can japan make a comeback fter being the best performer in the oecd during the preceding 40 years japan has experienced economic stagnation since the beginning of the 1990s what has happened to the japanese economy can it make a comeback as a fastgrowing economy what is required in terms of economic policy japan is the second largest economy in the world it is the largest or second largest importer of most raw materials and it owns more foreign assets than any other country what happens to the japanese economy is therefore of great importance not only for the japanese but also for the entire world

investigating environmental kuznets curve from an energy intensity perspective empirical evidence from china abstract this study pioneers investigating the environmental kuznets curve ekc hypothesis and its possible regional differential characteristics in china based on 2003 2017 years of provincial panel data this research employs panel smooth transition auto regression pstr model to analyze the impact of income levels on environmental pollution and identify the ekc threshold of energy intensity then 30 chinese provinces were categorized by energy intensity to examine the inter provincial and interregional differences in the ekc threshold of energy intensity rather than the traditional threshold of income the results indicate that china s pollution emissions and energy intensities show a stepwise decreasing pattern from the western region to the eastern region in addition the impact of income levels on pollution emissions is non linear and the critical value of energy intensity is 0 9168 between the high and low regimes an inverted u shaped environmental kuznets curve is accepted for energy intensity with 0 7670 as its threshold value when the energy intensity is higher lower than the threshold value the income elasticity of pollution emission is positive negative the more developed provinces and municipalities mainly in the eastern region are proved to exceed the threshold than the provinces in the central and western regions within the sample period given these findings this study further divides china s provinces into eco friendly low pollution and high pollution provinces and accordingly the most important policy recommendations were discussed for policy makers and researchers this research can provide a new insight to investigate countries with unbalanced development levels within and a reference for environmental governance policies in sub regions

growth and environmental quality testing the double convergence hypothesis abstract this paper discusses the double convergence hypothesis dch that the uncritical analysis of the so called environmental kuznets curve ekc implicitly implies according to the ekc empirical evidence would support the hypothesis that economic growth through a deterministic sequence of phases would produce cross country convergence in per capita output and as a by product convergence in the demand for environmental quality however factual analysis seems to reject the general hypothesis of convergence in per capita output limiting the validity of such an assessment to the case of homogeneous groups of countries this is why to test the dch the paper focuses on the original group of oecd countries for which the economic convergence turned out to be true this allows us to verify whether green and convergence follows as a consequence of economic convergence the paper also tests for a more equitable distribution of protection policies among countries unlike other studies which do not make the dch explicit and have focused on pollutant emissions this research explicitly tests for the double convergence using as a proxy for the demand for environmental quality the territory set aside for protected areas the results confirm that for the selected homogenous group of countries growth has accompanied the demand for environmental quality this happens both in terms of conditional and stochastic convergence

the case of the negative nominal interest rates new estimates of the term structure of interest rates during the great depression throughout the 1930s and early 1940s u s treasury bonds and notes appeared to have negative nominal yields as they approached maturity but negative nominal interest rates are impossible in a world in which one can always hold cash the resolution to this puzzle is that treasury securities in addition to making coupon payments gave the owner the right to buy a new security on a future date this paper describes the institutional environment that led to the apparent negative nominal interest rates develops a method for valuing the exchange privilege and computes accurate measures of the yield to the coupon bearing component of these composite bond options these corrected bond and not yields are then used to calculate new estimates of the term structure of interest rates from 1929 to 1949

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

inequality and informality abstract this paper presents theory and evidence on the determinants of the size of the informal sector we propose a simple theoretical model in which it is positively related to income inequality more so under weak institutions and is negatively related to the economy s wealth these predictions are then empirically validated using different proxies of the size of the informal sector income inequality and institutional quality the results are shown to be robust with respect to a variety of econometric specifications we also find that government interventions through regulations lose much of its robustness in the presence of the above factors

the liquidity trap and u s interest rates in the 1930s most current literature assumes that a central bank loses the ability to influence interest rates through variations in reserve supply as soon as overnight rates have been driven to zero i argue that reserve supply can be directly related to longer term rates when overnight rates are zero because banks reserve demand is then defined by the role of cash as an asset free of interest rate risk i present evidence that reserve supply affected longerterm interest rates in the u s from 1934 through 1939 while overnight rates were at the zero floor even when the changes in reserve supply reflected factors unlikely to have affected expectations of future overnight rates

exchange rate policy and the zero bound on nominal interest rates in this paper we study the effectiveness of monetary policy in a severe recession and deflation when nominal interest rates are bounded at zero we compare two alternative proposals for ameliorating the effect of the zero bound an exchange rate peg and price level targeting we conduct this quantitative comparison in an empirical macroeconometric model of japan the united states and the euro area furthermore we use a stylized micro founded two country model to check our qualitative findings we find that both proposals succeed in generating inflationary expectations and work almost equally well under full credibility of monetary policy however price level targeting may be less effective under imperfect credibility because the announced price level target path is not directly observable

the shadow economy in transition countries friend or foe a policy perspective abstract by treating the shadow economy as a distinct entity rather than just a symptom of policy failures we are able to examine its short term and dynamic consequences for development first we construct measures of the size of the shadow economy in 25 transition countries for 1990 97 we find hysterisis suggesting that once established the shadow economy is hard to remove a dollar decline rise in official gdp is attenuated by a shadow expansion contraction of 31 25 cents we then examine whether the shadow economy prevents merely slows down or actually promotes economic growth and competitiveness and through what mechanisms we also consider implications for policymaking

using a long term interest rate as the monetary policy instrument abstract using a short term interest rate as the monetary policy instrument can be problematic near its zero bound constraint an alternative strategy is to use a long term interest rate as the policy instrument we find when taylor type policy rules are used by the central bank to set the long rate in a standard new keynesian model indeterminacy that is multiple rational expectations equilibria may often result however a policy rule with a long rate policy instrument that responds in a forward looking fashion to inflation expectations can avoid the problem of indeterminacy

informal sector regulatory compliance and leakage abstract the paper models a vertically related formal and informal sector and endogenizes the size and regulatory compliance status of the informal sector when the formal sector can circumvent costly regulations by outsourcing polluting intermediate goods from the informal sector stricter regulations increase when the composition effect of regulation dominates its scale effect or decrease total pollution and may even have a non monotonic impact we identify conditions under which a partially compliant informal sector acts as a source of leakage and examine implications for optimal enforcement policy further we show that price discrimination by the formal sector when it purchases the intermediate goods from the informal sector can worsen regulatory compliance by the informal sector and lead to more pollution

the case for open market purchases in a liquidity trap prevalent thinking about liquidity traps suggests that the perfect substitutability of money and bonds at a zero short term nominal interest rate renders open market operations ineffective for achieving macroeconomic stabilization goals we show that even were this the case there remains a powerful argument for large scale open market operations as a fiscal policy tool as we also demonstrate however this same reasoning implies that open market operations will be beneficial for stabilization as well even when the economy is expected to remain mired in a liquidity trap for some time thus the microeconomic fiscal benefits of open market operations in a liquidity trap go hand in hand with standard macroeconomic objectives motivated by japan s recent economic experience we use a dynamic general equilibrium model to assess the welfare impact of open market operations for an economy in japan s predicament we argue japan can achieve a substantial welfare improvement through large open market purchases of domestic government debt

trends in the development of ecological economics from the late 1980s to the early 2000s abstract as the contributions to ecological economics are very diverse recent years have seen some discussion on both how to delimit the field and in which direction it should develop the intention with this paper is to contribute to the discussion by outlining important trends in the development of the field from the late 1980s to the early 2000s the study is inspired by other studies in the sociology and history of science in particular by the theoretical framework regarding scientific fields as reputational organizations which draws attention to both cognitive and social aspects of the formation of a field the basis for the paper is a combination of literature studies interviews with key researchers in the field and participant observations the paper outlines the characteristic cognitive features of ecological economics at the time of the birth of the field it is then described how the development in ecological economics was influenced by broader social factors during the following years and how the field was shaped by the inflow and outflow of different groups of researchers the emergence of different research programmes is outlined as is the organizational development finally the characteristics of ecological economics are summarized and the future prospects are briefly assessed

the underground economies tax evasion and information distortion list of contributors preface introduction edgar l feige part i the meaning measurement and policy implications of the underground economies 1 the meaning and measurement of the underground economy edgar l feige 2 information distortions in social systems the underground economy and other observer subject policymaker feedbacks robert r alford and edgar l feige 3 policy illusion macroeconomic instability and the unrecorded economy robert t mcgee and edgar l feige 4 how large or small should the underground economy be bruno frey part ii the underground economy in western developed nations measurement in different laboratories 5 monetary perspective on underground economic activity in the united states richard d porter and amanda s bayer 6 the unrecorded economy and the national income accounts in the netherlands a sensitivity analysis g a a m broesterhuizen 7 assessing the underground economy in the united kingdom michael o higgins 8 the underground economy in the federal republic of germany a preliminary assessment enno langfeldt 9 the underground economy in sweden ingemar hansson 10 the irregular economy of italy a survey of contributions bruno contini 11 the hidden economy in norway with special emphasis on the hidden labor market arne jon isachsen and steiner strom 12 canada s underground economy rolf mirus and roger s smith 13 the underground economy in france philippe barthelemy part iii the underground economy under central planning 14 the soviet second economy in a political and legal perspective f j m feldbrugge 15 second economy and socialism the hungarian experience istvan r gabor bibliography

monetary policy when interest rates are bounded at zero this paper assesses the importance of the zero lower bound on nominal interest rates for the interest rate channel of monetary policy we simulate several interest rate setting policy rules with ei

estimating the size of the shadow economy in spain a structural model with latent variables there has recently been a revival of international interest in measuring the size of the shadow economy the current study adopts an approach to the spanish case that is based on the theory of unobservable variables this methodology involves the estimation of structural models mimic which analyses a set of causes of the shadow economy while simultaneously taking into account its influence upon a series of indicators the proposed model permits the determination of a relative evolution over time of the size of the shadow economy which requires the calibration of the model with an exogenous estimation in order to obtain real values the exogenous estimation employed is that obtained by a monetary method based on a money demand function the results show a considerable shadow economy measuring between 8 and 18 8 of gdp in the period 1976 2002 and demonstrate that the shadow economy is significantly influenced by the tax burden the degree of regulation and unit labour costs a positive correlation is

corruption centralization and the shadow economy in their pioneering work on corruption shleifer and vishny 1993 find that a centralized bureaucracy results in lower bribes our paper extends the analysis to economies with formal and informal sectors when corrupt officials operate in both sectors bureaucratic centralization is beneficial when confined to the formal sector however we show that crosssector centralization can result in higher bribes and lower welfare furthermore contrary to choi and thum 2005 we demonstrate that depending on the organization of the bureaucracy and the productivity of the informal sector the presence of the shadow economy may have adverse effects on corruption and welfare

status seeking and material affluence evaluating the hirsch hypothesis abstract when individuals hold a preference for high relative consumption competition to achieve social status can lead to inefficiently high levels of production and consumption contributing to natural resource depletion and environmental degradation in the 1970s fred hirsch argued that an increasing portion of expenditure is allocated to status seeking as average income rises this paper critiques this hypothesis from two points of view first we note examples from the historical and anthropological literatures suggesting that status seeking is often important in societies with relatively low incomes second we consider a set of analytical models that focus on the economic consequences of status seeking when social status is defined in terms of the algebraic difference between an individual s consumption of a status good and the average consumption level in society hirsch s hypothesis holds true and growth in the level of productivity and output can lead to declines in human welfare if on the other hand status is linked to the ratio of individual and average consumption hirsch s hypothesis is valid only if social status and non status goods are poor substitutes the paper also considers two cases in which social status is defined in terms of the amount of time people devote to status oriented activities under this assumption productivity growth leaves time use unchanged though the value of time devoted to status signaling increases in proportion to total expenditure

illicit activity and money laundering from an economic growth perspective a model and an application to colombia this paper contributes to the economic analysis of illicit activities and money laundering first it presents a theoretical model of long run growth that explicitly considers illicit workers activities and income alongside a licit private sector and a functioning government second it generates estimates of the size of illicit income and provides simulated and econometric estimates of the volume of laundered assets in the colombian economy in the model the licit sector operates in a perfectly competitive environment and produces a licit good through a standard neoclassical production function the illicit sector operates in an imperfectly competitive environment and is composed of two different activities the first activity produces an illicit good that nonetheless is valuable in the market for example illicit drugs the second does not add value to the economy but only redistributes wealth for example robbery kidnapping and fraud the paper provides a series of comparative statics exercises to assess the effects of changes in government efficiency licit sector productivity and illicit drug prices from the model the analysis derives a set of estimable macroeconometric equations to measure the size of laundered assets in the colombian economy in the period 1985 to 2013 the paper assembles a data set whose key components are estimates of illicit income from drug trafficking and common crime illicit incomes increased drastically until 2001 reaching a peak of nearly 12 percent of gross domestic product and then decreasing to less than 2 percent by 2013 the decline overlaps not only in a period of high economic growth but also after the implementation of plan colombia the data set is used to estimate the volume of laundered assets in the economy by applying the kalman filter for the estimation of unobserved dynamic variables onto the derived macroeconometric equations from the model the findings show that the volume of laundered assets increased from about 8 percent of gross domestic product in the mid 1980s to a peak of 14 percent by 2002 and declined to 8 percent in 2013

real implications of the zero bound on nominal interest rates if monetary policy succeeds in keeping average inflation very low nominal interest rates may occasionally be constrained by the zero lower bound the degree to which this constraint has real implications depends on the monetary policy feedback rule and the structure of price setting policy rules that make the price level stationary lead to small real distortions from the zero bound if policy imparts persistence into the inflation rate the real implications of the zero bound are large in the presence of backward looking price setting and small if prices are set to maximize profits

well being and or quality of life in eu countries through a multidimensional index of sustainability abstract the aim of my paper is to demonstrate that sen s theory of well being can be applied to make the concept of sustainable human development operational through the building of a multidimensional index of sustainability which takes into account at the same time economic social and environmental variables this index may be considered an alternative to the current measures of welfare sustainability since not only conventional measures such as gdp but also multi attribute indices such as human development index hdi genuine savings index of sustainable economic welfare isew etc are found to be inadequate to make the concept of sustainable development operational therefore the limitations of these measures of welfare sustainability justify the search for a new index of sustainability this index will show at the operational level how sen s theory of well being can be useful to sustainable development it was applied to eu countries using the standardised deviation methodology being the closest and most suitable methodology to be adopted for building multidimensional indices the factor analysis methodology will also be used in my paper lastly the comparison between sen s trend of sustainability and gdp trend index number which are both of them applied to italy will show how much the criticisms and the limitations directed towards the indicator of gdp are founded

energy consumption economic growth and carbon emissions challenges faced by an eu candidate member abstract this paper investigates the long run granger causality relationship between economic growth carbon dioxide emissions and energy consumption in turkey controlling for gross fixed capital formation and labor the most interesting result is that carbon emissions seem to granger cause energy consumption but the reverse is not true the lack of a long run causal link between income and emissions may be implying that to reduce carbon emissions turkey does not have to forgo economic growth

direct effects of base money on aggregate demand theory and evidence abstract meltzer the transmission process working paper carnegie mellon university 1999a shows that real monetary base growth is a significant determinant of consumption growth in the us controlling for the short term real interest rate in this paper i show that the same property of base money holds for total output relative to trend or potential in both the us and the uk the standard optimizing is lm model cannot account for this result but i show that it can once the long term nominal interest rate is included in the money demand function because the long term real rate matters for aggregate demand the presence of the long term nominal rate in the money demand function increases the effect of nominal money stock changes on real aggregate demand when prices are sticky

shadow economy and unemployment rate in u s a is there a structural relationship an empirical analysis this article aims to estimate the size of the us shadow economy se using a structural equation approach and to evaluate if a structural relationship exists between the se and the unemployment rate ur in the united states the size of the se is estimated to be decreasing over the last two decades we corroborate the existence of a structural relationship between the se and the ur by using a simple theoretical model furthermore we extend the okun s law to estimate the structural relationship between growth rate of official gdp se and ur our results indicate a significant positive relationship between the se and the ur

a new keynesian perspective on the great recession with an estimated new keynesian model this paper compares the great recession of 2007 09 to its two immediate predecessors in 1990 91 and 2001 the model attributes all three downturns to a similar mix of aggregate demand and supply disturbances the most recent series of adverse shocks lasted longer and became more severe however prolonging and deepening the great recession in addition the zero lower bound on the nominal interest rate prevented monetary policy from stabilizing the us economy as it had previously counterfactual simulations suggest that without this constraint output would have recovered sooner and more quickly in 2009 jel e32 e52

sovereign debt markets in light of the shadow economy we investigate the controversial role of the informal sector in the economy of 64 countries between 2003 and 2007 by focusing for the first time on the impact it has on sovereign debt markets in addition to a standard ordered probit regression we employ two nonparametric neural network modeling techniques in order to capture possible complex interactions between our variables results confirm our main hypothesis that the informal sector has significant adverse effects on credit ratings and lending costs mlp neural networks offer the best fit to the data followed by the rbf neural networks and probit regression respectively the results do not change with respect to the stage of economic development of a country and contradict views about the possibility of significant economic benefits arising from the informal sector our study has important implications especially in the context of the ongoing sovereign debt crisis since it suggests that a reduction in the informal sector of financially challenged countries is likely to help in relaxing credit risk concerns and cutting down lending costs finally a decision tree analysis is used to exploit the inherent discreteness in the data and derive intuitive rules with respect to the level of the informal sector

does taking the shadow economy into account matter when measuring aggregate efficiency we analyze how adding the shadow economy to official output figures affects estimated technical efficiency at the country level we find that this only slightly affects the ranking of efficiency scores but increases average efficiency in a sample of 87 to 97 countries both developed and developing our results are robust to the functional form of the production technology and the adjustment of labour to account for years of schooling

crime and victimization an economic perspective the recent upward trend in crime rates of developing countries has spurred widespread public concern about personal and proprietary insecurity in some countries the questions of crime violence and victimization are attracting more attention from academics and policy makers than traditional economic problems the objective of this paper is to examine the main issues related to crime and victimization from an economic perspective for this purpose the paper combines a review of the main results established in the literature with original research on the causes of crime and the risk factors of victimization the first section provides a review of the estimates of the costs of crime the main theoretical and empirical research on its causes and the relative advantages of official and survey data on crime the second section presents original work on the main causes of violent crime from a cross country perspective the empirical work starts with a basic model of the economic determinants of homicide and robbery rates in turn this empirical model is extended along five dimensions 1 deterrence factors 2 illegal drug related activities 3 demographic issues 4 income and ethnic polarization and 5 social capital the third section reviews recent case studies of latin american cities that rely on survey data to assess the empirical determinants of the probability of victimization these studies focus on three types of risk factors 1 individual characteristics 2 household characteristics and 3 community characteristics the main conclusions from the previous sections are summarized in section four

the japanese deflation has it had real effects could it have been avoided has deflation contributed to the long lasting stagnation of the japanese economy could the bank of japan have stopped deflation by implementing a more expansionary monetary policy tentative answers are probably not to the first question and probably yes to the second question it is found that the total cost of deflation over the period 1995 2003 has been close to a 1 1 rate of lost gdp yet on the basis of statistical significance and robustness to specification choices this evidence is not compelling on the other hand the estimated positive linkage between nominal base money growth and inflation is significant and robust even given current economic conditions however in order to be inflationary monetary policy should have been more expansionary than what actually observed even since the launch of the quantitative easing in 2001

economic growth energy conservation and emissions reduction a comparative analysis based on panel data for 8 asian pacific countries this study was conducted to evaluate the causality between energy consumption gdp growth and carbon emissions for eight asia pacific countries from 1971 to 2005 using the panel data the results indicate that there are long run equilibrium relationships between these variables additionally causality from energy consumption to co2 emissions was observed generally but there were some opposite relationships also parameter estimations of the panel data model indicate that there are great differences in the carbon emissions the efficiencies of energy use carbon emissions of unit gdp and unit energy consumption between developed and developing countries the base carbon emissions per capita energy consumption and efficiency of energy use in developing countries are far lower than in developed countries however the co2 emissions per unit of energy use is higher although developing countries may reduce their co2 emission per unit energy use total energy consumption will rise rapidly with economic development thus developing countries must determine how to undergo economic growth while conserving energy and reducing emissions to respond to global climate change it is necessary to develop innovative technology for energy use transform the energy structure and conduct the clean development mechanism

tax evasion in transition outcome of an institutional clash testing feige s conjecture in albania a field survey of households was conducted in tirana albania in 2000 a response rate of 89 3 yielded 1 340 valid questionnaires allowing me to test feige s in nelson j m tilley c walker l eds transforming post communist political economics national academy press washington dc p 21 conjecture that more tax evasion will be observed when formal and informal institutions clash respondents attitudes towards formal and informal institutions were obtained by applying factor analysis to their responses to a series of attitudinal questions the theoretical importance of the interaction between formal and informal institutions in determining tax evasion finds empirical support in the data

global policy at the zero lower bound in a large scale dsge model abstract this paper analyses whether fiscal policies can alleviate the effects of a global recession that drives interest rates to the zero lower bound additionally we study the benefits of international coordination the analysis is carried out using a dynamic general equilibrium model of the global economy eagle model we consider that the fiscal shocks are temporary and that fiscal policy retains full credibility at all times in this setup we find significant non linearities in a zero lower bound situation that amplify the effects of fiscal shocks compared to the non zero lower bound case international coordination is helpful but does not play a major role in the results

optimal discretionary monetary policy in a micro founded model with a zero lower bound on nominal interest rate abstract this paper investigates optimal discretionary monetary policy under the zero lower bound on the nominal interest rate zlb in the case of a distorted steady state due to monopoly and taxation solving a fully nonlinear micro founded fnl model using a global method i find that the central bank in a more distorted economy would cut the interest rate less aggressively under a particularly adverse demand shock this occurs because inflation and nominal interest rates are higher on average making the zlb less likely to bind and causing the economy to escape from the zlb sooner however the social planner would choose the optimal inflation rate of approximately zero the result emerges because the unconditional benefit of avoiding the zlb is not big enough to offset the cost of higher relative price dispersion when inflation is significantly positive in addition i show that the conventional linear quadratic lq method is inaccurate in the case of a sufficiently distorted steady state

estimates of the black economy based on consumer demand approaches we propose a consumer demand system approach to estimating the size of the black economy where alternative hypotheses affecting the empirical results can be tested in a nested framework this approach allows for the estimation of the under reporting of household income from various sources dispensing with the need to use arbitrary criteria to classify households by their main source of income it also avoids potential bias in black economy estimates arising from mistaking preference heterogeneity substitution as income effects we illustrate these arguments by estimating the extent to which self employment income in the uk is underreported using parametric and nonparametric techniques the black economy broadly defined as the economic activities that are hidden from public authorities to avoid taxation has recently received increased attention in the literature due to arguments that the rising tax burden and state regulation is driving economic activity underground tanzi and schuknecht 1997 enste and schneider 1998 the usefulness of attempts to estimate the size of the black economy however is a controversial issue the sceptics emphasise the difficulties associated with the precise definition of black economy activities and point to the widely different estimates of the size of these activities resulting from alternative methods dixon 1999 tanzi 1999 thomas 1999 authors approaching the subject in an optimistic frame of mind emphasise positive aspects of estimating the size of the black economy such as the correct measurement of gdp and other macroeconomic variables e g employment and the design of policy and econometric models bhattacharyya 1999 giles 1999 the controversy on estimation issues however does not subtract from the widespread concern about the undesired consequences of the black economy undeclared economic activities reduce the tax base thereby undermining the financing of public goods and social protection a country trying to curtail the loss of tax revenue by raising tax rates can create a vicious cycle as this reinforces the incentive not to declare economic activities to the public authorities high tax rates have a distorting effect resulting in inefficient allocation of resources due to unequal opportunities and willingness to evade in different sectors of the economy and can undermine the ability of the country to compete internationally distortions in the labour market can also arise because individuals working in the black economy may have difficulty in moving from one job to another furthermore in countries where health pension and other social security payments are not universal individuals working in the black economy and their families are outside the

swedish co2 emissions 1900 2010 an exploratory note abstract this paper projects swedish co 2 emissions during the period 2000 2010 based on data covering 1900 1999 swedish climate policy is currently based on the assumption that carbon emissions will increase ceteris paribus by 5 15 relative to the 1990 level this forecast has motivated a number of policy measures including carbon taxes subsidies and an information package we find however that co 2 emissions may well be lower in the future this outcome is broadly consistent with the literature on the environmental kuznets curve which portrays the relationship between emissions and gdp the key contribution of this paper is that our analysis is based on a long time series current literature is invariably based on short panel data sets while we study a single country through several phases of development our analysis also sheds some light on the key importance played by nuclear power for carbon emission projections

the zero interest rate bound and the role of the exchange rate for monetary policy in japan in this paper we study the role of the exchange rate in conducting monetary policy in an economy with near zero nominal interest rates as experienced in japan since the mid 1990s our analysis is based on an estimated model of japan the united states and the euro area with rational expectations and nominal rigidities first we provide a quantitative analysis of the impact of the zero bound on the effectiveness of interest rate policy in japan in terms of stabilizing output and inflation then we evaluate three concrete proposals that focus on depreciation of the currency as a way to ameliorate the effect of the zero bound and evade a potential liquidity trap finally we investigate the international consequences of these proposals

overcoming the zero bound on nominal interest rates with negative interest on currency gesell s solution an economy is in a liquidity trap when monetary policy cannot influence either real or nominal variables of interest a necessary condition for this is that the short nominal interest rate is constrained by its lower bound typically zero the paper considers two small analytical models one old keynesian the other new keynesian possessing equilibria where not only the short nominal interest rate but nominal interest rates at all maturities can be stuck at their zero lower bound when the authorities remove the zero nominal interest rate floor by adopting an augmented monetary rule that systematically keeps the nominal interest rate on base money including currency at or below the nominal interest rate on non monetary instruments the lower bound equilibria are eliminated thus allowing an economic system to avoid the trap or to escape from it this rule will involve paying negative interest on currency that is imposing a carry tax on currency an idea first promoted by gesell the administration costs associated with a currency carry tax must be set against the benefits of potentially lower shoe leather costs and lower menu costs which are made possible by the its introduction there are also output gap avoidance benefits from eliminating the zero lower bound trap

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

optimal monetary policy under commitment with a zero bound on nominal interest rates we determine optimal monetary policy under commitment in a forwardlooking new keynesian model when nominal interest rates are bounded below by zero the lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear a calibration to the u s economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached while the empirical magnitude of u s mark up shocks seems too small to entail zero nominal interest rates shocks affecting the natural real interest rate plausibly lead to a binding lower bound under optimal policy however this occurs quite infrequently and does not imply positive average inflation rates in equilibrium interestingly the presence of binding real rate shocks alters the policy response to non binding markup shocks

dealing with monetary paralysis at the zero bound recently the key constraint for central banks is the zero lower bound on nominal interest rates central banks fear that if they push short term policy interest rates too deeply negative there will be a massive flight into paper currency this paper asks whether in a world where paper currency is becoming increasingly vestigial outside small transactions at least in the legal tax compliant economy there might be relatively simple ways to finesse the zero bound without affecting how most ordinary people live surprisingly this question gets little attention compared to the massive number of articles that take the zero bound as given and look for out of the box solutions for dealing with it in an inversion of the old joke it is a bit as if the economics literature has insisted on positing assume we don t have a can opener without considering the possibility that we might be able to devise one it makes sense not to wait until the next financial crisis to develop plans fundamentally there is no practical obstacle to paying negative or positive interest rates on electronic currency and as we shall see effective negative rate policy does not require eliminating paper currency

linking analyses and environmental kuznets curves for aggregated material flows in the eu abstract the relationship between economy and environmental impacts has been an essential topic in the discussion on environmental problems for a long time from the 1990s this relationship has gained a position in environmental policy as well de coupling the use of natural resources from economic growth has been set as one of the policy goals in the sixth environmental action programme by the european commission in the scientific discussion the concept of environmental kuznets curve deals closely with the de coupling or de linking phenomenon aggregated material flows on the other hand have often been considered as a macro level proxy of environmental degradation different methods or approaches have been designed for sustainability or carrying capacity evaluation as well the objective of this article is i to discuss the possibilities and limitations of using environmental and economic indicators in the sustainability analysis at the macro level ii to present a theoretical framework for the linking analysis including a classification of the degrees of de linking re linking environmental impacts from to economic growth and iii to give an empirical example by using indicators of direct material flows as a proxy of environmental degradation and by applying the framework into the european union and its 15 member countries the results show that the trend in the european union is a weak de linking of material flows from economic growth during the years 1980 2000 in other words material intensity of the economy has generally decreased due to increased efficiency but the absolute amount of material use has increased although at a lower rate of increase than economic growth on the other hand there is a quite large variation between different eu member countries however absolute decrease in the use of materials cannot be found as a continuous trend between the years 1980 and 2000 in any of the studied eu member countries

the shadow economy as an equilibrium outcome abstract we construct a dynamic general equilibrium model of tax evasion where agents choose to report some of their income unreported income requires using a payment method that avoids recordkeeping in some markets cash trade using cash to avoid taxes is the shadow economy in our model we then calibrate our model using money interest rate and gdp data to back out the size of the shadow economy for a sample of countries and compare our measures to traditional reduced form estimates

liquidity traps learning and stagnation we examine global economic dynamics under learning in a new keynesian model in which the interest rate rule is subject to the zero lower bound under normal monetary and fiscal policy the intended steady state is locally but not globally stable large pessimistic shocks to expectations can lead to deflationary spirals with falling prices and falling output to avoid this outcome we recommend augmenting normal policies with aggressive monetary and fiscal policy that guarantee a lower bound on inflation in contrast policies geared toward ensuring an output lower bound are insufficient for avoiding deflationary spirals

labor market institutions taxation and the underground economy abstract the paper aims at qualifying the links between labor market institutions taxation tax monitoring and underground economic activity the proposed model is a continuous time matching model with one commodity roduced either overground or underground underground economic activity arises because of partial compliance with regulations and tax contributions imposed by the government vacancies and workers search are directed at a specific labor market workers are heterogenous in the subjective cost they face when operating in the irregular sector analytical and numerical investigations suggest that interactions between regular and irregular activities can affect standard results of policy interventions in that respect the paper supports the view that policies aiming at increasing individuals benefits of participating in the regular sector are more desirable than a deterrence policy

uses and abuses of estimates of the underground economy ered valuable by at least a part of society narcotics production and distribution prostitution gambling these activities can be large in some countries and should be counted in the national accounts of all countries although they rarely are their omission affects the comparability of data across countries the incomes generated by illegal activities are rarely taxed many other activities such as those associated with the subsistence or informal sectors are estimated rather than measured and are generally not taxed because of the low value they generate to those who engage in them in conclusion there are many reasons beside the ones discussed in this paper why the measurements of national output may not be complete about two decades ago a few economists became convinced that many normal economic activities that should be measured and taxed were taking place underground or in the shadow thus presumably escaping the attention of the statistical offices of the tax authorities and more generally of the government regulators some of these economists also claimed that like alice in wonderland these hidden activities were growing in a ridiculous fashion see gutmann 1977 and feige 1979 by the late 1970s the role of government had grown enormously so that the level of taxation and the tax rates had risen sharply and regulations had proliferated in many countries see tanzi and schuknecht 1997 these developments had created strong incentives for individuals and enterprises to go underground to avoid taxes and regulatory restrictions thus a good case could be made that what came to be called the underground economy was a phenomenon to worry about newspaper articles were ready to accept the

global liquidity and monetary policy autonomy an examination of open economy policy constraints this paper examines the monetary policy constraints facing economies on a fixed peg or managed float regime contrasting the mundell fleming trilemma view against the compensation view commonly found at central banks while the former holds that foreign exchange inflows and outflows affect the domestic money base and constrain monetary policy under non floating regimes unless capital controls are adopted the latter purports that endogenous sterilisation of foreign exchange flows invalidates this trade off the predictions of both theories are empirically evaluated for five east asian economies using central bank balance sheets vector error correction models and impulse response functions the findings indicate that the dynamics for the economies studied correspond more closely to the compensation view than the trilemma view suggesting that it is a sustained loss of foreign exchange reserves not the adoption of a non floating exchange rate regime that imposes a relevant constraint on autonomy

monetary policy rules for an open economy the most popular simple rule for the interest rate due to taylor 1993a is meant to inform monetary policy in economies that are closed on the other hand its main open economy alternative i e ball s 1999 rule based on a monetary conditions index mci may perform poorly in the face of specific types of exchange rate shocks and thus cannot offer guidance for the day to day conduct of monetary policy in this paper we specify and evaluate a comprehensive set of simple monetary policy rules that are suitable for small open economies in general and for the united kingdom in particular we do so by examining the performance of a battery of simple rules including the familiar taylor rule and mci based rules a la ball this entails comparing the asymptotic properties of a two sector open economy dynamic stochastic general equilibrium model calibrated on united kingdom data under different rules we find that an inflation forecast based rule ifb i e a rule that reacts to deviations of expected inflation from target is a good simple rule in this respect when the horizon is adequately chosen adding a separate response to the level of the real exchange rate contemporaneous and lagged appears to reduce the difference in adjustment between output gaps in the two sectors of the economy but the improvement is only marginal importantly an ifb rule with or without exchange rate adjustment appears robust to different shocks in contrast to naive or ball s mci based rules

overcoming the zero bound on interest rate policy the paper proposes three options for overcoming the zero bound on interest rate policy a carry tax on money open market operations in long bonds and monetary transfers a variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates a carry tax could be imposed on currency to create more leeway to make interest rates negative quantitative policy monetary transfers and open market purchases of long bonds could stimulate the economy by creating liquidity broadly defined a central bank needs more fiscal support than usual from the treasury to pursue quantitative policy at the interest rate floor

central banking in the credit turmoil an assessment of federal reserve practice abstract central banking is understood in terms of the fiscal features of monetary credit and interest on reserves policies monetary policy expanding reserves by buying treasuries transfers all revenue from money creation directly to the fiscal authorities credit policy selling treasuries to fund loans or acquire non treasury securities is debt financed fiscal policy interest on reserves frees monetary policy to fund credit policy independently of interest rate policy an ambiguous boundary of responsibilities between the fed and the fiscal authorities contributed to economic collapse in fall 2008 accord principles are proposed to clarify fed credit policy powers and secure its independence on monetary and interest rate policy the fed needs more surplus capital from the fiscal authorities to be fully flexible against both inflation and deflation at the zero interest bound

imperfect credibility and the zero lower bound as the nominal interest rate cannot fall below zero a central bank with imperfect credibility faces a significant challenge to stabilize the economy in a new keynesian model during a large recession we characterize the optimal monetary policy at the zero lower bound for the nominal interest rate if credibility is imperfect confronting monetary policy communication of the u s federal reserve and the swedish riksbank with such a framework the credibility of both institutions is shown to have been low in the aftermath of the 2008 economic crisis

information access income distribution and the environmental kuznets curve abstract recent empirical studies have tested the hypothesis of an environmental kuznets curve ekc focusing primarily on the relationship between per capita income and certain types of pollutant emissions given the stock nature of many pollution problems emissions only partially account for the environmental impacts moreover almost all of the studies have given consideration to little more than income levels as explanatory variables this paper empirically tests the hypothesis of the ekc existence for a stock sensitive indicator that is the percentage of protected area pa within national territory it does theorize that economic growth is a necessary condition in order to better address environmental issues but it also stresses that other variables income distribution education information accessibility may play a fundamental role in determining environmental quality contrary to other studies that mainly focus on the calculation of the income level corresponding to the transition point this paper is more concerned with the calculation of environmental quality corresponding to that transition point that is the minimum level of environmental quality that a country is willing to accept this paper highlights the idea that if the transition point is determined primarily by income level social policies determine the level of environmental quality corresponding to that point

deflation and monetary policy in a historical perspective remembering the past or being condemned to repeat it inflation is currently low and stable in industrialized countries but might deflation replace inflation as a major policy concern we present a broad cross country historical study of deflation over the past two centuries in order to shed light on current policy challenges in the light of the relevant theoretical approaches we empirically characterize good bad and ugly deflations assess similarities between the current low inflation environment and that of the gold standard period and discuss lessons from the historical record as to policies to escape undesirable deflation and the relative merits of interest rate and monetary instruments michael bordo and andrew filardo

globalisation and sustainability environmental kuznets curve and the wto abstract economic globalisation is seen by many as a driving force for global economic growth yet opinion is divided about the benefits of this process as highlighted by the wto meeting in seattle in late 1999 proponents of economic globalisation view it as a positive force for environmental improvement and as a major factor increasing the likelihood of sustainable development through its likely boost to global investment these proponents mostly appeal to analysis based on the environmental kuznets curve ekc to support their views about environmental improvement but ekc analysis has significant deficiencies furthermore it is impossible to be confident that the process of economic globalisation will result in sustainable development if weak conditions only are satisfied strong conditions probably need to be satisfied to achieve sustainable development and given current global institutional arrangements these are likely to be violated by the economic globalisation process global political action seems to be needed to avert a deterioration in the global environment and to prevent unsustainability of development this exposition demonstrates the limitations of ekc analysis identifies positive and negative effects of economic globalisation on pollution levels and highlights connections between globalisation and the debate about whether strong or weak conditions are required for sustainable development the article concludes with a short discussion of the position of wto in relation to trade and the environment and the seemingly de facto endorsement of wto of weak conditions for sustainable development it suggests that wto s relative neglect of environmental concerns is no longer politically tenable and needs to be reassessed in the light of recent developments in economic analysis the skew of economic growth e g in favour of developing countries is shown to be extremely important from a global environmental perspective

democracy and environmental quality we develop and estimate an econometric model of the relationship between several local and global air pollutants and economic development while allowing for critical aspects of the socio political economic regime of a state we obtain empirical support for our hypothesis that democracy and its associated freedoms provide the conduit through which agents can exercise their preferences for environmental quality more effectively than under an autocratic regime thus leading to decreased concentrations or emissions of pollution however additional factors such as income inequality age distribution education and urbanization may mitigate or exacerbate the net effect of the type of political regime on pollution depending on the underlying societal preferences and the weights assigned to those preferences by the state

the devil is in the shadow do institutions affect income and productivity or only official income and official productivity this paper assesses the relationship between institutions output and productivity when official output is corrected for the size of the shadow economy our results confirm the usual positive impact of institutional quality on official output and total factor productivity and its negative impact on the size of the underground economy however once output is corrected for the shadow economy the relationship between institutions and output becomes weaker the impact of institutions on total corrected factor productivity becomes insignificant differences in corrected output must then be attributed to differences in factor endowments these results survive several tests for robustness

the co2 emissions income nexus evidence from rich countries the paper attempts to test the environment kuznets curve ekc hypothesis for 36 high income countries for the period 1980 2005 the test is based on the suggestion of narayan and narayan 2010 various panel data unit root and co integration tests are applied carbon dioxide co2 emissions and gdp series are integrated of order one and co integrated especially after controlling for cross sectional dependence additionally the blundell bond system generalised methods of moments gmm is employed to conduct a panel causality test in a vector error correction mechanism vecm setting unidirectional causality running from real per capita gdp to per capita co2 emissions is uncovered in both the short run and the long run the empirical analysis based on individual countries provides evidence of an ekc for greece malta oman portugal and the united kingdom however it can be observed that for the whole panel a 1 increase in gdp generates an increase of 0 68 in co2 emissions in the short run and 0 22 in the long run the lower long run income elasticity does not provide evidence of an ekc but does indicate that over time co2 emissions are stabilising in the rich countries

cheating ourselves the economics of tax evasion no government can announce a tax system and then rely on taxpayers sense of duty to remit what is owed some dutiful people will undoubtedly pay what they owe but many others will not over time the ranks of the dutiful will shrink as they see how they are being taken advantage of by the others thus paying taxes must be made a legal responsibility of citizens with penalties attendant on noncompliance but even in the face of those penalties substantial tax evasion exists and always has the history of taxation is replete with episodes of evasion often notable for their inventiveness during the third century many wealthy romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth century england temporarily bricked up their fireplaces to escape notice of the hearth tax collector webber and wildavsky 1986 p 141 this essay reviews what is known about the magnitude nature and determinants of tax evasion with an emphasis on the u s income tax alm 1999 andreoni erard and feinstein 1998 and slemrod and yitzhaki 2002 offer more comprehensive recent reviews of the literature it then places this information into a conceptual and policy context

the co2 emissions development nexus revisited abstract this study revisited the co2 emissions development nexus for this purpose a comprehensive analysis was performed using recent and extensive datasets and employing three different econometric methods namely the cross sectional regression the cointegrating regression and the threshold regression the findings revealed that an environmental regime transformation had occurred in the relationship between the co2 emission intensity and economic development thus the results indicated that in recent decades the inverted n shaped cubic relationship between these variables transformed into the inverted u shaped quadratic relationship by contrast as far as the relationship between the co2 emission per capita and economic development is concerned the u shaped relationship between the variables remained unchanged in other words the present study has detected the inverted u shaped or the environmental kuznets curve ekc relationship between the co2 emission intensity and economic development however it was unable to validate the ekc relationship between the co2 emission per capita and economic development

the monetary method to measure the shadow economy the forgotten problem of the initial conditions abstract we show that when the money demand function used to estimate the size of the shadow economy includes the lagged dependent variable the need to assume a known initial condition reappears as it was the case in the early monetary methods

the future of monetary aggregates in monetary policy analysis this paper considers the role of monetary aggregates in modern macroeconomic models of the new keynesian type the focus is on possible developments of these models that are suggested by the monetarist literature and that in addition seem justified empirically both the relation between money and inflation and between money and aggregate demand are considered regarding the first relation it is argued that both the mean and the dynamics of inflation in present day models are governed by money growth this relationship arises from a conventional aggregate demand channel claims that an emphasis on the link between monetary aggregates and inflation requires a direct channel connecting money and inflation are wide of the mark the relevance of money for aggregate demand in turn lies not via real balance effects or any other justification for money in the is equation but on money s ability to serve as a proxy for the various substitution effects of monetary policy that exist when many asset prices matter for aggregate demand this role for monetary aggregates which is supported by empirical evidence enhances the value of money to monetary policy

escaping from a liquidity trap and deflation the foolproof way and others existing proposals to escape from a liquidity trap and deflation including my foolproof way are discussed in the light of the optimal way to escape the optimal way involves three elements 1 an explicit central bank commitment to a higher future price level 2 a concrete action that demonstrates the central bank s commitment induces expectations of a higher future price level and jump starts the economy and 3 an exit strategy that specifies when and how to get back to normal a currency depreciation is a direct consequence of expectations of a higher future price level and hence an excellent indicator of those expectations furthermore an intentional currency depreciation and a crawling peg as in the foolproof way can implement the optimal way and in particular induce the desired expectations of a higher future price level i conclude that the foolproof way is likely to work well for japan which is in a liquidity trap now as well as for the euro area and the united states in case either would fall into a liquidity trap in the future

the euthanasia of the rentier a way toward a steady state economy abstract a positive interest rate has many impacts on ecology one of them is the pushing of economic growth in the present economy accumulation of capital is an end in itself according to the golden rule of accumulation the extension rate of the capital stock is equal to the interest rate however in the present economic conditions the interest rate is always significantly higher than zero due to the liquidity premium of money keynes in this context old proposals such as the free money approach of silvio gesell could provide interesting solutions gesell wanted to neutralize the liquidity premium by putting artificial carrying costs on money by increasing the stock of capital assets without being interrupted by economic crises the interest and profitability level should be reduced down to zero because in this situation every marginal saving and marginal investment would cause a negative interest or profitability rate they would be stopped though keynes was very excited by the proposals of gesell he criticized the fact that gesell did not see many of the further obstacles however these obstacles could be overcome by means of further institutional reforms

monetary policy and the zero bound to interest rates a review1 this paper reviews the literature on what the zero bound to nominal interest rates implies for the conduct of monetary policy the aim is to evaluate the risks of hitting the zero bound and to evaluate policies that are said to be able to reduce that risk or policies that are proposed as means of helping the economy escape if it is in a zero bound trap i conclude that policies aimed at cure are arguably more uncertain tools than those aimed at prevention so prevention is a less risky strategy for policymakers but since the risks of hitting the zero bound seem quite small anyway and the risks of encountering a deflationary spiral smaller still it is conceivable that inflation objectives that typify modern monetary regimes already have more than enough insurance built into them to deal with the zero bound problem

sustainable growth criteria minimum benchmarks and scenarios for employment and the environment abstract the relationship of economic growth and environmental impact has spurred fierce debates between growth optimists referring to the phenomenon of the environmental kuznets curve and pessimists referring to the limits to growth however no operational set of simple criteria has been developed so far to assess the sustainability of a given growth pattern this is all the more true for measures combining environmental and social criteria the paper undertakes to sketch out such criteria and to assess them by applying them to transdiciplinary sustainability scenarios and model simulations with panta rhei one of the most complex models of the german economy theoretical considerations as well as the empirical work with the model demonstrate that there are indeed trade offs between economic growth and environmental impacts and a positive correlation of growth and employment nonetheless it is still possible to develop carefully orchestrated strategies that combine economic competitiveness low unemployment rates and an easing of the pressure on the environment social and technical innovation reduced working time a modernised social security system green taxes and salary increases proportional to labour productivity growth are essential parts of any such strategy the triple effectiveness of such strategies regarding environmental social and economic sustainability is demonstrated by the model runs

new developments in monetary economics two ghosts two eccentricities a fallacy a mirage and a mythos monetary theory and policy are part of intertemporal public finance the two ghosts are the liquidity trap and the real balance effect the eccentricities are negative nominal interest rates and the helicopter drop of money the fallacy is the fiscal theory of the price level a logically inconsistent theory of the link between the government s intertemporal budget constraint and the general price level the mirage is the prediction that financial deregulation and technical change in the payments and settlements technology will cause monetary policy to lose its capacity to influence even nominal economic variables mythos refers to the independent central bank

monetary policy financial stability and the zero lower bound abstract much has happened in the world of central banking in the past decade in this paper i focus on three issues associated with the zero lower bound zlb on short term nominal interest rates and the nexus between monetary policy and financial stability 1 whether we are moving toward a permanently lower long run equilibrium real interest rate 2 what steps can be taken to mitigate the constraints imposed by the zlb and 3 whether and how financial stability considerations should be incorporated in the conduct of monetary policy these important topics deserve the attention of both academic and government professionals

the environmental kuznets curve does one size fit all abstract this paper uses a new panel data set on state level sulfur dioxide and nitrogen oxide emissions from 1929 1994 to test the appropriateness of the one size fits all reduced form regression approach commonly used in the environmental kuznets curve literature empirical results provide initial evidence that an inverted u shape characterizes the relationship between per capita emissions and per capita incomes at the state level parameter estimates suggest however that previous studies which restrict cross sections to undergo identical experiences over time may be presenting statistically biased results

energy consumption income and carbon emissions in the united states abstract this paper investigates the effect of energy consumption and output on carbon emissions in the united states earlier research focused on testing the existence and or shape of an environmental kuznets curve without taking energy consumption into account we investigate the granger causality relationship between income energy consumption and carbon emissions including labor and gross fixed capital formation in the model we find that income does not granger cause carbon emissions in the us in the long run but energy use does hence income growth by itself may not become a solution to environmental problems

economic growth and the diffusion of clean technologies explaining environmental kuznets curves the paper provides a theoretical explanation for the inverted u shaped relation between pollution and income often found in empirical research environmental kuznets curve we model the transition in the pollution pattern as a change in general purpose technologies and investigate how it interferes with economic growth driven by quality improvements we provide an analytical foundation for the claim that the rise and decline of pollution can be explained by endogenous innovations policy induced technology shifts and intrasectoral changes once environmental degradation becomes too severe regulation is introduced by which society forces the economy to make a transition to cleaner production

the size and development of the shadow economy an empirical investigation from states of india abstract using the state level data from india this paper investigates the size of the hidden economy in indian states over the period 1974 75 to 1995 96 our analysis has shown that after liberalization of the indian economy in 1991 92 the growth in the size of the hidden economy has decreased on an average our results show that the growth in the size of the hidden economy is approximately 4 less in scheduled election years than in all other years we also demonstrate that the growth is significantly lower in those states where the coalition government is in power an increased growth of newspapers and the literacy rates translate to cleaner governance e g to fewer amounts of shadow economy activities in the economy