international competition and real wages myriad politicians express concern over increased competition from abroad but among economists the home economy is widely believed to benefit from improvement in foreign economies jeffrey williamson 1991 work by a few economists john r hicks 1953 ronald jones 1979 paul krugman 1979 suggests that there is some truth to popular concerns over competitiveness the effect of foreign competition in reducing the relative price of the goods that the united states formerly exported can lower aggregate real income in the united states even as world income rises accordingly the success of japan western europe and more recently many other nations in producing goods that were as of the end of world war ii virtual monopolies of the united states is another potential candidate for explaining the fall relative to trend of the average living standard or real wage in the united states

the impact of fiscal policy on profits i introduction a large number of policy making decisions rely on the key issue of the impact of fiscal policy on the economy therefore it is not surprising that the effect of fiscal policy on macroeconomic aggregates has been extensively studied in the empirical literature 1 several authors starting with blanchard and perotti 2002 have attempted to estimate the effect of government spending shocks on output and other variables in the context of structural var models see perotti 2008 for a survey this interest has been renewed since the 2008 2009 recession given the unprecedented size of fiscal packages worldwide barro and redlick 2009 hall 2009 an important part of this literature focuses on the theoretical and empirical investigation of the fiscal policy transmission channels theories of fiscal policy transmission differ in their implications regarding the response of different macroeconomic variables to government spending shocks for example the neoclassical model predicts a negative impact of government spending on real wages and consumption while this prediction is challenged by new keynesian models to that end an important branch of empirical literature on fiscal multipliers has investigated the transmission channels of fiscal policy by looking mainly at the response of private consumption and real wages 2 this paper deals with an important but relatively under investigated channel of fiscal policy transmission which is the effect of fiscal policy on profits as pointed out by hall 2009 the impact of fiscal shocks on the markup of price over marginal cost is important for understanding the functioning of the fiscal multiplier in the purely neoclassical general equilibrium model a rise in government spending produces a negative wealth effect the labor supply curve shifts outward and real wages and consumption fall this implies that the output multiplier will be well below unity a keynesian type fiscal multiplier implying a large positive output effect and positive responses of private consumption and real wages to increased government spending relies on a negative response of the markup of price over marginal cost to an increase in economic activity the intuition is that a decrease in the price marginal cost markup in response to higher government spending allows a rise in wages or at least a smaller reduction in wages compared with the case when the markup is constant a rise in wages would then imply that households will substitute away from leisure and into consumption therefore if the markup is countercyclical conditional on government spending shocks sizeable output multipliers of fiscal spending are consistent with existing empirical evidence that fiscal shocks are not related to strong decreases in real wages or consumption blanchard and perotti 2002 fatas and mihov 2001 gall david lopez salid and valles 2007 perotti 2005 2008 in general a new keynesian model with sticky prices implies a countercyclical markup ratio as input prices rise in a boom while output prices stay constant however for understanding the fiscal policy transmission the key factor is markup and not price stickiness itself as a countercyclical markup could also be implied by models with flexible prices when the desired markup changes in response to a shock 3 a model which assigns a central role to markups for fiscal policy transmission has been presented by ravn schmitt grohe and uribe 2007 assuming that demand has a price inelastic component that is a function of deep habits a government spending shock that leads to a positive output response increases the share of the price elastic component of demand causing a rise in the overall demand elasticity and a corresponding decline in the optimal markup 4 thus for a sufficient decline in the markup the resulting rise in wages induces households to substitute away from leisure and into consumption thereby more than offsetting the negative wealth effect of government spending predicted by the neoclassical model

unemployment growth and taxation in industrial countries unemployeement and taxes do taxes affect the rate of umemployeement to the layman the upward trend in european unemployment is related to the slowdown of economic growth we argue that the layman s view is correct the increase in european unemployment and the slowdown in economic growth are related because they stem from a common cause an excessively rapid growth in the cost of labour in europe labour costs have gone up for many reasons but one is particularly easy to identify higher taxes on labour if wages are set by strong and decentralized trade unions an increase in labour taxes is shifted onto higher real wages this has two effects first it reduces labour demand and thus creates unemployment secondly as firms substitute capital for labour the marginal product of capital falls over long periods of time this in turn diminishes the incentive to invest and to grow the data strongly support this view according to our estimates the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the eu could account for a rise in eu unemployment of roughly 4 percentage points a reduction of the investment share of output of about 3 percentage points and a growth slowdown of about 0 4 percentage points a year francesco daveri and guido tabellini

an approximation method for analysis and valuation of credit correlation derivatives abstract this paper presents a model for approximating the value of a basket of default correlated assets and analyzes subordinate tranches in securitized debt obligations the model is calibrated to an intensity based simulation of correlated defaults and represents an alternative computation method to full monte carlo simulation timing of individual obligor defaults are driven by intensity processes and collateral value is modeled with a jump diffusion process where the number of jumps corresponds to the total number of defaults in the asset pool this approach allows decomposition of subordinate obligations in terms of a collection of simpler securities and yields useful risk management information

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

theories of bank behavior under capital regulation abstract this paper reviews academic studies of bank capital regulation in an effort to evaluate the intellectual foundation for the imposition of the basel i and basel ii systems of risk based capital requirements the theoretical literature yields general agreement about the immediate effects of capital requirements on bank lending and loan rates and the longer term impacts on bank ratios of equity to total or risk adjusted assets this literature produces highly mixed predictions however regarding the effects of capital regulation on asset risk and overall safety and soundness for the banking system as a whole thus the intellectual foundation for the present capital regulation regime is not particularly strong the mixed conclusions in the academic literature on banking certainly do not provide unqualified support for moving to an even more stringent and costly system of capital requirements these widely ambiguous results do suggest however that assessing the implications of capital regulation for balance sheet risk and monitoring effort in diverse banking systems is an important agenda for future theoretical research in the banking area

tax structure and growth are some taxes better than others using pooled cross sectional data from 23 oecd countries between1965 and 1990 i find evidence that the tax structure affectseconomic growth specifically the proportion of tax revenueraised by taxing personal income has a negative correlation witheconomic growth this result is robust to a rigorous sensitivityanalysis where i control for other plausible growth determinantsin a systematic manner also there is some empirical evidencethat tax progressivity measured in terms of the long run incomeelasticity of tax revenue is associated with low economicgrowth

government size and growth a rejoinder in our 2011 survey of the literature in the journal of economic surveys on the effect of government size on economic growth in wealthy countries we find a relatively consistent pattern an increase in government size by 10 percentage points is associated with a 0 5 1 percentage point lower annual growth rate this conclusion is questioned by colombier in this rejoinder we present a rebuttal of colombier s argument based on a detailed scrutiny of his own statistical evidence and regression results furthermore we note that several new papers that have appeared since our original paper was published give support to our main conclusion

the impact of government debt expenditure and taxes on aggregate investment and productivity growth in this paper we evaluate empirically the impact of fiscal policy on two key determinants of long term growth i e private investment and productivity growth we mostly focus on a panel of 20 oecd economies from 1970 to 2009 although we also present some estimates based on data for 80 developing economies our findings suggest that high public debt adversely affects both aggregate investment spending and productivity growth through distortions related to the size of the public sector we also find weak evidence of some non linear effects on productivity with government debt becoming more detrimental in advanced economies when above 85 90 of gdp

the factor content of foreign trade in the factor proportions trade theory the heckscher ohlin theory the factor content of the pattern of trade plays a major role both in theoretical and in empirical investigations it is therefore valuable to identify restrictions on permissible vectors of the factor content of trade which necessarily hold in equilibrium if certain restrictions are empirically testable they can be used for preliminary testing of the theory before a more thorough examination is undertaken or they can be used to reject the theory it is my intention to develop in this paper a set of restrictions on the vectors of the factor content of trade which can be used for these purposes it is well known that autarky commodity prices impose restrictions on possible patterns of trade these restrictions provide a precise prediction of the pattern of trade for a two country two commodity world in the sense that the exporter of a good is readily identifiable from autarky price data as the country with the lower relative price of the good i will start by showing that in the presence of factor price equalisation autarky factor rewards impose restrictions on the factor content of trade patterns which are completely analogous to the restrictions imposed by autarky commodity prices on the commodity patterns of trade this result is in line with the view that in the factor proportions model trade in commodities represents indirect trade in factor services unfortunately these restrictions rely on autarky information and they are therefore not very useful for empirical work in order to overcome this difficulty i explore an alternative approach i argue that common predictions of the factor content of trade flows which are based on post trade observable data the data relevant for empirical studies rely on unnecessarily restrictive assumptions i e the assumption that preferences are homothetic and identical across countries and the assumption of factor price equalisation the assumption of identical homothetic preferences seems to be necessary when factor price equalisation is assumed because in this case there is an indeterminancy in the pattern of production nevertheless the two assumptions taken together imply the same factor content of a country s net import vector from the rest of the world for every equilibrium production pattern however in a many country world the factor content of bilateral trade flows depends on the realised production patterns and they cannot therefore be predicted i will show that in the absence of factor price equalisation which many

a public good approach to credit ratings from concept to reality abstract from the onset of the 2008 2009 financial crisis to the subsequent european sovereign debt crisis credit rating agencies have been assigned considerable blame reforming the credit rating industry has hence become an important policy issue in addition to the regulatory efforts in the context of accepting the for profit business model of ratings there is a growing realization that credit ratings bear the characteristics of a public good financial market participants need reliable transparent and independent assessment of credit risks credit ratings are therefore better viewed as an infrastructure matter however the proposed regulations seem to have missed this point this paper introduces a new approach to credit ratings undertaken by the risk management institute at the national university of singapore that is predicated on the provision of credit ratings as a public good with a public good alternative in place the currently predominant for profit business model may be counterbalanced

optimal taxation in models of endogenous growth we study the problem of optimal taxation in three infinite horizon representative agent endogenous growth models the first model is a convex model in which physical and human capital are perfectly symmetric our second model incorporates elastic labor supply through a lucas style technology analysis of these two models points out the danger of assuming that government expenditures are exogenous in our third model we include government expenditures as a productive input in capital formation showing that the limiting tax rate on capital is no longer zero in numerical simulations we find similar effects on growth and welfare in all three models

on some effects of international fragmentation of production on comparative advantages trade flows and the income of countries in traditional trade models whether based on technological differences or on relative factor endowments merchandise composition and directions of trade are derived from closed economy conditions but nowadays one of the basic assumptions of traditional trade models i e that production processes are integrated within just one country is being increasingly violated as previously integrated productive activities are segmented and spread over an international network of production sites as a result an increasingly large share of trade flows is made up of intermediate and unfinished goods being transferred from one country to another in order to be processed in this paper we submit that such new configuration of production processes has important effects on at least three dimensions of economic research first we show that international disintegration of production processes leads to a lessening of the power of comparative advantages when it comes to explaining both merchandise composition and directions of trade while it is the concept of absolute advantage to become increasingly relevant second we show that empirical measures of revealed comparative advantages are inherently misleading if they do not account for differences in the stage of processing of traded goods third we estimate a simple model of aggregate demand accounting for international trade in intermediates results of estimation lend support to our prior that participation of a country in the process of international fragmentation of production plays a specific and significant role in determining its year over year change in gdp

information and search an alternative approach to the theory of minimum wages the peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in a concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess

real government size automatic feedback rules and the measured effectiveness of fiscal policy this paper argues that as intervention fiscal policy means more than simply any change in government spending and this requires of fiscal analysis a measure that separates the allocative from the counter cyclical activities of government defining intervention as an optimal policy rule that responds automatically to privately unanticipated variations in output a general equilibrium model is built to separate the supply side effects of desired changes in the size of government from demand side interventions designed to stimulate aggregate demand the model is tested using the results of a public choice investigation of the real size of government ferris and west 1996 that exercise produces a measure of desired size and through its residual an implicit measure of intervention the paper tests the prediction that increases in desired size increase aggregate supply and that ex post measures of fiscal intervention can be recovered and tested for their effect on aggregate output the test uses citibase

what have we learned about policy and growth from cross country regressions economists have been seeking to comprehend why some countries are rich and others poor for well over 200 years a better understanding of the national policies associated with long run growth would both contribute to our ability to explain cross country differences in per capita incomes and provide a basis for making policy recommendations that could lead to improvements in human welfare recently economists have used cross country regressions to search for empirical linkages between longrun growth and indicators of national policies e g roger kormendi and philip meguire 1985 robert j barro 1991 the large cross country growth literature has identified various fiscal monetary trade exchange rate and financial policy indicators that are significantly correlated with longrun growth yet levine and david renelt 1992 show that many of these findings are fragile to small alterations in the conditioning information set that is small changes in the right hand side variables produce different conclusions regarding the relationship between individual policies and growth in this paper we take stock of what the profession has learned from cross country regression studies of policy and long run growth i limitations

intra european imbalances adjustment and growth in the eurozone this paper considers the increase in the euro intra area imbalances since the late 1990s and their role in the current european debt crisis by focusing on the case study of italy and germany we argue that both macroeconomic the functioning of the euro area and microeconomic internationalization of production factors contributed to the creation of such imbalances when sovereign risk and currency risk emerged in the periphery coupled with austerity as a response to these risks both factors made the euro crisis worse the present zero sum game approach is very risky for the stability of the euro area policy coordination of some kind is needed this requires agreeing on well identified economic policy priorities taking full account of the different positions of the members in terms of growth external imbalances and competitiveness new policy priorities are thus required in the euro zone that put more emphasis on cooperative positive sum games in convergence and competitiveness

tax structure and growth how robust is the empirical evidence this paper examines the link between the composition of tax revenues and the level of income per capita in the long run the tax and growth ranking suggested by some recent empirical studies is not robust under different assumptions about heterogeneity across countries of the long run and short run coefficients in the underlying econometric model evidence for significant taxstructure effects depends on long run parameter homogeneity restrictions underlying pooled mean group estimation which are found to be invalid

growth effects of flat rate taxes recent estimates of the potential growth effects of tax reform vary wildly ranging from zero to eight percentage points using an endogenous growth model we assess which model features and parameter values are important for determining the quantitative impact of tax reform we find that the critical parameters are factor shares depreciation rates the elasticity of intertemporal substitution and the elasticity of labor supply the elasticities of substitution in production on the other hand are relatively unimportant the quantitative estimates in several recent papers are compared with each other and with some of the evidence from u s experience we find that robert lucas s conclusion that tax reform would have little or no effect on the u s growth rate is theoretically robust and consistent with the evidence

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

testing theories of real government size u s experience 1959 89 in a recent article west 17 argued that the existence of so many strands of analysis attempting to explain the growth of government calls ultimately for one consolidated or generalized theory accordingly he produced a model that integrated four such theories two on the cost side and two on the demand side the purpose of the present paper is to derive empirical measures of all four theories using u s data for the period 1959 1989 the presumption is that each one separately might contribute in its own way to a composite explanation of government growth and that what is currently most needed is a set of jointly determined empirical estimates showing relative importance while all our measures of government size consolidate federal state and local government expenditures two other measurement issues should be emphasized since they distinguish our work from other contributions to this literature the government component of our main dependent variable the real size of government is measured in two different ways the first uses the national accounts definition of government purchases which excludes transfer payments from the measure of size whereas the second includes final purchases plus net government transfer payments since we are interested in the effects of changes in the productivity of supplying government services the first of these definitions is expected to be more relevant and is so used as the basis of our empirical work however since there is a sense in which changes in the productivity of government may affect the output of transfers we also use the second definition to produce a more complete empirical exercise the other distinguishing feature of our analysis is that both definitions of government size are analyzed in real as distinct from the more usual nominal share of government in gross domestic product gdp this distinction becomes immediately more striking when it is pointed out that while most authors hitherto have attempted to explain the phenomenon of positive growth in the ratio of nominals over the past half century the ratio of reals has actually fallen for most of our

output effects of government purchases the theoretical analysis focuses on the distinction between temporary and permanent movements in government purchases under plausible conditions the temporary case involves an output response that is positive less than one to one with the change in government purchases and larger than that generated by an equal sized but permanent shift in purchase the equilibrium real rate of return rise in the temporary case but changes little in the permanent one defense purchases are divided empirically into permanent and temporary components by considering the role of temporary wars no temporary shifts in nondefense purchases were isolated empirical results verify an expansionary output effect for temporary purchases that exceeds that of permanent purchases the results for some other expectational hypotheses are found to be generally supportive of the theory

macroeconomic effects of corporate tax policy abstract prior studies on the relation between corporate taxes and future macroeconomic growth present contradictory evidence we argue this mixed evidence is at least partly due to the use of statutory corporate tax rates which ignore the complexity of tax exemptions tax deductions tax enforcement and firms tax planning we propose an alternative tax rate measure that aggregates cash effective tax rates of listed firms which reflect not only statutory tax rates but also other features of the tax code enforcement and firms tax planning we find a strong robust negative relation between country level effective tax rates and future macroeconomic growth

on the in accuracy of economic observations an assessment of trends in the reliability of international trade statistics abstract previous investigations which evaluated the accuracy of trade statistics were generally based on the partner country approach i e a given country s reported exports imports were compared with a partner s reported imports exports with the objective of identifying major value differences and the reasons for these discrepancies the present study employs a new methodology that focuses on the internal consistency of trade statistics four key questions are addressed 1 are the data reported under different classification schemes like sitc revision 1 and 2 consistent at points where there are perfect correspondences between product groups 2 are trade totals consistent with the sum of values reported for lower level products 3 is total trade consistent with the sum of trade reported with individual partner countries and 4 are trade values compiled by one reporting organization united nations consistent with those of an alternative imf agency by performing these consistency tests annually from the early 1960s this study is able to assess trends in the reliability of trade data the tests results should be extremely disquieting for data users differences of 100 percent or more are observed in some countries supposedly directly comparable sitc revision 1 and 2 trade totals with the average discrepancy for all developing countries exports exceeding 60 percent in the early 1980s second total trade figures are frequently found to be inconsistent with trade data for component products i e the sum of trade in say three or four digit sitc products is often considerably more or less than a country s reported trade and such discrepancies persist in some country s data for more than 20 years third there has been a clear deterioration in reporting the origin or destination of trade since 1980 as over 30 percent of developing countries imports or exports are not properly allocated fourth different international agencies sometimes report trade values for specific countries that differ by 100 percent or more such discrepancies appear especially important for the least developed countries but there is evidence that the differences for all countries widened over the last decade

the impact of taxes on growth and distribution in developed capitalist countries a cross national study has the scope of public planning in contemporary capitalist economies promoted or hindered economic growth and income distribution we explore this question by assessing the impact of various mechanisms for raising government revenues on investment growth and income distribution in 22 developed market economy countries the article considers whether growth and distribution are affected differently by governments relative reliance on personal and corporate income taxes social security contributions property taxes and sales and value added taxes or by the relative progressivity of tax mechanisms our findings lend support to the assertion that fiscal instruments especially personal income taxes can be used successfully to achieve greater income equality on the other hand these findings run counter to the conventional notion that an automatic trade off exists between an active public sector and a dynamic expanding economy although there is surely some tension between the economic goals of growth and equality it is not at all clear that they are necessarily incompatible or that government can contribute only to the latter

a guide to choosing absolute bank capital requirements resampling implementation of a stress scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk estimates are presented for stress scenarios of varying severity and implications of different time horizons are analyzed results for a numeraire portfolio are quite sensitive to such variations although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks the arguments and results are also relevant for bankers making capital structure decisions

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

global value chains a survey of drivers and measures global value chains gvcs emerged as the paradigm for the international organisation of production for most goods and services production is nowadays vertically fragmented across different countries and this reality gave rise to a significant new strand of research in in ternational trade this article starts by discussing the major driving forces of gvcs in recent decades next it surveys the main measures of gvcs accounting for their different scopes and required datasets the artic le highlights the timing of the contributions to the literature signalling their sequential nature and the trend towards more accurate and data demanding indicators

global production sharing and trade in the services of factors this article develops an approach to measuring the factor content of trade when intermediate inputs are traded and techniques differ for reasons such as factor price differences an empirical section documents the importance of intermediates and shows that they mitigate cross country differences in the factor content of finished goods the performance of recent models of factor service trade is also evaluated existing approaches impute the factor content of imported intermediates with domestic techniques and tend to overstate how well those models perform the framework developed here can help reconcile generalequilibrium trade models with actual patterns of trade d 2005 elsevier b v all rights reserved

taxation aggregate activity and economic growth cross country evidence on some supply side hypotheses data from sixty three countries are used to examine the impact of average and marginal tax rates on the level and growth of economic activity apparent negative effects of tax rates on growth disappear upon controlling for 1 potential endogeneity of average tax rates to per capita income and 2 the relation between economic growth and per capita income however controlling for average tax rates increases in marginal tax rates have negative effects on the level of economic activity this evidence supports the hypothesis that reductions in the progressivity of tax rates induce a parallel shift upward in the growth path

open economies work better did africa s protectionist policies cause its marginalization in world trade in the mid 1950s sub saharan africa accounted for 3 1 percent of global exports by 1990 this share had fallen to 1 2 percent the authors of this report find that africa s extensive loss of competitiveness played a key role in its decline in world trade if africa had merely retained its 1962 64 oecd organization for economic cooperation and development market shares its exports now would be 75 percent higher africa s problem was two pronged 1 it experienced declining market shares for its major export products which in turn were of declining relative importance in world trade and 2 it was unable to diversify its export base empirical evidence developed by the authors shows that external protection has not played a major role in this decline in fact oecd trade preferences gave africa an advantage over many exporters trade restrictions and domestic policy interventions often create a bias against tradables especially exports that prevents the achievement of otherwise attainable growth rates import barriers in africa are far higher than in developing countries with faster export growth and appear to work against potential export products if the region is to reverse its unfavorable export trends it must adopt trade and structural adjustment policies that help make it competitive and help african exporters capitalize on foreign trade opportunities

beyond the algebra of explanation hov for the technology age it is hard to believe that factor endowments theory could offer an adequate explanation of international trade patterns while the theory adequately predicts saudi arabian oil exports it hardly seems appropriate for explaining the revolutionary impact of new technologies on world trade yet to take this position is to misunderstand the thrust of recent empirical research in international trade research that is giving shape to a new generation of heckscher ohlin vanek hov thinking the core of this new thinking is a class of hov predictions that allow for international differences in technology and choice of techniques the literature is in the process of rapid evolution as a result the key questions tend to get lost there have been three of them first what empirical regularities account for the poor performance of the hov model second are there alternative assumptions about technology that lead to better test results for the model both of these are interesting questions but they hardly constitute an end point for understanding the impacts of international trade as edward e leamer 1993 p 439 pointed out e conomists ought to abandon the idea that models are either true or false in favor of the notion that models are sometimes useful and sometimes misleading the third and most important question is whether the hov model provides a useful framework for thinking about international technology differences in spite of the defects of the model the answer is a definite yes 9

measurement of the factor content of foreign trade with traded intermediate goods abstract in a recent article helpman 1984 develops readily testable bilateral restrictions in a model of international trade which preserves the spirit of heckscher ohlin trade theory important in any empirical exploration of the heckscher ohlin model is the decision of whether to employ direct or direct plus indirect calculations in determining the factor content of trade this paper extends helpman s analysis to a world of freely traded intermediate goods and shows that direct factor content calculations are the theoretically appropriate measure for use in evaluating these empirical implications of the heckscher ohlin model

a model of electroral competition with interest groups abstract this letter specifies and analyzes a model of electoral competition with interest groups the assumptions used in the model are drawn from the existing literature we i show that certain assumptions that have been used in empirical analyses of voting provide a sufficient condition for the existence of an electoral equilibrium and ii characterize the equilibrium strategies embodied in the characterization is a set of parameters that can be said to measure the electoral strengths of the interest groups we also state the appropriate definition of the pareto relation for our model and note that each of the equilibrium strategies is pareto optimal

the equilibrium approach to fiscal policy this paper lays out a simple model for the purpose of bringing together the various strands of the analysis of fiscal policy in an optimizing competitive equilibrium model the discussion centers on the critic al assumptions lying behind the ricardian equivalence proposition th e role of the time profile and composition of public expenditure and the timing of distortional taxation copyright 1988 by ohio state university press

on the accuracy of economic observations do sub saharan trade statistics mean anything matching exporters freight on board fob trade statistics with the corresponding importers cost inventory and freight cif data this paper studies the quality of official information on trade between 36 african countries the author found the disparities in data so great as to make the official trade statistics almost useless for most empirical and policy studies he concluded that a statistics on matching exports and imports vary so much that the data cannot be used to assess the level of trade between african countries b the data are probably equally useless for assessing the direction of trade since the countries that exporters report as the destination of trade often fail to report corresponding imports c the data are inadequate for determining the composition of trade because countries report on different levels of detail and d large persistent apparent differences in trends in intra african trade may simply reflect different degrees of accuracy in country trade data finally the fact that reported fob exports often exceed the corresponding reported imports suggests either that smuggling is widespread or that importers are intentionally underinvoicing because of high african tariffs or quotas

regulatory and economic solvency standards for internationally active banks abstract one of the most important policy issues for financial authorities is to decide at what level average capital charges should be set the decision may alternatively be expressed as the choice of an appropriate survival probability for representative banks over a horizon such as a year often termed a solvency standard this article sheds light on the solvency standards implied by current and possible future g10 bank regulation and on the economic solvency standard that banks choose themselves by their own capital setting decisions in particular we employ a credit risk model to show that the survival probability implied by the 1988 basel accord is between 99 0 and 99 9 we then demonstrate that if a new basel accord were calibrated to such a standard it would not represent a binding constraint on banks current operations since most banks employ a solvency standard higher than 99 9 to show this we employ a statistical analysis of bank ratings adjusted for the impact of official or other support as well as credit risk model calculations lastly we advance a possible explanation for the conservative capital choices made by banks by showing that swap volumes are highly correlated with credit quality for given bank size this suggests that banks access to important credit markets like the swaps markets may provide a significant discipline in the choice of solvency standard

short term growth effects of fiscal policy revisited a markov switching approach abstract this paper investigates the growth effects of three different types of tax policy innovations on short term economic growth within a markov switching framework applied to the u s economy

nonlinear growth effects of taxation a semi parametric approach using average marginal tax rates summary one of the major challenges of empirical tax research is the identification and calculation of appropriate tax data while there is consensus that average marginal tax rates are most suitable for studying the effects of tax policy on economic growth because of data limitations the calculation of marginal tax rates has been limited to the usa and the uk this paper provides calculations of average marginal tax rates for the four scandinavian countries using the methodologies of seater 1982 1985 and barro and sahasakul 1983 1986 then by pooling the newly calculated tax rates for the scandinavian countries with the data for the usa and the uk we investigate the effects of tax policy shocks on the per capita gdp growth rate our results suggest that an increase in average marginal tax rates has a negative impact on economic growth employing additive mixed panel models with penalized splines as estimation approach we show that changes in tax rates have nonlinear effects increasing average marginal tax rates turn out to be the most distorting at relatively moderate tax rates copyright 2013 john wiley sons ltd

capital requirements and business cycle regimes forward looking modelling of default probabilities abstract this paper proposes a forward looking model for time varying capital requirements which finds application within basel ii the model rests on the relationship between default rates and the business cycle by positing two regimes expansion and recession and by forecasting the associated probabilities the default probability for each rating class is defined as the expected value of a default rate whose distribution is a mixture of an expansion and a recession distribution the application to us data over the forecasting period 1971 2002 provides evidence that the model makes it possible to preserve the risk sensitivity of the capital requirement and at the same time to dampen procyclicality

government size and economic growth a new framework and some evidence from cross section and time series data a study of the impact of government size on economic performance and growth is important theoretically one point of view suggests that a larger government size is likely to be detrimental to efficiency and economic growth because for example i government operations are often conducted inefficiently ii the regulatory process imposes excessive burdens and costs on the economic system and iii many of government s fiscal and monetary policies tend to distort economic incentives and lower the productivity of the system at the other extreme one can identify some points of view that assign to the government a critical role in the process of economic development and could argue that a larger government size is likely to be a more powerful engine of economic development there are several arguments on which the latter point of view is based these include besides others i role of the government in harmonizing conflicts between private and social interests ii prevention of exploitation of the country by foreigners and iii securing an increase in productive investment and providing a socially optimal direction for growth and development

european economic integration and comparative advantages on the basis of a set of input output tables we computed the european net product possibility frontier nppf for the years from 1995 to 2011 during this period several barriers to trade have been removed allowing higher levels of trade and regional integration subsequently we propose a method to check whether the prediction to be derived from comparative advantages cas theory namely a specialization pattern that allows to reach the nppf is verified the results suggest that cas were not exploited well during the period considered and no positive trend emerged the implication of our results is that there is ample scope for a coordinated policy aimed at improving allocation of resources further research on this topic seems to be necessary

why does hov fail the role of technological differences within the ec abstract this paper examines the role of international differences in production techniques in explaining the empirical failure of the heckscher ohlin vanek hov model it develops a modified hov model that relaxes the assumption of identical production techniques across countries and can be estimated using input output data of individual countries the contribution of international differences in techniques to net factor trade patterns is then isolated by comparing the performance of the strict and modified hov models the paper finds that allowing for international technique differences significantly improves the predictive power of the hov model

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

where ricardo and mill rebut and confirm arguments of mainstream economists supporting globalization most noneconomists are fearful when an emerging china or india helped by their still low real wage rates outsourcing and miracle export led developments cause layoffs from good american jobs this is a hot issue now and in the coming decade it will not go away prominent and competent mainstream economists enter into the debate to educate and correct warm hearted protestors who are against globalization here is a fair paraphrase of the argumentation that has been used recently by alan greenspan jagdish bhagwati gregory mankiw douglas irwin and economists john or jane doe spread widely throughout academia yes good jobs may be lost here in the short run but still total u s net national product must by the economic laws of comparative advantage be raised in the long run and in china too the gains of the winners from free trade properly measured work out to exceed the losses of the losers this is not by mysterious fuzzy magic but rather comes from a sharing of the trade induced rise in total global vectors of the goods and services that people in a democracy want never forget to tally the real gains of consumers alongside admitted possible losses of some producers in this working out of what schumpeter called creative capitalist destruction correct economic law recognizes that some american groups can be hurt by dynamic free trade but correct economic law vindicates the word creative destruction by its proof sic that the gains of the american winners are big enough to more than compensate the losers

credit risk in private debt portfolios default loss severity and average loss rates for a large sample of privately placed bonds are presented and compared with loss experience for publicly issued bonds the chance of very large portfolio losses is estimated and some determinants of such losses are analyzed results show ex ante riskier classes of private debt perform better on average than public debt both diversification and the riskiness of individual portfolio assets influence the bad tail of the portfolio loss distribution private placements are similar to corporate loans in that both are monitored private debt the results are thus relevant to management and securitization of private debt portfolios generally more than half of nonfinancial corporate debt finance is iss ued privately and decisions of the financial intermediaries that invest in such debt depend importantly on its credit risk regulators of such institutions are similarly attentive to portfolio credit risk and it is an important consideration in the design of securitizations of pools of private debt in spite of its importance little is known empirically about private debt credit risk especially ex ante risk as a function of portfolio characteristics many studies have examined the loan portfolio performance of banks thrifts and insurance companies but the ex ante risk characteristics of the portfo

transitional dynamics and economic growth in the neoclassical model neoclassical transitional dynamics are a central element of standard macroeconomic theory quantitative experiments with the fixed savings rate models of the 1960s showed lengthy transitions thus potentially rationalizing sustained differences in growth rates across countries the authors investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing households lengthy transitions occur only with very low intertemporal substitution generally when one tries to explain sustained economic growth with transitional dynamics there are extremely counterfactual implications these result from the fact that implied marginal products are extraordinarily high in the early stages of development copyright 1993 by american economic association

specialization patterns and reduction of co2 emissions an empirical investigation of environmental preservation and economic efficiency abstract we study the effects that different degrees of specialization in the production of the global net output of a group of countries might have on the emissions of co2 the analysis is based on the sraffian notion of subsystems which allows us to study what the input output table of a country would look like under different hypotheses on the allocation of the available resources we use the wiod input output tables and the related environmental accounts for 1995 2009 we show that the environmental benefits deriving from appropriate specialization patterns could be substantial moreover our results suggest that co2 reduction is not necessarily detrimental to economic activity on the contrary with the appropriate exploitation of suitable patterns of specialization co2 reduction and gdp growth may even be pursued jointly

reforming bank capital requirements implications of basel ii for latin american countries the controversial proposal to overhaul the international accord regarding the regulation of bank capital was completed in 2004 and the thirteen basel committee member countries are set to implement the new accord known as basel ii by 2007 we develop a basel ii decision tree to guide policymakers facing the issue of whether to adopt the new accord we also estimate credit risk in banks across three latin american countries using a homogeneous methodology our findings suggest that latin america falls between the two main basel ii alternatives non g10 countries may thus wish to recalibrate basel ii s internal ratings based irb approach alternatively we propose an intermediate centralized ratings based crb approach we argue that the crb approach may be made compatible with basel ii by developing an integrated policy for provisions and capital we perceive a danger that basel ii may be adopted too quickly or inappropriately and may then represent the end of a standard rather than the establishment of a new one we suggest that a basel ii compatible crb approach with homogeneous definitions would enhance true comparability

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

simulation based stress tests of banks regulatory capital adequacy abstract banks holding of reasonable capital buffers in excess of minimum requirements could alleviate the procyclicality problem potentially exacerbated by the rating sensitive capital charges of basel ii determining the sufficient buffer size is an important risk management task for banks which the basel committee suggests should be approached via stress testing we present here a simulation based approach to stress testing of regulatory capital adequacy where rating transitions are conditioned on business cycle phase and which takes into account business cycle dynamics our approach is an extension of a typical credit portfolio analysis in that we simulate actual bank capital and minimum capital requirements simultaneously actual bank capital absent mark to market accounting is driven by bank income and default losses whereas capital requirements within basel ii are driven by rating transitions the joint dynamics of these determine the necessary capital buffers given a confidence level for regulatory capital adequacy chosen by bank management we provide a tentative calibration of this confidence level to data on actual bank capital ratios which enables a ceteris paribus extrapolation of bank capital under the current regime to bank capital under basel ii

banks incentives and inconsistent risk models this paper investigates banks incentive to bias the risk estimates they report to regulators within loan syndicates we find that banks with less capital report lower risk estimates consistent with an effort to mitigate capital requirements the sensitivity to capital is robust to bank fixed effects and greater for large risky and opaque credits also low capital banks risk estimates have less explanatory power than those of high capital banks with regard to loan prices indicating that their estimates incorporate less information our results suggest banks underreport risk in response to capital constraints and highlight the perils of regulation premised on self reporting received september 21 2016 editorial decision september 18 2017 by editor philip strahan authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

a ricardo sraffa paradigm comparing gains from trade in inputs and finished goods here is how the 1817 ricardo comparative advantage trade benefit analysis has to be modified to take account of post 1960 sraffian benefits from capital using technologies by bringing j s mill s demand model up to date in terms of its implicit geometric mean money metric utility specific measurements for real net national product are calculated to partition sources of welfare gains from output enhancements and taste preference accommodations in scenarios of 1 trade between equals 2 trade between poor and rich nations and 3 for biased inventions that enable a poor country to take over production of items in which formerly the rich place enjoyed comparative advantage history of economic doctrine is mined to advance today s frontier of scientific knowledge a forward looking function for whig history

government spending and economic growth this study reviewed recent empirical studies providing fresh evidence of the impact of government spending on economic growth it is followed by a new theoretical synthesis and this as well as the other models are in turn subjected to empirical validation the empirical validation is conducted for both developed and less developed economies based on simultaneous equations as well as single equation models with or without adjusting for differences in th total factor productivity growth government size is estimated to have positive impact on economic growth in the short run but not in the intermediate run 25 years in this study

government size and growth a survey and interpretation of the evidence the literature on the relationship between the size of government and economic growth is full of seemingly contradictory findings this conflict is largely explained by variations in definitions and the countries studied an alternative approach of limiting the focus to studies of the relationship in rich countries measuring government size as total taxes or total expenditure relative to gdp and relying on panel data estimations with variation over time reveals a more consistent picture the most recent studies find a significant negative correlation an increase in government size by 10 percentage points is associated with a 0 5 to 1 percent lower annual growth rate we discuss efforts to make sense of this correlation and note several pitfalls involved in giving it a causal interpretation against this background we discuss two explanations of why several countries with high taxes seem able to enjoy above average growth one hypothesis is that countries with higher social trust levels are able to develop larger government sectors without harming the economy another explanation is that countries with large governments compensate for high taxes and spending by implementing market friendly policies in other areas both explanations are supported by ongoing research

factor prices and the factor content of trade revisited what s the use abstract this paper examines and extends a result of deardorff and staiger an interpretation of the factor content of trade journal of international economics 1988 24 93 107 d s who showed how the factor content of trade may indicate the factor price adjustments that can be attributed to that trade it elaborates on what this means and also extends it beyond several of the assumptions that d s used the strongest result in d s only for cobb douglas technology is extended to common constant elasticities of substitution and for small changes more general technologies also the assumption of nonspecialization is shown to be unnecessary with cobb douglas technology more generally noncompeting imports equate with hicks neutral technological improvements

civil institutions and evolution concepts critique and models abstract the paper examines the relation between civil norms and evolution the survival of norms in the long run may depend on the evolutionary process and natural selection the sieve of natural selection may ensure that norms which persist must have minimal efficiency properties this paper begins with a general discussion of evolutionary processes and the survival of civil institutions it then presents an introductory account of the theory of evolutionary games it is argued that the model of evolutionary games is more suited to analyzing animal behaviour than the human one since it is the latter that is of interest to economists an attempt is made in this paper to develop some new solution concepts which are more apt for human games