a theory of current account and exchange rate determinations abstract the purpose of this paper is to construct a two period two country model that derives the current account the exchange rate the terms of trade and real interest rates from optimal behavior principles this is done by constructing a model that uses money mainly as a means of exchange where the technology of exchange is flexible due to potential substitutability of time and real balances as a means of coordinating transactions the discussion results in a framework that integrates elements of net saving theories and the monetary approach into a unified structure in which the two approaches are complementary viewpoints

fiscal policies in the world economy this paper uses a two country general equilibrium model of the world economy in order to analyze the effects of budget deficits and government spending on world rates of interest consumption and international indebtedness it demonstrates the difference between the effects of fiscal expenditures and tax cuts as well as between the effects of current policies and expected future policies it is shown that the qualitative effects of fiscal policies depend on whether the country introducing the policies runs a surplus or a deficit in its current account following the positive analysis of the short run and the steady state effects the paper concludes with a normative analysis of the welfare implications of budget deficits

government debt capital accumulation and the terms of trade in a model of interdependent economies this paper extends diamond s overlapping generations model into a two good two country setting to analyze the impact of an increase in domestic government debt on the terms of trade the current account and capital accumulation at home and abroad it is found that while the direction of change in the terms of trade is indeterminate in the short run for stability it must agree with that in the steady state which in turn is dependent on the initial debt status in trade of the home country the higher level of government debt leads unambigously to lower levels of capital stocks however

an innovation focused roadmap for a sustainable global photovoltaic industry the solar photovoltaic pv industry has undergone a dramatic evolution over the past decade growing at an average rate of 48 percent per year to a global market size of 31 gw in 2012 and with the price of crystalline silicon pv module as low as 0 72 w in september 2013 to examine this evolution we built a comprehensive dataset from 2000 to 2012 for the pv industries in the united states china japan and germany which we used to develop a model to explain the dynamics among innovation manufacturing and market a two factor learning curve model is constructed to make explicit the effect of innovation from economies of scale the past explosive growth has resulted in an oversupply problem which is undermining the effectiveness of demand pull policies that could otherwise spur innovation to strengthen the industry we find that a policy shift is needed to balance the excitement and focus on market forces with a larger commitment to research and development funding we use this work to form a set of recommendations and a roadmap that will enable a next wave of innovation and thus sustainable growth of the pv industry into a mainstay of the global energy economy

peer effects in the diffusion of solar photovoltaic panels social interaction peer effects are recognized as a potentially important factor in the diffusion of new products in the case of environmentally friendly goods or technologies both marketers and policy makers are interested in the presence of causal peer effects as social spillovers can be used to expedite adoption we provide a methodology for the simple straightforward identification of peer effects with sufficiently rich data avoiding the biases that occur with traditional fixed effects estimation when using the past installed base of consumers in the reference group we study the diffusion of solar photovoltaic panels in california and find that at the average number of owner occupied homes in a zip code an additional installation increases the probability of an adoption in the zip code by 0 78 percentage points our results provide valuable guidance to marketers designing strategies to increase referrals and reduce customer acquisition costs they also provide insights into the diffusion process of environmentally friendly technologies

deficits and intergenerational welfare in open economies this paper deals with public debt in open economies extending diamond s overlapping generations model to a small open economy as well as an international equilibrium of two large economies it focuses on the intergenerational welfare redistributions caused by an increase in public debt triggered by a temporary government budget deficit and shows how these redistributions differ in open and closed economies the interplay between the deficits in the government budget and the current account is also analyzed it is shown how a single period with a government deficit can be followed by a sequence of periods with a deficit in the current account

local demand pull policy and energy innovation evidence from the solar photovoltaic market in china abstract market demand is an important driver for inducing innovation with many empirical studies supporting the demand induced innovation hypothesis critiques of such studies however emphasize that new empirical evidence that can address existing empirical challenges is needed furthermore existing literature disagrees about whether the locus of demand pull policy matters in this paper we use empirical evidence from the distributed solar photovoltaic pv market in china to address the following questions 1 is there evidence of demand induced innovation 2 does the effect of local demand pull policy differ from the effect of non local demand pull policy on demand induced innovation to address these questions we develop and analyze an original database of pv balance of system bos patents in the distributed pv market filed between 2005 and 2014 in china our results support the demand induced innovation hypothesis and suggest that only local demand significantly induces pv bos innovations in the distributed pv market in china the different effects of local demand and non local demand emphasize the importance of local markets and local policies lending some support to bottom up approaches to clean energy governance

the current account in the macroeconomic adjustment process macroeconomic adjustments to changes in the economic environment are to a large extent conditioned by the intertemporal choices of economic agents when agents face an intertemporal budget constraint a decision to alter current indebtedness implies changes in future consumption possibilities and will be based on expectations of the entire future path of key variables and not only current variables a formal model to show how today s current account is a function of both current and future economic variables is presented the determination of the current account under classical assumptions of market clearing and continuous full employment is emphasized

a new product growth for model consumer durables this article originally appeared in management science january 1969 volume 15 number 5 pp 215 227 published by the institute of management sciences a growth model for the timing of initial purchase of new products is developed and tested empirically against data for eleven consumer durables the basic assumption of the model is that the timing of a consumer s initial purchase is related to the number of previous buyers a behavioral rationale for the model is offered in terms of innovative and imitative behavior the model yields good predictions of the sales peak and the timing of the peak when applied to historical data a long range forecast is developed for the sales of color television sets

not only nokia what finland tells us about new economy growth new economy growth is there a relation between information technologies and the growth rate of productivity is this relation mainly due to the efficiency enhancing effects of few leading industries or rather to the pervasive spreading of it throughout the economy our country study on finland in the 1990s is a contribution to shed light on these issues we find that nokia the world leader in cellular phone production directly and substantially contributed to enhance productivity growth in finland productivity growth gains outside nokia and few other it related service industries have been small temporary or non existent at all though we also provide two pieces of evidence against the existence of technological spillovers between nokia and the other fast growing industries in the finnish economy as shown by the finnish input output table the thinness of the inter industry linkages between the nokia industry and the rest of the economy indicates that productivity gains of the size recorded in the few other fast growing service industries can be associated to nokia s productivity boom only to a very small extent parallel statistical analysis also shows a striking association between the timing and the industry distribution of productivity gains and the declining pace of the price of machinery and equipment investment goods in those industries this is evidence that tfp growth increases in those industries should be mostly attributed to the decline in the world price of computing power altogether we interpret our findings as showing that even in a country endowed with a world class national champion and a policy environment commonly thought of as conducive to growth a new economy takes a long time to show up unlike commonly held tenets it diffusion has shown a limited potential in speeding up this process in finland francesco daveri and olmo silva

keynes and the confidence faeries budgetary constraints were never the primary object of policy for john maynard keynes they were constraints not objectives however keynes identified the psychological channels through which budgetary discipline and other policy conventions might influence investment he even accepted that in rare circumstances the psychological factors might overwhelm direct policy interventions unfortunately the polarisation of the current debate means traditional keynesians are unlikely to search out this aspect of his work and the confidence faeries are unlikely to read any of keynes s work this article draws attention to this aspect of his work

measuring the temporal dynamics of policy mixes an empirical analysis of renewable energy policy mixes balance and design features in nine countries abstract complex societal or environmental problems require fast and substantial socio technical transitions for instance in the case of climate change these transitions need to take place in the energy transport and several industry sectors to induce and accelerate such transitions numerous policy interventions are required which interact with each other in policy mixes while several conceptual studies on policy mixes have been published recently there is very little empirical research apart from single case or small n studies it has been prominently argued that the debate about policy mixes has reached an impasse partly due to this lack of empirical work this paper addresses this gap by providing a first analysis of the temporal dynamics of complex policy mixes to do so we develop a conceptualization and measurement of policy mix balance across instrument types as well as policy mix design features in the form of intensity as a general and technology specificity as a technology focused design feature this allows us to answer the question how temporal dynamics of policy mixes differ between countries regarding their balance and design features our measurement approach is developed bottom up i e policies are assessed individually and then aggregated systematically at the policy mix level this enables overcoming the dependent variable problem in the study of policy change i e the problem of measuring policy output more specifically we develop a comparative dataset of 522 renewable energy policies in nine oecd countries our analysis shows that countries policy mix dynamics vary strongly regarding some variables e g technology specificity but less regarding others e g balance as a validity check we also test the effects of these mix dynamics on policy outcome in the form of renewable energy technology diffusion we reflect our findings in light of the theoretical debates around policy mixes and policy design and discuss how our results provoke an agenda for the new generation of research on policy mixes we specifically discuss avenues for future research with a particular focus on the politics of policy mixes

dualism and macroeconomic volatility this paper develops a simple macroeconomic model that shows that combining capital market imperfections together with unequal access to investment opportunities across individuals can generate endogenous and permanent euctuations in aggregate gdp investment and interest rates reducing inequality of access may be a necessary condition for macroeconomic stabilization moreover countercyclical escal policies have a role to play in our model savings are underutilized in slumps because of the limited debt capacity of potential investors therefore the government should issue public debt during recessions in order to absorb those idle savings and enance investment subsidies or tax cuts for investors the most important single fact about saving and investment activities is that in our industrial society they are generally done by different people and for different reasons for years there might tend to be too little investment leading to deeation losses excess capacity and unemployment for other years there might tend to be too much investment leading to periods of chronic ineation unless prudent and proper public policies in the escal and monetary eelds are followed paul a samuelson economics 8th edition 1970 pp 196 198

capital accumulation and unemployment new insights on the nordic experience this paper takes a fresh look at the analysis of labour market dynamics and argues that capital accumulation plays a fundamental role in shaping unemployment movements this role has generally been examined by considering indirect transmission channels of the capital stock effects i e using variables like interest rates or investment ratios in the estimation of single equation unemployment rate models here we advocate a different approach we directly estimate the effects of capital stock in the labour market by applying the chain reaction theory of unemployment and we find that capital stock is a major determinant of unemployment in the nordic countries in particular the different unemployment experiences of these economies derive from the temporary albeit prolonged negative shocks to capital stock growth in denmark and sweden and the permanent downturn of capital stock growth in finland we are thus able to explain why the crisis of the early 1990s had a more acute impact in finland than in its twin economy sweden

a real options model for renewable energy investment with application to solar photovoltaic power generation in china this paper proposes a real options model for evaluating renewable energy investment by considering uncertain factors such as co2 price non renewable energy cost investment cost and market price of electricity a phase out mechanism is built into the model to reflect the long term changes of subsidy policy we apply the proposed model to empirically evaluate the investment value and optimal timing for solar photovoltaic power generation in china our empirical results show that the current investment environment in china may not be able to attract immediate investment while the development of carbon market helps advance the optimal investment time a sensitivity analysis is conducted to investigate the dynamics of investment value and optimal timing under the changes of unit generating capacity subsidy level market price of electricity co2 price and investment cost it is found that the high investment cost and the volatility of electricity and co2 prices are not conducive to attract immediate investment instead increasing the level of subsidy promoting technological progress and maintaining the stability of market are useful to stimulate investment

the finnish great depression from russia with love during the period 1991 93 finland experienced the deepest economic downturn in an industrialized country since the 1930s we argue that the collapse of the finnish trade with the soviet union in and of itself resulted in a large contraction of the economy and a costly restructuring of the manufacturing sector similar to the transition suffered by countries in eastern europe finland and these transition countries show almost identical u shaped dynamics of output in the early 1990s yet as a western democracy with fully developed capital markets and well functioning legal and political institutions finland faced none of the large institutional adjustments experienced in the formerly centrally planned economies thus by studying the finnish experience we can isolate the adjustment costs due solely to the collapse of trade from the other burdens of adjustment borne by transition economies we develop and calibrate a multisector dynamic general equilibrium model of the finnish economy and show that the collapse of soviet finnish trade can indeed go a long way in explaining finland s great depression

social acceptance of renewable energy innovation an introduction to the concept this paper introduces the special issue on social acceptance of renewable energy innovation it is a collection of best papers presented at an international research conference held in tramelan switzerland in february 2006 while there are ambitious government targets to increase the share of renewable energy in many countries it is increasingly recognized that social acceptance may be a constraining factor in achieving this target this is particularly apparent in the case of wind energy which has become a subject of contested debates in several countries largely due to its visual impact on landscapes this paper introduces three dimensions of social acceptance namely socio political community and market acceptance factors influencing socio political and community acceptance are increasingly recognized as being important for understanding the apparent contradictions between general public support for renewable energy innovation and the difficult realization of specific projects the third dimension market acceptance has received less attention so far and provides opportunities for further research particularly from management scholars

currency crises and monetary policy in an economy with credit constraints this paper presents a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities the possibility of multiple equilibria including a currency crisis equilibrium with low output and a depreciated domestic currency results from the following mechanism if nominal prices are sticky a currency depreciation leads to an increase in the foreign currency debt repayment obligations of firms and thus to a fall in their profits this reduces firms borrowing capacity and therefore investment and output in a credit constrained economy which in turn reduces the demand for the domestic currency and leads to a depreciation we examine the impact of various shocks including productivity fiscal or expectational shocks we then analyze the optimal monetary policy to prevent or solve currency crises we also argue that currency crises can occur both under fixed and flexible exchange rate regimes as the primary source of crises is the deteriorating balance sheet of private firms

impact of electricity pricing policies on renewable energy investments and carbon emissions we investigate the impact of pricing policies i e flat pricing versus peak pricing on the investment levels of a utility firm in two competing energy sources renewable and conventional with a focus on the renewable investment level we consider generation patterns and intermittency of solar and wind energy in relation to the electricity demand throughout a day industry experts generally promote peak pricing policy as it smoothens the demand and reduces inefficiencies in the supply system we find that the same pricing policy may lead to distinct outcomes for different renewable energy sources due to their generation patterns specifically flat pricing leads to a higher investment level for solar energy and it can lead to still more investments in wind energy if a considerable amount of wind energy is generated throughout the day we validate these results by using electricity generation and demand data of the state of texas we also show that flat pricing can lead to substantially lower carbon e

a review of learning rates for electricity supply technologies a variety of mathematical models have been proposed to characterize and quantify the dependency of electricity supply technology costs on various drivers of technological change the most prevalent model form called a learning curve or experience curve is a log linear equation relating the unit cost of a technology to its cumulative installed capacity or electricity generated this one factor model is also the most common method used to represent endogenous technical change in large scale energy economic models that inform energy planning and policy analysis a characteristic parameter is the learning rate defined as the fractional reduction in cost for each doubling of cumulative production or capacity in this paper a literature review of the learning rates reported for 11 power generation technologies employing an array of fossil fuels nuclear and renewable energy sources is presented the review also includes multi factor models proposed for some energy technologies especially two factor models relating cost to cumulative expenditures for research and development r d as well as the cumulative installed capacity or electricity production of a technology for all technologies studied we found substantial variability as much as an order of magnitude in reported learning rates across different studies such variability is not readily explained by systematic differences in the time intervals geographic regions choice of independent variable or other parameters of each study this uncertainty in learning rates together with other limitations of current learning curve formulations suggests the need for much more careful and systematic examination of the influence of how different factors and assumptions affect policy relevant outcomes related to the future choice and cost of electricity supply and other energy technologies

financial crises lessons from history for today making use of the propensity score matching method we match earlier crises pre 2007 with currently ongoing crises post 2007 the old and new crises are matched in three dimensions the global setting in which they occurred the structure of the economy and the domestic vulnerabilities in the pre crisis period our findings suggest that the euro periphery crises share sufficient commonalities with earlier crises in their pre crisis domestic vulnerabilities the study points to two important conclusions first the euro periphery crises are composed of unique country experiences hence it will not be easily resolved with a one size fits all set of economic policies secondly while each banking crisis has its inherent uniqueness each crisis also shares sufficient commonalities with one or more of the asian 5 1996 97 crises the nordic banking crisis of the early 1990s or the japanese banking crisis of the 1990s thus the extensive knowledge accumulated through these former banking crises can help in designing recovery policies selin sayek and fatma taskin

efficient feed in tariff policies for renewable energy technologies feed in tariff fit policies aim at driving down the cost of renewable energy by fostering learning and accelerating the diffusion of green technologies under fit mechanisms governments purchase green energy at tariffs that are set above market price the success or failure of fit policies in turn critically depend on how these tariffs are determined and adjusted over time this paper provides insights into designing cost efficient and socially optimal fit programs our modeling framework captures key market dynamics as well as investors strategic behavior in this framework we establish that the current practice of maintaining constant profitability is theoretically rarely optimal by contrast we characterize a no delay region in the problem s parameters such that profitability should strictly decrease over time if the diffusion and learning rates belong to this region in this case investors never strategically postpone their investment to a later period when the diffusion and learning rates

current and anticipated deficits interest rates and economic activity abstract there is a widespread feeling that current deficits in europe and the u s may hurt rather than help the recovery this paper examines some of the issues involved through a sequence of three models the first model focuses on sustainability and characterizes its determinants it suggests that the issue of sustainability may indeed be relevant in some countries the second model focuses on the effects of fiscal policy on real interest rates and in particular on the relative importance of the level of deficits and the level of debt in determining interest rates the third model focuses on the effects of fiscal policy on the speed of the recovery it shows how a sharply increasing fiscal expansion might be initially contractionary rather than expansionary

financial development and the instability of open economies this paper introduces a framework for analyzing the role of financial factors as a source of instability in small open economies our basic model is a dynamic open economy model with a tradeable good produced with capital and a country specific factor we also assume that firms face credit constraints with the constraint being tighter at a lower level of financial development a basic implication of this model is that economies at an intermediate level of financial development are more unstable than either very developed or very underdeveloped economies this is true both in the sense that temporary shocks have large and persistent effects and also in the sense that these economies can exhibit cycles thus countries that are going through a phase of financial development may become more unstable in the short run similarly full capital account liberalization may destabilize the economy in economies at an intermediate level of financial development phases of growth with capital inflows are followed by collapse with capital outflows on the other hand foreign direct investment does not destabilize

life cycle effects in small business finance this paper studies the life cycle profiles of small firms cost and use of credit using a panel of finnish firms the choice of method matters for the conclusions drawn about the relationship between firm age and financing costs the cross sectional age profiles of financing costs are hump shaped and consistent with hold up theories whereas methods that control for cohort fixed effects demonstrate that the financing costs decrease monotonically as the firms mature the life cycle profiles of the use of credit also indicate that firms are more dependent on financial intermediaries in the early periods of their lives furthermore the cohorts born during recessions pay higher financing costs and use smaller amounts of bank loans even after their creditworthiness is controlled for the recession cohort effect appears to be more related to the experience of starting up the firm in the recession than to the ceos growing up in a recession during their early adulthood

u s budget deficits and the european economies resolving the political economy puzzle this paper prepared for the annual meetings of the american economic association discusses how the increases in the u s budget deficits since 1980 have affected the economies of western europe the analysis emphasizes that u s deficits have not only affected these economies directly but have also induced them to adopt more restrictive monetary and fiscal policies than they would otherwise have chosen this induced shift in domestic policies is the primary reason why european governments have pressed for a reduction in the u s budget deficits despite the favorable impact of those deficits on european trade surpluses this abstract was borrowed from another version of this item

a corporate balance sheet approach to currency crises this paper presents a general equilibrium currency crisis model of the third generation in which the possibility of currency crises is driven by the interplay between private firms credit constraints and nominal price rigidities despite our emphasis on microfoundations the model remains sufficiently simple that the policy analysis can be conducted graphically the analysis hinges on four main features i ex post deviations from purchasing power parity ii credit constraints a la bernanke gertler iii foreign currency borrowing by domestic firms iv a competitive banking sector lending to firms and holding reserves and a monetary policy conducted either through open market operations or short term lending facilities we derive sufficient conditions for the existence of a sunspot equilibrium with currency crises we show that an interest rate increase intended to support the currency in a crisis may not be effective but that a relaxation of short term lending facilities can make this policy effective by attenuating the rise in interest rates relevant to firms

the swedish experiment the deterioration of the economic performance in sweden from about 1970 was to some extent the result of a number of exogenous shocks and unnecessary policy mistakes it was however also related to basic changes in the economic and social system in sweden in the late 1960s and early 1970 when government spending taxes and regulations started to expand dramatically it is also argued in the paper that problematic political economic and social mechanisms had become embedded in the long term dynamics of the system itself these various experiences are the background for recent reforms and retreats of the swedish experiment

evaluating the causes of cost reduction in photovoltaic modules abstract photovoltaic pv module costs have declined rapidly over forty years but the reasons remain elusive here we advance a conceptual framework and quantitative method for quantifying the causes of cost changes in a technology and apply it to pv modules our method begins with a cost model that breaks down cost into variables that changed over time cost change equations are then derived to quantify each variable s contribution we distinguish between changes observed in variables of the cost model which we term low level mechanisms of cost reduction and research and development learning by doing and scale economies which we refer to as high level mechanisms we find that increased module efficiency was the leading low level cause of cost reduction in 1980 2012 contributing almost 25 of the decline government funded and private r d was the most important high level mechanism over this period after 2001 however scale economies became a more significant cause of cost reduction approaching r d in importance policies that stimulate market growth have played a key role in enabling pv s cost reduction through privately funded r d and scale economies and to a lesser extent learning by doing the method presented here can be adapted to retrospectively or prospectively study many technologies and performance metrics besides cost

optimal policy supports for renewable energy technology development a dynamic programming model abstract policy support has played a significant role in driving the rapid development of renewable energy technologies rets this study constructed a dynamic programming model to derive the optimal policy supports for rets integrating both supply and demand sides the sensitivity of policy performance on the cost and price elasticities of ret diffusion was also analyzed the results show that policy supports could be a main force for ret development in their initial periods in the long run policy makers need to decrease the support level faster than the decrease in ret cost to maintain a high policy efficiency further improving the efficiency of policy is possible considering the influences of technical change on ret development

on the relationship between the exchange regime and the portfolio rules of optimizing agents the paper utilizes the overlapping generations framework to derive demand functions for money and capital we show that many of the macroeconomic comparisons of alternative exchange regimes are not legitimate since changing the exchange regime alters the portfolio rules of rational agents one cannot simply postulate a set of asset demand equations and then hold various income interest rate and wealth elasticities constant when the exchange regime changes having derived the demands for money and capital from optimizing behavior we show how changing the exchange regime affects expected capital holdings and expected utility levels of optimizing agents

effects of unilateral climate policy on terms of trade capital accumulation and welfare in a world economy we present a two good two country overlapping generations model where emissions arise from production and each country has a domestic emission permit system when one country unilaterally reduces her cap on emissions her output available for domestic and foreign consumption diminishes more than in the other country with unchanged consumption expenditure shares for both goods the domestic terms of trade improve while capital stocks decline in the reducing and less strongly in the non reducing country improving terms of trade in the reducing country and falling capital stocks lead in total to welfare losses in both countries however if the country which unilaterally reduces her emission permits is a net creditor to the world economy and the golden rule applies her own welfare loss remains below that of the non reducing country

optimal design of feed in tariffs to stimulate renewable energy investments under regulatory uncertainty a real options analysis feed in tariffs fits are widely used as policy instruments to promote investments in renewable energy sources res while fits are often regarded as the most effective res support scheme regulators around the world continuously review their fit schemes in the light of budget constraints and evolving policy goals we assess the impact of adjustments to fit schemes by quantifying the relationship between fit levels i e the guaranteed amount paid per quantity of electricity produced and the propensity to invest in res through a regime switching model we quantify the impact of regulatory uncertainty induced by regulators considering moves from a fit scheme to a more market oriented regulatory regime our focus is on market independent fixed fits the dominant scheme in europe receiving increasing attention globally we find that res investment projects under market independent fixed fit schemes become now or never decisions and derive fit thresholds required to induce investment we show that uncertainty regarding future regulatory regimes delays or even reduces investment activity for fit levels near electricity market prices and high probabilities of an imminent regime switch

unraveling the photovoltaic technology learning curve by incorporation of input price changes and scale effects in a large number of energy models the use of learning curves for estimating technological improvements has become popular this is based on the assumption that technological development can be monitored by following cost development as a function of market size however recent data show that in some stages of photovoltaic technology pv production the market price of pv modules stabilizes even though the cumulative capacity increases this implies that no technological improvement takes place in these periods the cost predicted by the learning curve in the pv study is lower than the market one we propose that this bias results from ignoring the effects of input prices and scale effects and that incorporating the input prices and scale effects into the learning curve theory is an important issue in making cost predictions more reliable in this paper a methodology is described to incorporate the scale and input prices effect as the additional variables into the one factor learning curve which leads to the definition of the multi factor learning curve this multi factor learning curve is not only derived from economic theories but also supported by an empirical study the results clearly show that input prices and scale effects are to be included and that although market prices are stabilizing learning is still taking place

the economic crisis of the 1990s in finland finland s depression a tale of bad luck and bad policies in the 1990s finland underwent a deep depression as its gdp dropped about 14 and unemployment rose from 3 to almost 20 this is a story of bad luck and bad policies bad luck took the form of external shocks the collapse of trade with the former soviet union in 1991 but also sharp cycles in the oecd area however bad luck is far from being the whole story in the absence of bad policies finland would have experienced a recession not a depression bad policies included a poorly designed financial regulation and mistaken reactions to the onset of the crisis of particular interest is the role of financial factors in triggering the crisis and aggravating the effects of bad policies not only were consumption and investment spending hurt by the credit crunch but there is evidence that the private sector s indebtedness has increased structural unemployment which explains why the recovery is proceeding with few job creations a number of general lessons emerge they concern the deregulation of financial markets the policy reaction to massive capital inflows and the role of employment policies seppo honkapohja and erkki koskela

government and the financing of health care over the past two decades government financing of health care has increased fourteenfold in 1960 prior to the enactment of the medicaid and medicare programs public expenditures on health care were 6 6 billion in 1965 they were 11 billion in 1975 56 billion and by 1979 they had reached 91 4 billion in addition there was a notable shift from state and local to federal outlays in 1960 state and local expenditures were slightly larger than federal expenditures by 1975 federal expenditures were twice the size of state local expenditures the focus of this paper is twofold i will examine both medicare and medicaid and an indirect health care subsidy namely tax expenditures this expenditure consists of losses in federal revenue resulting from tax savings for certain groups of taxpayers allowed by the tax code the logic of calling these revenue losses expenditures is that a reduction in tax liability is equivalent to an expenditure in the same way that a forgiveness of debt is equivalent to a payment congressional budget office in the case of health losses in federal revenue and thus savings to tax payers result from the exclusion of employer paid health insurance premiums from their employees taxable income and from the deductibility of certain medical expenses for the purpose of computing personal income tax liabilities regarding such tax expenditures on health as a major federal program is not a new concept nor is it unique to compare tax expenditures on health with the amounts spent on medicare and medicaid see for example martin feldstein and elizabeth allison eugene steuerle and ronald hoffman ronald vogel the contribution of the present paper is to provide better estimates of employer provided health insurance premiums and therefore tax expenditures and more importantly to show the distributional effects of each of these programs