measuring and improving the performance of customs valuation controls an illustration with gabon modern customs administrations aim to both facilitate legal trade and combat fraud to meet this dual objective many customs administrations in developing countries must give risk management a highly prominent role in this context of modernisation this paper first provides stylised facts on the performance of the customs controls carried out at the gabon border then we compare gabon s granular import customs data with international trade statistics based on this comparison we identify undetected fraud and present a methodology to target ex post audits finally we define indicators to monitor the performance of customs valuation controls

unionization and input flexibility in u s manufacturing 1973 1996 input flexibility as measured by the ability of firms to vary input demand in the face of changes in input prices is an important dimension of labor market flexibility using a new dataset the authors analyze the impact of unionization on input flexibility in u s manufacturing from 1973 to 1996 a period in which production was arguably becoming more flexible due to deep changes in the u s industrial relations system and in the broad macroeconomic environment the authors quantify the effects of unionization on input flexibility by estimating elasticities of substitution between a broad range of labor and non labor inputs controlling for unionization the pattern that emerges is more complex than that suggested by other research in particular low unionization apparently is associated with greater flexibility in the use of labor inputs but less flexibility in the use of non labor inputs

tariff evasion and rules of origin violations under the canada u s free trade agreement using product level data on trade between canada and the u s this paper presents evidence of tariff evasion and violation of the rules of origin occurring under the canada u s free trade agreement cusfta it shows that more imports go unreported at the destination country when tariffs are higher consistent with the tariff evasion hypothesis this result implies that the trade creation effect of a free trade agreement may in fact be due to less underreporting further this paper shows that the larger canadian tariff preference margin for the u s is associated with more goods originating in third countries being transshipped through the u s territory for re export the preference margin is also positively correlated with the value of excess imports from the u s which qualify for preferential treatment both results suggest the presence of persistent violations of cusfta s rules of origin a l aide de donnees au niveau des produits sur les flux de commerce entre le canada et les etats unis on montre qu il y a evitement de tarif et violation des regles d origine dans les operations de l accord de libre echange canada etats unis on montre que davantage d importations ne sont pas declarees au point de destination quand les tarifs sont eleves dans l esprit meme de l hypothese d evitement de tarif ce resultat implique que l effet de creation de commerce d un accord de libre echange peut en fait etre attribuable a moins de sous declaration de plus le texte montre que les plus grandes marges preferentielles des tarifs avec les etats unis sont associees a davantage de biens en provenance de tiers pays et convoyes a travers le territoire americain pour re exportation la marge preferentielle est aussi positivement co reliee avec la valeur des importations excedentaires en provenance des etats unis qui se qualifient pour un traitement preferentiel ces deux ensembles de resultats suggerent la presence persistante de violations des regles d origine de l accord de libre echange canada etats unis

output dynamics in real business cycles models the time series literature reports two stylized facts about output dynamics in the united states gnp growth is positively autocorrelated and gnp appears to have an important trend reverting component this paper investigates whether current real business cycle rbc models are consistent with these stylized facts many rbc models have weak internal propagation mechanisms and must rely on external sources of dynamics to replicate both facts models that incorporate labor adjustment costs are partially successful they endogenously generate positive autocorrelation in output growth but they need implausibly large transitory shocks to match the trend reverting component in output

flexibility and uncertainty the preserving of flexibility when faced with uncertainty is a neglected aspect of behaviour under risk yet it is an important factor in decisions to hold liquid assets or delay irreversible investment this paper formalizes the notion of flexibility in a sequential decision context and relates its value to the amount of information an agent expects to receive a rudimentary money demand model is developed embodying these ideas and the history of flexibility as an economic concept is traced choices are frequently made between alternatives that imply different degrees of future commitment between a short term investment that leaves future options open for example and a long term one that by its very nature forecloses those options the relative attractiveness of the two depends on their probability distributions of payoffs over time a basic consideration in this choice is the recognition that beliefs about the risks governing these payoffs may change current doubts may be partially resolved in the near future this prospect decreases the attractiveness of the longer term commitment in that one is able to respond less fully to new information and even if it does not directly affect the risks associated with shorter term choices enhances their appeal this paper formalizes the above remarks by establishing connections between the following two partial orderings the first is an ordering based on variability of beliefs one set of beliefs is more variable than another if more final risk is resolved at an intermediate stage the more one expects to learn by an intermediate period relative to what one knows today the more variation one is anticipating in beliefs about the final outcome the second is an ordering of current actions or positions based on flexibility one position is more flexible than another if it leaves available a larger set of future positions at any given level of cost these two orderings are incorporated in a simple sequential decision model to suggest the following behavioural principle the more variable are a decision maker s beliefs the more flexible is the position he will choose this principle potentially applies whenever i there will be opportunities to act after further information is received and ii current actions influence either the attractiveness or availability of different future actions

natural resources curse or blessing are natural resources a curse or a blessing the empirical evidence suggests that either outcome is possible this paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources these include that a resource bonanza induces appreciation of the real exchange rate deindustrialization and bad growth prospects and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law corruption presidential democracies and underdeveloped financial systems another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad induces corruption especially in nondemocratic countries and keeps in place bad policies finally resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets the survey also offers some welfare based fiscal rules for harnessing resource windfalls in developed and developing economies

union membership and employment dynamics a note we analyze union behavior in a model with membership dynamics and compare the labor market outcomes to static union models based on empirical findings we modify standard models and show that the well known result that static models overstate distortions caused by unions only holds in the special case of firm level wage setting if however the union is big enough to determine employment for the whole sector it rather depends on both the elasticity of labor demand and union s time preference whether static frameworks overrate or even underrate unions distortions jel code c61 j50 j51

quota hopping in bond diversion we show that the u s in bond system of imports may be used by firms to illegally avoid trade barriers a practice known as in bond diversion the illicit scheme involves declaring chinese exports bound for mexico but diverting them to the u s market while in transit thus creating a gap between chinese and mexican reports using the phaseout and removal of u s quotas at the end of the multifiber agreement as a policy experiment as well as variation in quota bindingness across products we show that quota bound products were associated with larger trade gaps which shrunk following the quota removals jel f13 o17 o19

a micro data approach to the identification of credit crunches this article presents a micro data approach to the identification of credit crunches using a survey among german firms which regularly queries the firms assessment of the current willingness of banks to extend credit we estimate the probability of a restrictive loan supply policy by time taking into account the creditworthiness of borrowers creditworthiness is approximated by firm specific factors e g the firms assessment of their current business situation and their business expectations after controlling for the return on the banks risk free investment alternative which is also likely to affect the supply of loans we derive a credit crunch indicator which measures that part of the shift in the loan supply that is neither explained by firm specific factors nor by the opportunity costs of providing risky loans

price changes in the euro area and the united states some facts from individual consumer price data prices of goods and services do not adjust immediately in response to changing demand and supply conditions this paper characterizes the average frequency and size of price changes in the euro area and its member countries investigates the determinants of the probability of price changes and compares the evidence for the euro area with available u s results the facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except ireland and greece that is in datasets covering austria belgium finland france germany italy luxembourg the netherlands portugal and spain which together account for around 97 percent of euro area gdp the data used are the monthly price records underlying the computation of national consumer price indices and harmonized consumer price indices these data cover a large number of products selected on the basis of extensive household budget surveys

entrepot trade and smuggling in west africa benin togo and nigeria official trade statistics indicate very little intra african trade but this is often because of the prevalence of unrecorded trade particularly smuggling this paper explores smuggling from benin and togo into nigeria nigeria has very high import tariffs and bans on certain products togo and benin have deliberately maintained low import barriers to facilitate an entrepot role vis a vis nigeria and land locked sahelian countries togo competes at a geographic disadvantage relative to benin for access to the nigerian market and compensates with lower transit taxes the volume and composition of cross border trade is analysed using data obtained from benin and togo customs authorities as well as interviews with traders and customs officials in both countries benin and to a lesser extent togo are the origin of a very large volume of transshipment of precisely those products which are heavily protected in nigeria such as used cars cloth and rice it is common knowledge in benin and togo that these imports although declared for domestic consumption or transit to other countries are in fact overwhelmingly intended for nigeria smuggling is a major source of income and employment in benin and togo but provides a fragile and unreliable foundation for economic development

the peter pan syndrome in emerging markets the productivity transparency trade off in it adoption firms invest in technology to increase productivity yet in emerging markets where a culture of informality is widespread information technology it investments leading to greater transparency can impose a cost through higher taxes and the need for regulatory compliance the tendency of firms to avoid productivity enhancing technologies and remain small to avoid transparency has been dubbed the peter pan syndrome we examine whether firms make the trade off between productivity and transparency by examining it adoption in the indian retail sector we find that computer technology adoption is lower when firms are motivated to avoid transparency specifically technology adoption is lower when there is greater corruption but higher when there is better enforcement and auditing so firms have a higher productivity gain threshold to adopt computers in corrupt business environments that suffer from patchy and variable enforcement of the tax laws not accounting for this motivation to hide from the formal sector underestimates productivity gains from computer adoption thus in addition to their direct effects on the economy enforcement auditing and corruption can have indirect effects through their negative impact on adoption of productivity enhancing technologies that also increase operational transparency

money new keynesian macroeconomics and the business cycle abstract we show in this paper that the typical modern business cycle cannot be reduced to the real business cycles archetype a monopolistic competition model with price adjustment costs affected by technological and monetary shocks better mimics the economic fluctuations in two countries with very different cyclical properties namely france and the united states in our model monetary shocks are necessary to reproduce the standard deviation of output the money output correlation the labour productivity worked hours relative standard deviation the labour productivity worked hours correlation and the mark up output correlation with two independent shocks one real more specifically defined than the solow residual and one nominal the model gives an answer to some empirical puzzles which were left unexplained by traditional rbc models

elusive persistence wage and price rigidities the new keynesian phillips curve and inflation dynamics abstract we review the main new keynesian inflation equations that have arisen as a result of aggregation from individual firms price rigidities we find that on the whole they cannot account for inflation persistence a key feature of the empirical dynamics of inflation and with important policy implications the only exceptions seem to be when indexation is allowed in price setting or when price stickiness is combined with wage rigidity and staggering

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

corruption trade costs and gains from tariff liberalization evidence from southern africa this paper exploits quasi experimental variation in tariffs in southern africa to estimate trade elasticities traded quantities respond only weakly to a 30 percent reduction in the average nominal tariff rate trade flow data combined with primary data on firm behavior and bribe payments suggest that corruption is a potential explanation for the observed low elasticities in contexts of pervasive corruption even small bribes can significantly reduce tariffs making tariff liberalization schemes less likely to affect the extensive and the intensive margins of firms import behavior the tariff liberalization scheme is however still associated with improved incentives to accurately report quantities of imported goods and with a significant reduction in bribe transfers from importers to public officials

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

hyperbolic discounting and the phillips curve using a standard dynamic general equilibrium model we show that the interaction of staggered nominal contracts with hyperbolic discounting leads to inflation having significant long run effects on real variables

wto accession and tariff evasion abstract this study documents some unintended consequences of the world trade organization wto membership by providing evidence on displacement of tariff evasion driven by the wto accession process the analysis focuses on the wto customs valuation agreement cva which limits the discretion of customs officials when it comes to assessing the price of imports while prior to the wto accession customs officials are free to use their own judgment or apply minimum or reference prices after their country joined the wto they are mandated to accept the invoice price issued by the exporter if customs officials enjoy discretion with respect to assessing the import price they may assist importers with tariff evasion in exchange for bribes removing such discretion limits their ability to facilitate misrepresentation of import prices using data on 15 countries which joined the wto between 1996 and 2008 we find a positive relationship between underreporting of import prices and the tariff rate which is expected as the incentive to evade increases with the tariff rate importantly this relationship disappears after a country joins the wto this result is consistent with the cva closing one channel for corrupt behavior however we also find that changes to customs valuation procedures induce importers to seek alternative ways of tariff evasion such as underreporting of quantities and product misclassification the overall level of evasion remains unchanged

examining managerial displacement the research reported used a longitudinal analysis to compare the displacement experience of managers with that of other employees and to examine the factors associated with managerial job loss jo

the optimal elasticity of taxable income abstract the strength of the behavioral response to a tax rate change depends on the environment individuals operate in and may be manipulated by instruments controlled by the government we first derive a measure of the social benefit to affecting this elasticity the paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available first in a general model and then in an example when the government chooses the income tax base

tariffs enforcement and customs evasion evidence from india we examine the effect of tariff policies on evasion of customs duties in the context of the trade reform in india of the 1990s by exploiting the variation in tariff rates across time and products we identify a robust positive elasticity of evasion with respect to tariffs a second contribution of the paper is to provide some evidence on the impact of enforcement while we cannot identify the direct impact of enforcement on evasion we can establish the extent to which enforcement related factors such as product characteristics that determine the ease of detection of evasion affect the evasion elasticity the results render support to the hypothesis that improvements in enforcement can reduce the responsiveness of evasion to tariffs

separating the hawks from the doves evidence from continuous time laboratory games human players in our laboratory experiment received ow payos over 120 seconds each period from a standard hawk dove bimatrix game played in continuous time play converged closely to the symmetric mixed nash equilibrium under a one population matching protocol when the same players were matched in a two population protocol with the same bimatrix they showed clear movement towards an asymmetric and very inequitable pure nash equilibrium of the game these ndings support distinctive predictions of evolutionary game theory

hours of work and trade unionism this article is concerned with hours worked per employee in unionized labor markets first the determination of hours is examined in the context of various bargaining models and in the process these models are nested in a general framework then cross section and time series data are drawn on to quantify the effects of unionism on hours worked the time series data from 1920 to 1980 imply a negative impact of unionism on full time hours while cross section data for 1978 suggest some notable differences in both the direction and the magnitude of this impact across occupations and industries

political culture and discrimination in contests abstract many economic and political decisions are the outcome of strategic contests for a given prize the nature of such contests can be determined by a designer who is driven by political considerations with a specific political culture the main objective of this study is to analyze the effect of political culture and of valuation asymmetry on discrimination between the contestants the weights assigned to the public well being and the contestants efforts represent the political culture while discrimination is an endogenous variable that characterizes the mechanism allocating the prize we consider situations under which the optimal bias of the designer is in favor of the contestant with the larger or smaller prize valuation and examine the effect of changes in the political culture and in valuation asymmetry on the designer s preferred discrimination between the contestants focusing on the two most widely studied types of contest success functions deterministic all pay auctions and logit csfs we show that an all pay auction is always the preferred csf from the point of view of the contest designer this result provides a new political economic micro foundation to some of the most commonly used models in the contest literature

flexibility and the theory of the firm abstract the object of this paper is 1 to bring together and integrate the various concepts of flexibility found in the economic literature 2 to flesh out the meaning of various aspects of flexibility and their implications thereby bridging the gap between the existing highly abstract theories and the empirical facts and 3 in the process to give a rich and comprehensive enough description of an industry to stimulate further theoretical as well as empirical work the study tries to combine inductive and deductive reasoning using empirical observations based on indepth interviews with manufacturers in the metalworking industry in the united states and sweden

nominal rigidity and monetary uncertainty abstract a stochastic macromodel with dynamically optimising wage setting households is used to examine the effect on current macroeconomic variables of an anticipated increase in variability of the money stock there is a nominal rigidity in the form of a money wage set one period in advance in whose absence monetary uncertainty has no effect on current variables we show that for plausible parameterisations monetary uncertainty combined with nominal rigidity raises the nominal interest rate depressing aggregate demand and hence current price and output it also causes the wage to be set higher increasing the natural rate of unemployment

the effect of tax enforcement on tax elasticities evidence from charitable contributions in france optimal tax formulas expressed in sufficient statistics are usually calibrated under the assumption that the relevant tax elasticities are unaffected by other available policy instruments in practice though tax authorities have many more instruments than the mere tax rates and tax elasticities are functions of all these policy instruments in this paper we provide evidence that tax elasticities are extremely sensitive to a particular policy instrument the level of tax enforcement we exploit a natural experiment that took place in france in 1983 when the tax administration tightened the requirements to claim charitable deductions the reform led to a substantial drop in the amount of contributions reported to the administration which can be credibly attributed to overreporting of charitable contributions before the reform rather than to a real change in giving behaviours we show that the reform was also associated with a substantial decline in the absolute value of the elasticity of reported contributions this finding allows us to partially identify the elasticity of overreporting contributions which is shown to be large and inferior to 2 in the lax enforcement regime we further show using bunching of taxpayers at kink points of the tax schedule that the elasticity of taxable income also experienced a significant decline after the reform our results suggest that optimizing the tax rate for a given tax elasticity when other policy instruments are not optimized can lead to misleading conclusions when tax authorities have another instrument that could set the tax elasticity itself at its optimal level as in kopczuk and slemrod 2002

overtime pay overtime hours and labor unions this article analyzes the effect of labor unions on overtime compensation and overtime hours estimates from may 1985 current population survey data indicate that unionization increases the prevalence of premium pay for overtime and reduces the incidence and extent of overtime hours along with the finding of previous research that unionized workers are more susceptible to temporary layoffs these results are consistent with a model in which unions use overtime pay to stabilize working hours and expand membership

did lower unionization in the united states result in more flexible industries do unions really impede manufacturers output flexibility if so in what ways the authors propose a methodology for quantifying george stigler s concept of output flexibility and for decomposing the effects of unionization on average cost differences between union and non union plants using a recently compiled data set on u s three digit manufacturing industries from 1973 to 1996 they adapt this methodology to simulate the effects of unionization on flexibility and average costs for average size plants simulation results indicate that higher unionization was associated with higher average costs and lower flexibility than low unionization higher average costs appear to have been primarily due to higher fixed costs such as higher benefits

real and nominal propagation of nominal shocks the role of real and nominal propagation mechanisms in generating persistent real effects of nominal shocks is analysed analytically in a fully specified intertemporal general equilibrium model while neither a real propagation mechanism capital acccumulation with one period nominal contracts nor nominal propagation staggered nominal contracts in the absence of any real propagation can generate plausible impulse responses with strong persistence it is shown that the two mechanisms interact so as to strengthen persistence possibly unit roots and generate more plausible impulse responses

endogenous business cycle propagation and the persistence problem the role of labor market frictions contrasting sharply with a recent trend in dsge modeling we propose a business cycle model where frictions and shocks are chosen with parsimony the model emphasizes a few labor market frictions and shocks to monetary policy and technology the model estimated from u s quarterly postwar data accounts well for important differences in the serial correlation of the growth rates of aggregate quantities the size of aggregate fluctuations and key comovements including the correlation between hours and labor productivity despite its simplicity the model offers an answer to the persistence problem chari et al 2000 that does not rely on multiple frictions and adjustment lags or ad hoc backward looking components we conclude modern dsge models need not embed large batteries of frictions and shocks to account for the salient features of postwar business cycles

output fluctuations at the plant level this paper examines the short run dynamics of manufacturing costs by detailing how plants in the u s automobile industry change output weekly data show a variety of margins on which firms adjust production these margins which are distinct from the usual factor demand choices differ in their lumpiness their adjustment costs and their variable costs the existence of these margins explains several empirical puzzles of output fluctuations using a theory of the short run dynamic cost function we are able to infer some of the characteristics of the underlying cost function from the dynamic behavior of the different margins

when unionization disappears state level unionization and working poverty in the united states although the working poor are a much larger population than the unemployed poor u s poverty research devotes much more attention to joblessness than to working poverty research that does exist o

inventories sticky prices and the persistence of output and inflation post war business cycle fluctuations of output and inflation are remarkably persistent many recent sticky price models however grossly underpredict this persistence we assess whether adding inventories to a standard sticky price model raises the persistence of output and inflation for this addition we consider a shopping cost model in the model consumers find shopping activities costly and the cost of shopping depends on the stock of goods available in this context producers manage inventories to smooth production and to affect the cost of shopping we find that the shopping cost model generates a persistence for output and inflation that matches the persistence observed in the post 1985 us data

inventories as factors of production and economic fluctuations this paper presents a theory of inventory investment by stage of processing and uses it to examine the role of inventory investment in economic fluctuations the model in which inventories are treated as factors of production is estimated for four durable goods industries three conclusions emerge from the estimation first the estimates generally satisfy the theoretical restrictions second the elasticity of inventory demand with respect to output is high indicating an important accelerator effect finally the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations copyright 1989 by american economic association

volatility transmission in emerging european foreign exchange markets abstract this paper studies the dynamics of volatility transmission between central european ce currencies and the eur usd foreign exchange using model free estimates of daily exchange rate volatility based on intraday data we formulate a flexible yet parsimonious parametric model in which the daily realized volatility of a given exchange rate depends both on its own lags as well as on the lagged realized volatilities of the other exchange rates we find evidence of statistically significant intra regional volatility spillovers among the ce foreign exchange markets with the exception of the czech and prior to the recent turbulent economic events polish currencies we find no significant spillovers running from the eur usd to the ce foreign exchange markets to measure the overall magnitude and evolution of volatility transmission over time we construct a dynamic version of the diebold yilmaz volatility spillover index and show that volatility spillovers tend to increase in periods characterized by market uncertainty

cost flexibility and price dispersion this paper examines the relationship between a firm s cost flexibility and product price dispersion we show that a mean preserving increase in demand variability need not lead to an increase in the value of flexibility or in the optimal level of flexibility this is contrary to results in the literature which are achieved by assuming a quadratic cost curve in a pioneering paper stigler 1939 considered a firm s choice of plant flexibility he argued that if firms face exogenous demand fluctuations then it can be worthwhile to select a more flexible plant one which permits higher profit in a wide range of possible demand states at the cost of lower profit in other demand states stigler suggested that the desirability of a more flexible plant increases as price variability increases marschak and nelson 1962 explored this conjecture they showed that an increase in the variance of price causes expected profit from a more flexible plant to rise relative to expected profit from a less flexible plant more recently mills 1984 considered long run equilibrium in a competitive industry subject to fluctuating demand when firms can select a level of flexibility he showed that the optimal level of flexibility increases as the variance of demand increases the results of marschak and nelson and mills however are based on the strong assumption that the cost function is quadratic an assumption which is known to be restrictive in the analysis of decision making under uncertainty in this paper we generalize the analysis of cost flexibility in two ways first we adopt the rothschild stiglitz 1970 definition of increased price variability and show that the results of marschak and nelson and of mills continue to hold for a quadratic cost function second we relax the assumption that cost is a quadratic function of output and show that the results in the existing literature are crucially dependent on this assumption after formulating the model we consider the effect of an increase in price dispersion on the value of flexibility defined as willingness to pay then we examine the effect of increased price variability on the optimal level of flexibility finally we consider the impact of an increase in demand variability on the equilibrium in a competitive industry in all cases we find that the results in the literature continue to hold for a general mean preserving

persistency in sticky price models abstract nominal rigidities imply that nominal shocks have an impact effect which may be propagated by standard mechanisms however the nominal adjustment process may in itself be a propagation mechanism causing persistent effects of nominal shocks this may be caused by inertia in nominal wage and price adjustment arising due to input output networks or multiperiod nominal contracting as captured in models with staggered price wage decisions it has recently been contested whether staggering can account for persistency of any quantitative importance this paper reviews the theory and empirical evidence on this issue and it is concluded that staggering may be a quantitative important propagation mechanism

why pay more corporate tax avoidance through transfer pricing in oecd countries this paper presents suggestive evidence of income shifting in response to differences in corporate tax rates for a large selection of oecd countries we use a new method to disentangle the income shifting effects from the effects of tax rates on real activity our baseline estimates suggest that a substantial share of the revenues from a unilateral increase in the corporate tax rate is lost because of a decline in reported income

tax rates and tax evasion evidence from missing imports in china tax evasion by its very nature is difficult to observe we quantify the effects of tax rates on tax evasion by examining the relationship in china between the tariff schedule and the evasion gap which we define as the difference between hong kong s reported exports to china at the product level and china s reported imports from hong kong our results imply that a one percentage point increase in the tax rate is associated with a 3 percent increase in evasion furthermore the evasion gap is negatively correlated with tax rates on closely related products suggesting that evasion takes place partly through misclassification of imports from higher taxed categories to lower taxed ones in addition to underreporting the value of imports

political connections and tariff evasion evidence from tunisia are politically connected firms more likely to evade taxes this paper presents evidence suggesting firms owned by president ben ali and his family were more prone to evade import tariffs during ben ali s reign evasion gaps defined as the difference between the value of exports to tunisia reported by partner countries and the value of imports reported at tunisian customs were correlated with the import share of connected firms this association was especially strong for goods subject to high tariffs and driven by underreporting of unit prices which diminished after the revolution consistent with these product level patterns unit prices reported by connected firms were lower than those reported by other firms and declined faster with tariffs than those of other firms moreover privatization to the ben ali family was associated with a reduction in reported unit prices whereas privatization per se was not

income tax compliance in india an empirical analysis abstract aggregate data are used to study determinants of income tax revenues and taxpayer compliance in india during 1965 1966 to 1992 1993 the estimates show that both revenues collected and compliance were significantly affected by tax structure marginal tax rates and exemption limit in addition inflation as well as declining assessment intensity had a significant negative effect while traditional enforcement tools searches penalties and prosecution activity had only a limited effect best practice enforcement assessment and tax structure policies could have yielded at most a 90 revenue increase leaving india s income tax performance below the average of countries with similar gdp per capita thorough reform of tax administration is therefore needed to raise income tax collection in india to international standards

flattening of the phillips curve under low trend inflation abstract this study indicates why the phillips curve is flattened in an environment of low trend inflation the key is the curvature of the demand curve

monopolistic competition and the effects of aggregate demand how important is monopolistic competition to an understanding of the effects of aggregate demand on output we ask the question at three levels can monopolistic competition by itself explain why aggregate demand movements affect output can it together with other imperfections generate effects of aggregate demand in a way that perfect competition cannot if so can it give an accurate account of the response of the economy to aggregate demand movements the answers are no yes and yes

compensating differentials for shift work a model analyzing the choice of shift is developed and estimated using data from two supplements to the current population survey the findings show a positive wage premium for shift work that varies with personal characteristics and there is strong evidence showing the importance of self selection as workers with low potential daytime earnings are more likely to choose night work and supplement their earnings the findings demonstrate that cross section estimates of wage premiums for union membership and firm size are biased upward because they pick up some of the compensating differential for shift work

evasion behaviors of exporters and importers evidence from the u s china trade data discrepancy abstract since the late 1990s reported u s imports from china and hong kong have regularly and increasingly exceeded reported exports of china and hong kong to the united states this discrepancy which is not caused by re exporting through hong kong varies by product categories and in some cases takes the opposite sign in this paper we focus on china s direct exports to the united states using a model that allows for simultaneous misreporting to two authorities we find strong statistical evidence of under reporting exports at the chinese border to avoid paying value added tax vat the value of vat avoided is estimated at 6 5 billion during 2002 2008 and the associated understatements account for approximately two thirds of the discrepancy we also provide evidence of tariff evasion at the u s border in particular for related party transactions and indirect evidence of transfer pricing and evasion of chinese capital controls an estimated 2 billion of u s tariff revenue is lost due to such evasion during 2002 2008 which reduces the apparent size of the statistical discrepancy

europe s great depression coordination failure after the first world war in this paper i survey and reinterpret the extensive literature on europe s great depression i argue that europe could not exploit its vast economic potential after 1918 because the war had not yet come to an end indeed it did not end before 1945 both domestic and international institutions suffered from a lack of reciprocal trust and commitment which can be clearly illustrated in the realm of monetary policy but affected many other areas of policy making such as energy or migration policies these institutions in turn affected expectations and thereby the extent to which for example expansionary policies could be effective

contract length heterogeneity and the persistence of monetary shocks in a dynamic generalized taylor economy we develop the generalized taylor economy gte in which there are many sectors with overlapping contracts of different lengths in economies with the same average contract length monetary shocks will be more persistent when longer contracts are present using the bils klenow distribution of contract lengths we find that the corresponding gte tracks the u s data well when we choose a gte with the same distribution of completed contract lengths as the calvo the economies behave in a similar manner

a further contribution towards explaining why disinflation through currency pegging may cause a boom abstract we revisit the question of why exchange rate based erb disinflation is often expansionary we use an analytical dge model in discrete time with staggered wages if the policy is unanticipated and if the currency is pegged at the level it would have reached under unchanged policies then a boom occurs for preannounced erb disinflation our model also predicts a boom the explanation for both is that when wages are staggered wage setters have to be forward looking anticipating lower future inflation they reduce wages before the change in the exchange rate causing a favourable supply side effect on output

unionization and cost of production compensation productivity and factor use effects unionization affects cost of production through compensation premia technology shifts and deviations from the least cost combination of inputs the first two are familiar but the last is not this article distinguishes the three effects illustrates the factor use effect and suggests that it may resolve several apparent inconsistencies union induced cost effects appear larger than those implied by union compensation and productivity differentials union compensation and productivity differentials suggest a larger effect on labor intensity of output than is observed and employers complain that union work rules reduce productivity when there is little evidence that this is so

generalised taylor and generalised calvo price and wage setting micro evidence with macro implications the generalised calvo and the generalised taylor models of price and wage setting are unlike the standard calvo and taylor counterparts exactly consistent with the distribution of durations observed in the data using price and wage micro data from a major euro area economy france we develop calibrated versions of these models we assess the consequences for monetary policy transmission by embedding these calibrated models in a standard dynamic stochastic general equilibrium model the generalised taylor model is found to help rationalise the hump shaped and persistent response of inflation without resorting to the counterfactual assumption of systematic wage and price indexation

price wage staggering and persistence a unifying framework in this paper we provide a general unified framework to clarify the issue of persistence of real effects of money shocks in staggered wage price models we mainly aim to i highlight which features of the underlying economy and particularly of the labour market are crucial for generating output persistence ii analyse the differences between price and wage staggering copyright blackwell publishing ltd 2003

pay for politicians and candidate selection an empirical analysis abstract a growing theoretical literature on the effect of politicians salaries on the average level of skills of political candidates yields ambiguous predictions in this paper we estimate the effect of pay for politicians on the level of education of parliamentary candidates we take advantage of an exceptional reform where the salaries of finnish mps were increased by 35 in the year 2000 intended to make the pay for parliamentarians more competitive a difference in differences analysis using candidates in municipal elections as a control group suggests that the higher salary increased the fraction of candidates with higher education among female candidates while we find no significant effect for male candidates

redistribution when avoidance behavior is heterogeneous abstract the optimal income taxation framework is extended to account for heterogeneity in avoidance behavior the optimal tax formulae are shown to be simply and intuitively modified to reflect the value of taxable income as an indicator of the need for transfers at a given skill level this effect is in addition to any effect implied by just considering additional margins of response to taxes alternative sources of heterogeneity and their likely consequences are discussed when the choice of administration is added to the model it is demonstrated that the optimal tax system may include some seemingly wasteful avoidance schemes even if they could be eliminated without any cost when an avoidance scheme is more heavily used by the needy it may provide additional redistribution without affecting standard incentive constraints

output persistence from monetary shocks with staggered prices or wages under a taylor rule we analytically examine output persistence from monetary shocks in a dsge model with staggered prices or wages under a taylor rule surprisingly while taylor style staggering never yields persistence calvo style staggering of wages does generate persistence under decreasing returns to labour c 2009 elsevier b v all rights reserved

optimal monetary policy in the generalized taylor economy in this paper we use the generalized taylor economy gte framework to examine the optimal choice of inflation index in this otherwise standard dynamic stochastic general equilibrium dsge model there can be many sectors each with a different contract length in the gte framework with an empirically relevant contract structure a simple rule under which the interest rate responds to economy wide inflation gives a welfare outcome nearly identical to the optimal policy this finding suggests that it may not be necessary for a well designed monetary policy to respond to sector specific inflations

the decline of unionization in the united states what can be learned from recent experience the dramatic decline in unionization over the last decade is investigated in the context of a supply demand model of union status determination using data from surveys of workers conducted in 1977 and 1984 along with data from the national labor relations board on representation elections it is concluded that the decline in unionization since 1977 is accounted for largely by 1 an increase in employer resistance to unionization probably due to increased product market competitiveness and 2 a decrease in demand for union representation by nonunion workers due to an increase in the satisfaction of nonunion workers with their jobs and a decline in nonunion workers beliefs that unions are able to improve wages and working conditions

fixing the leak in okun s bucket optimal tax progressivity when avoidance can be controlled this paper examines optimal income tax progressivity when avoidance responses to taxation are important and can be controlled at some cost by the government a simple example shows that ignoring the fact that avoidance can be controlled that the leak in okun s bucket can be fixed can lead to misleading implications about the optimal degree of tax rate progressivity the paper then generalizes the standard modei of the optimal linear income tax to include taxpayer avoidance behavior and the ability of government to control the avoidance but not the labor supply response to higher marginal tax ites the discussion suggests that if the tax burden is to be made more progressive base broadening and increased enforcement ought to be considered as alternatives or complements to increasing tax rates for high income individuals

tax bases tax rates and the elasticity of reported income abstract tax reforms usually change both tax rates and tax bases using a panel of income tax returns spanning the two major u s tax reforms of the 1980s and a number of smaller tax law changes i find that the elasticity of income reported on personal income tax returns depends on the available deductions this highlights that this key behavioral elasticity is not an immutable parameter but rather that it can be to some extent controlled by policy makers one implication is that base broadening reduces the marginal efficiency cost of taxation the results are very similar for all income categories indicating that the rich are more responsive to tax rates because tax rules that apply to them are different their tax base is narrower the point estimates indicate that the tax reform act of 1986 reduced the marginal cost of collecting a dollar of tax revenue with roughly half of this reduction due to the base broadening and the other half due to the tax rate reduction as a by product the analysis in this paper offers a reconciliation of disparate estimates obtained by previous studies of the tax responsiveness of income

increasing returns to scale and the long run phillips curve abstract a growing body of empirical evidence shows that there exists a long run positive trade off between inflation and real macroeconomic activity within a new keynesian framework we examine how increasing returns generate a positive long run relation between inflation and output

building state capacity evidence from biometric smartcards in india anti poverty programs in developing countries are often dicult to implement in particular many governments lack the capacity to deliver payments securely to targeted beneciaries we evaluate the impact of biometrically authenticated payments infrastructure smartcards on beneciaries of employment nregs and pension ssp programs in the indian state of andhra pradesh using a large scale experiment that randomized the rollout of smartcards over 158 subdistricts and 19 million people we nd that while incompletely implemented the new system delivered a faster more predictable and less corrupt nregs payments process without adversely aecting program access for each of these outcomes treatment group distributions rst order stochastically dominated those of the control group the investment was cost eective as time savings to nregs beneciaries alone were equal to the cost of the intervention and there was also a signicant reduction in the leakage of funds between the government and beneciaries in both nregs and ssp programs beneciaries overwhelmingly preferred the new system for both programs overall our results suggest that investing in secure payments infrastructure can signicantly enhance state capacity to implement welfare programs in developing countries

the ability of unions to adapt to innovative workplace arrangements the 1980s have witnessed considerable experimentation in compensation practices worker participation labor management cooperation and the organization of production collectively such practices at the local or plant level have become known as workplace innovations one concern that has been raised repeatedly both within the academic community and within the labor movement is how and in fact whether such innovations can coexist with unions and collective bargaining as currently constituted see for example charles heckscher 1988 thomas kochan harry katz and robert mckersie 1986 profit sharing gainsharing and other compensation changes pose certain issues for unions how to define profits or gains to protect workers and minimize management finagling for instance but these probably require mainly increased access to financial information and the technical sophistication to deal with that information labor management cooperation programs that involve union leaders or activists in joint problem solving with management could create the perception that the union is cozying up with management and is unwilling to push worker demands or grievances but as with profit sharing and gainsharing the union sector has long experience with cooperation committees and can presumably make the necessary political adaptations innovations that establish a second channel of communication between workers and managers are more problematic according to some observers insofar as they possibly could lead to less worker interest in unionism some could preempt the union s expansion into new areas of collective bargaining or might threaten to supplant bargaining over traditional issues and they might exacerbate existing divisions within the workforce or the union donald wells 1987 further issues arise with the more extensive innovations like team production systems that combine the radical reduction of separate production job classifications team decision making in work or overtime assignments and pay by knowledge experience in some auto plants indicates teams can lead to fundamental changes in the operation of the grievance system and the union s day to day role in the plant katz 1985 indeed it has been argued that team production systems require a modification of the system of job control unionism management manages and the union grieves kochan et al p 161 which has predominated in the united states since world war ii the concerns discussed above do not mean that these programs offer no benefits to workers and unions benefits such as increased job security enhanced job satisfaction reduced alienation and greater control over the work environment may result from many of these programs in fact it is the differential weighting of these potential benefits and costs that has in part led to the variety of union responses to workplace innovations

endogenous capacity utilization and macroeconomic persistence abstract this paper presents a monetary dynamic general equilibrium model featuring a strong internal propagation mechanism limited short run factor substitutability and idiosyncratic demand uncertainty play a prominent role in the results firms are ex post heterogeneous and a well defined distribution of capacity utilization rates characterizes the equilibrium of the model the economy responds gradually to aggregate shocks since firms with excess capacity can raise production without experiencing large increases in their marginal costs the modeling framework presented in this paper offers a plausible microeconomic interpretation for reduced form mark up shocks typically considered in the new keynesian literature

the macroeconomics of trend inflation most macroeconomic models for monetary policy analysis are approximated around a zero inflation steady state but most central banks target an inflation rate of about 2 percent many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound constraint on monetary policy in this survey we show that the conduct of monetary policy should be analyzed by appropriately accounting for the positive trend inflation targeted by policymakers we first review empirical research on the evolution and dynamics of u s trend inflation and some proposed new measures to assess the volatility and persistence of trend based inflation gaps we then construct a generalized new keynesian model that accounts for a positive trend inflation in this model an increase in trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations this analysis offers a note of caution regarding recent proposals to address the existing zero lower bound problem by raising the long run inflation target jel e12 e31 e32 e52 e58

optimising agents staggered wages and persistence in the real effects of money shocks in this paper we incorporate taylor s 1979 staggered wage setting into an optimising dynamic general equilibrium framework to study whether staggered wages could induce a high degree of persistence in the real effects of money shocks we conclude that high persistence is an unlikely outcome sensible values of the microeconomic parameters and or a moderate rate of underlying inflation imply a low degree of persistence furthermore once explicit microfoundations are taken into account we show that i the model is highly non linear ii the inertia of the system is inversely related to the level of average inflation

staggered wages and output dynamics under disinflation we study the output costs of a reduction in monetary growth in a dynamic general equilibrium model with staggered wages the money wage is fixed for two periods and is chosen according to intertemporal optimisation agents have labour market monopoly power we show that the introduction of microfoundations helps to resolve the puzzle raised by directly postulated models namely that disinflation in staggered pricing models causes a boom in our model disinflation whether unanticipated or anticipated unambiguously causes a slump

reference norms staggered wages and wage leadership theoretical implications and empirical evidence this article presents an extension of the taylor model with staggered wages in which wage setting is also influenced by reference norms we show that reference norms can considerably increase the persistence of inflation but that the size of this effect depends on the exact definition e g external vs internal symmetric vs asymmetric norms using data on collectively bargained wages in austria from 1980 to 2006 we show that wage setting is strongly influenced by reference norms that external norms seem to matter more than internal norms and that there is a clear indication for the existence of wage leadership asymmetric norms

identifying the influences of nominal and real rigidities in aggregate price setting behavior we formulate a generalized price setting framework that incorporates staggered contracts of multiple durations and that enables us to directly identify the influences of nominal vs real rigidities we estimate this framework using macroeconomic data for germany 1975 1998 and for the u s 1983 2003 in each case we find that the data are well characterized by nominal contracts with an average duration of about two to three quarters we also find that new contracts exhibit very low sensitivity to marginal cost corresponding to a relatively high degree of real rigidity finally our results indicate that backward looking price setting behavior such as indexation to lagged inflation is not needed in explaining the aggregate data at least in an environment with a stable monetary policy regime and a transparent and credible inflation objective

stabilisation policy rational expectations and price level versus inflation targeting a survey we survey literature comparing inflation targeting it and price level targeting pt as macroeconomic stabilisation policies our focus is on new keynesian models and areas that have seen significant developments since ambler s 2009 price level targeting and stabilisation policy a survey journal of economic surveys 23 5 974 997 survey optimal monetary policy the zero lower bound financial frictions and transition costs of adopting a pt regime ambler s conclusion that pt improves social welfare in new keynesian models is fairly robust but we note an interesting split in the literature pt consistently outperforms it in models where policymakers commit to simple taylor type rules but results in favour of pt when policymakers minimise loss functions are overturned with small deviations from the baseline model since the beneficial effects of pt appear to hang on the joint assumption that agents are rational and the economy new keynesian we discuss survey and experimental evidence on rational expectations and the applied macro literature on the empirical performance of new keynesian models overall the evidence is not clear cut but we note that new keynesian models can pass formal statistical tests against macro data and that models with rational expectations outperform those with behavioural expectations i e heuristics in direct statistical tests we therefore argue that policymakers should continue to pay attention to pt

phillips curves and unemployment dynamics a critique and a holistic perspective the conventional wisdom that inflation and unemployment are unrelated in the long run implies that these phenomena can be analysed by separate branches of economics the macro literature tries to explain inflation dynamics and estimates the nairu the labour macro literature tries to explain unemployment dynamics and determine the real economic factors that drive the natural rate of unemployment we show that the orthodox view that the new keynesian phillips curve is vertical in the long run and that it cannot generate substantial inflation persistence relies on the implausible assumption of a zero interest rate in the light of these results we argue that a holistic framework is needed to jointly explain the evolution of inflation and unemployment

capital flight to germany two alternative measures abstract we use two measures to study two capital flight channels for germany one measure is based on the concept of trade misinvoicing and one on net claims and liabilities in the eurosystem of central banks for both measures we propose refinements to enhance the assessment of capital flight we find that capital flight towards germany via these two channels has been quite sizable in the recent decade and can tally to about 2 of gdp annually regarding their determinants we show that the two capital flight measures are driven by both common and measure specific factors traditional determinants such as covered interest differentials only play a limited role while crisis specific factors such as economic policy uncertainty the ecb collateral policy as well as currency misalignment are driving factors of the investors apparent flight to safety behavior

integrity for hire an analysis of a widespread customs reform abstract can governments improve bureaucratic performance by hiring integrity from the private sector in the past 2 decades a number of developing countries have hired private firms to conduct preshipment inspections of imports generating independent data on the value and tariff classification of incoming shipments i find that countries implementing such inspection programs subsequently experience large increases in import duty collections by contrast the growth rate of other tax revenues does not change appreciably additional evidence suggests that declines in falsification of import documentation are behind the import duty improvements the programs also lead to declines in undervaluation and misreporting of goods classifications historically this hired integrity appears to have been cost effective with improvements in import duty collections in the first 5 years of a typical inspection program amounting to 2 6 times the program s costs

on endogenously staggered prices taylor s model of staggered contracts is an influential explanation for nominal inertia and the persistent real effects of nominal shocks however in standard imperfect competition models if agents are allowed to choose the timing of pricing decisions they will typically choose to synchronize this paper provides a simple model of imperfect competition which produces stable staggering our argument relies on strategic interaction at two levels between firms within an industries and across industries and produces a continuum of staggered price equilibria these equilibria are strict and hence stable under a simple adaptive learning process an enduring problem for business cycle theory is an explanation for the persistent effects of nominal shocks explaining persistence is particularly problematic for theories based on nominal shocks as opposed to real shocks this is because rational expectations implies that nominal shocks themselves cannot be serially correlated since nominal shocks are the deviation of realized nominal magnitudes from expected values in two important papers taylor 1979 1980 provided an argument as to why a nominal shock can have persistent effects taylor s argument required two important assumptions first he assumed that firms could adjust prices only in alternate periods an assumption which may be justified by menu or information costs taylor s second assumption was that price setting was staggered half the firms were constrained to adjust prices in odd periods while the other half were allowed to adjust prices in even periods these two assumptions combined to provide dramatic results on nominal inertia the adjustment of prices to a nominal shock is slow and hence output effects are long lasting taylor s results on persistence arise due to strategic complementarity between price setting decisions this implies that each firm s optimal price is an increasing function of the aggregate price level if a shock arrives in an even period firms in the even cohort will not adjust fully to the nominal shock since firms in the odd cohort have fixed prices in the current period furthermore with rational expectations the even cohort also takes into account the fact that its own failure to adjust fully will also make for partial adjustment in future periods this elegant story has made taylor s model possibly the most influential of new keynesian models by providing a dynamic setting within which small nominal rigidities may result in persistent nominal inertia