs is also discussed the analysis is undertaken in a general three factor two commodity framework the minimal sized model that allows both influences to affect factor prices and admits of the possibility of complementarity between factors factors which are good substitutes find their returns behave somewhat similarly when commodity prices change while factors which are complements experience strongly asymmetrical fortunes a crucial role is played by a comparison of the share of the middle factor in each sector

exchange rate fiscal and agricultural policies in africa does adjustment hurt the poor abstract trade exchange rate fiscal and agricultural sector policy reforms are the pillars of structural adjustment programs in africa results indicate that trade and exchange rate reforms are associated with a large decline in economic rents and a shift in relative prices that favor the rural and urban poor fiscal reforms have not brought about draconian belt tightening measures although the incidence of public spending particularly in the social sectors and in terms of public sector employment remains far from progressive reduction of export crop taxation contributes to higher incomes for the poor and domestic food crop liberalization has not led to increases in purchase prices of staple commodities for most low income households

capital markets urban unemployment and land abstract this paper shows that the remarkable result by khan and naqvi that a reduction in the capital rental differential always improves welfare despite the presence of a rigid urban wage can be obtained only for the 2 2 harris todaro model in an extended harris todaro framework incorporating a third specific factor a decrease in a distortion may not necessarily be welfare improving

the real exchange rate and macroeconomic performance in sub saharan africa abstract pooled time series and cross section data for 33 countries in sub saharan africa ssa confirm the negative relationship between the real exchange rate rer misalignment and economic performance economic growth imports exports saving and investment macroeconomic instability also slows growth and other indicators of performance higher levels of misalignment are accompanied by higher levels of macroeconomic instability both lower levels of rer misalignment and instability lead to better economic performance the edwards model of rer determination performs well for the region black market premia tend to show a greater degree of misalignment in rer than alternative measures

a synthesis of the heckscher ohlin and the neoclassical models of international trade a comment abstract batra and casas 1976 have asserted that in the two sector three factor neoclassical model an increase in the supply of one factor at constant commodity prices will increase the output of the commodity using the expanding factor relatively intensively and thereby reduce the output of the other commodity the present note points out that there is a case against their assertion

labour supply incentives and the taxation of family income taxing family income richard blundell and ian walker will lower marginal rates of income tax increase incentives to work the traditional theoretical argument ignores the fact that many individuals are members of households with more than one potential participant in paid employment the theory of optimal income tax is utilized to argue that the tax system should discriminate between individuals in the same household if their labour supply responses are different empirically the response of labour supply to changes in after tax wages is largest for secondary workers particularly married women hence the largest beneficial incentive effect is obtained if such individuals face lower tax rates since these individuals typically have below average pre tax earnings this suggests a simple way to implement our proposal establish a progressive income tax with individual earnings as the basis of assessment this might have additional advantages of fairness but its primary purpose would be to ensure that low earning but highly responsive individuals face low marginal tax rates while high earning but relatively unresponsive individuals face higher marginal tax rates contrary to popular wisdom a flat rate tax system would be less favourable for work incentives we illustrate this theoretical argument using an empirical model of labour supply embedded in a micro computer programme capable of simulating alternative tax systems

free trade and factor price polarization abstract factor price equalization between trading partners is perhaps the best known implication of the heckscher ohlin samuelson model of production and trade it has long been known that with more primary factors than goods this result is not necessary recent studies have investigated effects of changing prices on factor payments in the three factor two good trade model this short note emphasizes that when such an economy moves from autarky to free trade payment to a relatively cheap factor may fall polarizing factor prices conditions favoring this outcome are examined

food crops exports and the short run policy response of agriculture in africa the response of agriculture to changes in relative prices is an important factor in the success of structural adjustment programs in africa in this paper i estimate supply functions for total agricultural output food crops and export crops in 14 african countries for the years 1975 to 1990 food and export crops are substitutes in production in the short run total agricultural output responds negatively to increases in export prices and positively to increases in food prices a plausible explanation is that as farmers shift resources to export crop production food supply falls in the short run while the increase in export supply may take several years to materialize the exchange rate is significant in explaining both food and export crop production and aggregate agricultural supply suggesting that the exchange rate is acting as a proxy for excluded macroeconomic variables or that changes in the exchange rate are not passed immediately through to prices

factor movements with three factors and two goods in the u s economy abstract ruffin s 1981 theoretical finding that extreme factors must be enemies and the middle factor must be a friend of both extreme factors with constant product prices in a three factor two good general equilibrium model is confirmed empirically for the united states results are used to explain the positions factor owners take on issues of factor movement policies

incentive policies and export performance in sub saharan africa abstract the paper presents the results of an econometric investigation which shows that exports in general and agricultural exports in particular are responsive to price incentives in sub saharan africa it is further shown that within sub saharan africa market oriented countries generally gained and interventionist countries lost export market shares the differences in export performance are even greater if comparisons are made between private market economies and etatist countries in a three fold classification scheme that puts some countries in an intermediate category

balanced government budgets versus deficit finance in a growth economy this paper analyses the effects of balanced budgets and deficit finance policies on the resulting steady state capital stock in a simple neoclassical growth model it is shown that the steady state capital stock may be higher or lower if the government is required to balance its budget in each period than if it uses deficit finance depending on the level of the initial capital stock and the curvature of the utility function of the representative agent

complementarity in a simple general equilibrium production model a simple three factor two good general equilibrium model allowing complementarity in production is examined conclusions of general equilibrium economics with two factors must be reinterpreted and qualified when complementarity is possible sign patterns of how changing factor endowments affect outputs and how changing prices affect factor payments are uncovered for a small open economy results should prove valuable to a wide range of economists interested in extending general equilibrium analysis to include complementary factors of production

taxation as a social choice problem the scope of the laffer argument abstract this paper studies the form of the tax equilibrium set in simple diamond mirrlees models and characterizes the corresponding laffer curves the curves need not ever slope downward and can have multiple local maxima local information about them is thus not sufficient to place restrictions on optimal choice among tax systems in this simple framework the problem of choice among tax systems is shown to have no more structure than an abstract social choice problem