the impact of divided government on legislative production it seems obvious that divided governments should produce less legislation than unified governments yet studies have consistently failed to find such an effect because almost all existing studies focus on the experience of the u s national government the data have limited analysis to a consideration of executive legislative division and ignore the impact of division between bicameral chambers the state level data set employed in this study is not so limited the results show that divided legislatures decrease the production of laws by almost 30 nonetheless consistent with previous studies using national level data executive legislative divisions have no impact of legislative production the reason for this asymmetry is theoretically motivated additional hypotheses of interest are also tested including whether republican controlled legislative chambers are more conservative than democratic chambers in the sense of producing fewer laws than their democratic counterparts

the economic role of jumps and recovery rates in the market for corporate default risk using an extensive cross section of u s corporate credit default swaps cdss this paper offers an economic understanding of implied loss given default lgd and jumps in default risk we formulate and underpin empirical stylized facts about cds spreads which are then reproduced in our affine intensity based jump diffusion model implied lgd is well identified with obligors possessing substantial tangible assets expected to recover more sudden increases in the default risk of investment grade obligors are higher relative to speculative grade the probability of structural migration to default is low for investment grade and heavily regulated obligors because investors fear distress rather through rare but devastating events

estimating systemic risk in the international financial system this paper develops three distinct methods to quantify the risk of a systemic failure in the global banking system we examine a sample of 334 banks representing 80 of global bank equity in 28 countries around five global financial crises our results suggest statistically significant but economically small increases in systemic risk although policy responses are endogenous the low estimated probabilities suggest that the distress of central bankers regulators and politicians about the events we study could be overstated and that current policy responses to financial crises could be adequate to handle major macroeconomic events

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

an empirical analysis of intergovernmental tax interaction the case of business income taxes in canada both federal and provincial governments in canada levy corporate taxes on busi nesses in their jurisdictions which potentially gives rise to horizontal and vertical tax exter nalities within the federation using a simple model of interdependent tax choices we estimate tax setting functions for the federal government ontario quebec and an aggregate of the remaining eight provinces we find evidence of significant vertical and horizontal tax inter actions provincial tax rates respond negatively to the federal tax rate while at least some provinces increase their tax rates in response to increases in the tax rates of other provinces

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

tax structure in a federation abstract does national taxation of a base influence the degree to which the local government will use the same tax base does the tax rate chosen by one local government influence the choices made by another local government the theoretical answer to these questions is often in the affirmative because of vertical and horizontal externalities that result when several governments are operating at the same time in a fiscal system however little empirical information is available this paper estimates the impact of horizontal and vertical externalities on the choice of tax rates by local governments operating in a federation higher national income tax rates and lower poverty rates are found to lead to lower local income tax rates

a new approach to measuring financial contagion this article proposes a new approach to evaluate contagion in financial markets our measure of contagion captures the coincidence of extreme return shocks across countries within a region and across regions we characterize the extent of contagion its economic significance and its determinants using a multinomial logistic regression model applying our approach to daily returns of emerging markets during the 1990s we find that contagion is predictable and depends on regional interest rates exchange rate changes and conditional stock return volatility evidence that contagion is stronger for extreme negative returns than for extreme positive returns is mixed

does the median voter model explain the size of government evidence from the states despite an attempt by its own authors it is difficult to argue that the influential model of the size of government developed by meltzer and richard 1981 has had convincing empirical backing in this paper we adapt that model to a model of state government size the main testable hypothesis is that as income inequality grows government size as measured by the percentage of income devoted to government redistribution grows we test the model using panel data from the us states from 1979 1991 in contrast to the results found by meltzer and richard 1983 we find little evidence to support the model the results are robust to several model specifications and estimation techniques

the consequences of overlapping tax bases for redistribution and public spending in a federation tax and expenditure policies are studied in a federation with imperfectly mobile households states implement a linear progressive tax and supply a public good a vertical fiscal externality reflecting the effect of state policies on federal revenues provides an incentive for state taxes to be too progressive a horizontal fiscal externality causes nonoptimal state taxes and expenditures because of the migration effect the federal government implements its own linear progressive tax and makes transfers to the states the federal government can nullify both externalities by appropriate fiscal policies and redistributive taxation can be decentralized to the states c 1998 elsevier science s a

obstacles in energy security an analysis of congressional and presidential framing in the united states despite decades of policymaking the u s has only recently made significant strides in becoming a more energy secure nation with a focus on the executive and legislative branches this paper investigates two possible political obstacles to achieve this policy goal the first question it asks is whether or not the two branches have been defining energy security in the same way as the concept itself has no universal definition it is possible that the branches have been focusing on different aspects of the term results from a content analysis of presidential speeches and congressional hearings suggest that no such division has occurred the subsequent question asks whether or not the two branches in tandem are providing the foundation for sound policy results suggest that congress and presidents have defined and discussed energy security in a generally balanced comprehensive and internally non conflictual way what policy emerges from these discussions should be the subject of future research

income redistribution in a federal system the question of the appropriate level of government to undertake income redistribution is receiving renewed attention from economists the standard argument about the issue might be summarized as follows 1 interstate migration of taxpayers and transfer recipients raises the cost to voters of income redistribution at the state level above the cost at the federal level 2 statewide redistribution confers spillover benefits to residents of other states 3 therefore as compared with a national system decentralized responsibility for income redistribution yields both less redistribution and less than the socially optimal amount of income redistribution the purpose of this paper is only to question step 1 of the above argument of course readers who accept the assumptions of the standard argument may conclude that the possible weakening of step 1 of that argument reduces the likelihood that its conclusion holds the paper argues that the cost of redistribution faced by state residents may in fact be lower at the state level than at the national level because their federal tax obligations fall as the state redistributes more income thus part of the cost of redistribution at the state level can be exported to residents of other states the state s federal tax bill falls when taxable incomes in the state are reduced by increased redistribution deductibility of state taxes enhances this result but is not necessary for it to demonstrate the proposition without adding unnecessary complication a simple model of income redistribution is described in which governments at all levels use linear tax transfer schedules to redistribute income the single government case is considered first then two levels of government are introduced and finally migration is allowed it is shown that without migration state costs are never greater than national costs of redistribution as long as redistribution reduces total money income when migration is allowed the result depends on the elasticity of migration responses compared with the elasticity of labor supply responses

indicators of energy security in industrialised countries energy security has become a popular catch phrase both in the scientific arena as well as in the political discussion yet in general the applied concepts of energy security are rather vague this paper sheds some light on concepts and indicators of energy security first we conceptually discuss the issue of energy supply security and explain why it is not to handle by one science alone and what economics may contribute in order to structure the topic after providing a brief survey of existing attempts to define or measure energy security we suggest an additional dimension along which indicators of energy security may be classified ex post and ex ante indicators finally we illustrate our concept on the basis of several simplified indicators while ex post indicators are mostly based on price developments ex ante indicators are to a greater extent aimed at illustrating potential problems our illustration suggests that it is worthwhile to take into account the market structure along with the political stability of exporting countries

a macroprudential approach to financial regulation many observers have argued that the regulatory framework in place prior to the global financial crisis was deficient because it was largely microprudential in nature a microprudential approach is one in which regulation is partial equilibrium in its conception and aimed at preventing the costly failure of individual financial institutions by contrast a macroprudential approach recognizes the importance of general equilibrium effects and seeks to safeguard the financial system as a whole in the aftermath of the crisis there seems to be agreement among both academics and policymakers that financial regulation needs to move in a macroprudential direction in this paper we offer a detailed vision for how a macroprudential regime might be designed our prescriptions follow from a specific theory of how modern financial crises unfold and why both an unregulated financial system as well as one based on capital rules that only apply to traditional banks is likely to be fragile we begin by identifying the key market failures at work why individual financial firms acting in their own interests deviate from what a social planner would have them do next we discuss a number of concrete steps to remedy these market failures we conclude the paper by comparing our proposals to recent regulatory reforms in the united states and to proposed global banking reforms

federal fiscal constitutions risk sharing and redistribution the paper studies the political and economic determinants of regional public transfers specifically it focuses on how such transfers are shaped by alternative fiscal constitutions where a constitution is an allocation of fiscal instruments across different levels of governments plus a procedure for the collective choice of these instruments realistic restrictions on fiscal instruments introduce a tradeoff between risk sharing and redistribution different constitutions produce very different results in particular a federal social insurance scheme chosen by voting provides overinsurance whereas an intergovernmental transfer scheme chosen by bargaining provides underinsurance

a positive model of overlapping income taxation in a federation of states abstract this paper develops a positive theory of overlapping income taxation in a federation of states the analysis provides a complete characterization of the equilibrium federal and states tax rates as functions of the level of total productivity dispersion between the states the federal rate is increasing in the level of total productivity dispersion between the states even if the income of the decisive voter at the federal level is above the mean income given that the individuals income is endogenously determined there exists a negative trade off between the implemented federal tax rate and the resulting states tax rates regardless of the pre tax income of the decisive voter at the state level thus high levels of productivity dispersion between the states cause a higher than optimal federal tax rate together with low states tax rates it is also shown that a system of overlapping income taxation is not efficient the resulting inefficiency might be exacerbated by the implementation of a federal matching grants program contradicting previous results in the related normative literature

a new database on the structure and development of the financial sector this article introduces a new database of indicators of financial structure and financial development across countries and over time the database is unique in that it combines a wide variety of indicators that measure the size activity and efficiency of financial intermediaries and markets it improves on previous efforts by presenting data on the public share of commercial banks introducing indicators of the size and activity of nonbank financial institutions and constructing measures of the size of bond and primary equity markets this article introduces a new database the first to provide comprehensive measures of the development structure and performance of the financial sector this database is the first to define and construct indicators of the size and activity of nonbank financial intermediaries such as insurance companies pension funds and non deposit money banks it is also the first to include indicators of the size of primary equity markets and primary and secondary bond markets in constructing the database authors carefully deflate measures and match stock and flow variables

the politics of progressive income taxation with incentive effects this paper studies majority voting over quadratic taxation and investigates under which conditions marginal progressivity emerges as a voting outcome in our model with endogenous income there is no majority condorcet winning tax schedule we then investigate less demanding political equilibrium concepts in order to see under which conditions the set of equilibria is composed only of progressive tax functions we follow three strategies i reduction of the policy space to the tax functions that are ideal for some voter ii elimination of weakly dominated strategies and the use of mixed strategies in a standard downsian two party competition game iii assumption that political parties interact repeatedly and care about the size of their majority although each approach captures a different aspect of political behavior they point to the same simulation based conclusion that progressivity is more likely to emerge for most distributions of abilities and that it is actually the only possible voting outcome if the distribution is sufficiently concentrated at the middle

transatlantic systemic risk in this paper we study systemic risk for the us and europe we show that banks exposures to common risk factors are crucial for systemic risk we come to this conclusion by rst showing that relations between us and european banks are smaller than within each region we then show that european banks react more strongly to the onset of the nancial crisis than us ones regarding the consequences of systemic risk we show that dependence between the banking sector and a wide range of real sectors is limited our results imply that regulators and supervisors should address international bank dependencies arising from common risk factors while recessions in real sectors due to bank defaults should be a secondary concern

the cultural relativity of organizational practices and theories this paper summarizes the author s recently published findings about differences in people s work related values among 50 countries in view of these differences ethnocen tric management theories those based on the value system of one particular country have become untenable this concept is illustrated for the fields of leadership organization and motivation a key issue for organization science is the influence of national cultures on introduction management twenty or even 10 years ago the existence of a relationship be management and tween management and national cultures was far from obvious to many and it national cultures may not be obvious to everyone even now in the 1950s and 60s the dominant be lief at least in europe and the u s was that management was something univer sal there were principles of sound management which existed regardless of na tional environments if national or local practice deviated from these principles it was time to change local practice in the future the universality of sound manage ment practices would lead to societies becoming more and more alike this ap plied even to the poor countries of the third world which would become rich as well and would be managed just like the rich countries also the differences be tween management in the first and second world capitalist and socialist would disappear in fact under the surface they were thought to be a lot smaller than was officially recognized this way of thinking which dominated the 1950s and 60s is known as the convergence hypothesis during the 1970s the belief in the unavoidable convergence of management prac tices waned it was too obviously in conflict with the reality we saw around us at the same time supranational organizations like the european common market which were founded very much on the convergence belief had to recognize the stubbornness of national differences even within existing nations regional dif ferences became more rather than less accentuated the welsh the flemish the basques the bangladeshi the quebecois defended their own identity and this was difficult to reconcile with a management philosophy of convergence it slowly became clear that national and even regional cultures do matter for management the national and regional differences are not disappearing they are here to stay in fact these differences may become one of the most crucial problems for man agement in particular for the management of multinational multicultural orga nizations whether public or private

pricing the risk of recovery in default with absolute priority rule violation abstract this paper proposes a simple approach to infer the risk neutral density of recovery rates implied by the prices of the debt securities of a firm the proposed approach is independent of modeling default arrival rates and allows for the violation of absolute priority rule the paper demonstrates that a new statistic the adjusted relative spread captures risk neutral recovery information in debt prices interest rates and firm tangible assets are shown to be significant determinants of the price of recovery an application illustrates the pricing of credit derivatives written on the realized recovery rate

financial markets intermediaries and intertemporal smoothing in an overlapping generations economy with incomplete financial markets but no intermediaries there is underinvestment in safe assets in an economy with intermediaries and no financial markets accumulating reserves of safe assets allows returns to be smoothed nondiversifiable risk to be eliminated and an ex ante pareto improvement compared to the allocation in the market equilibrium to be achieved in a mixed financial system however competition from financial markets constrains intermediaries so that they perform no better than markets alone

indicators for energy security the concept of energy security is widely used yet there is no consensus on its precise interpretation in this research we have provided an overview of available indicators for long term security of supply sos we distinguished four dimensions of energy security that relate to the availability accessibility affordability and acceptability of energy and classified indicators for energy security according to this taxonomy there is no one ideal indicator as the notion of energy security is highly context dependent rather applying multiple indicators leads to a broader understanding incorporating these indicators in model based scenario analysis showed accelerated depletion of currently known fossil resources due to increasing global demand coupled with increasing spatial discrepancy between consumption and production international trade in energy carriers is projected to have increased by 142 in 2050 compared to 2008 oil production is projected to become increasingly concentrated in a few countries up to 2030 after which production from other regions diversifies the market under stringent climate policies this diversification may not occur due to reduced demand for oil possible benefits of climate policy include increased fuel diversity and slower depletion of fossil resources

an optimal taxation approach to fiscal federalism in a federal system of government each unit of government decides independently how much of each type of public good to provide and what types of taxes and which tax rates to use in funding the public goods in this paper we explore what types of problems can arise from this decentralized form of decision making in particular we describe systematically the types of externalities that one unit of government can create for nonresidents through both its public goods decisions and its taxation decisions the paper also explores briefly what the central government might do to lessen the costs of decentralized decision making

vertical externalities in tax setting evidence from gasoline and cigarettes abstract a common feature of federal systems is that tax bases are joint property consequently state and federal tax setting decisions are interdependent our aim here is to put forward a rudimentary theoretical analysis of this phenomenon and to use the theory as a framework for econometrically estimating the magnitude of the responses we find that when the federal government increases taxes there is a significant positive response of state taxes for example a 10 cent per gallon increase in the federal tax rate on gasoline leads to a 3 2 cent increase in the state tax rate

national culture and financial systems countries differ in the way their financial activities are organized in anglo saxon countries such as the us and the uk financial systems are dominated by stock markets whereas in continental europe and japan banks play a predominant role why do countries differ in the configuration of their financial systems we argue that national culture plays a significant role we find that countries characterized by higher uncertainty avoidance are more likely to have a bank based system

on the construction of marginal federal personal and social security tax rates in the u s abstract in this article i correct and extend my earlier series on marginal federal personal income tax rates i also construct a measure of the marginal social security tax rate and add this to the income tax rate to obtain a measure of the effective marginal tax rate on income due to federal taxes finally i compare my series on marginal income tax rates and its method of construction with those of barro and sahasakul

tax competition and tax structure in open federal economies evidence from oecd countries with implications for the european union tax competition arguments suggest that governments that operate in an open economy such as local governments should not and will not rely on non benefit taxes such as the income tax yet we observe reliance on income taxes by local governments in many countries and such reliance changes over time evidence from a panel data set of 13 oecd countries over the period 1975 1984 suggests that competition between levels of government resulting in a vertical fiscal externality and between levels of government at the same level resulting in a horizontal fiscal externality provide some economic rationale for these changes moreover the evidence indicates that the vertical and horizontal fiscal externalities interact these results have some interesting implications for fiscal policy in the european union particulary as the eu continues to evolve one implication for the eu is that enlargement that increases tax base disparities within the eu and is not accompanied by an eu level income tax will tend to lower national income tax rates although this must be qualified because it also depends on the mobility of the population a second implication is that fiscal expansion of the eu to include an eu levelincome tax may tend to lower the reliance of national governments on income taxes through the vertical externality but may also tend to equalize tax bases across countries and so increase reliance on national income taxes through the horizontal externality