dynamic employment and hours effects of government spending shocks in this paper we analyze the dynamic behaviour of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers the model is estimated for the united states using the generalized methods of moments gmm estimation technique an increase in government spending raises hours worked

the china model withering institutional roots of china s local developmentalism china s new development wave since the mid 1990s is distinguishable by its strong urbanism urban governments particularly at municipal and county levels rushed to build industrial parks urban l

dualism and reform in china according to the dual economy tradition of economic development models less developed economies at an early stage of development are marked by a dichotomy between a modern sector in which workers are hired at an institutional wage in numbers that rise with the growth of the industrial capital stock and a traditional sector in which workers subsist at an income level that is somewhat below the indus

welfare dominance an application to commodity taxation in this paper the authors propose a method to identify commodity tax changes that will be favored by all individuals who can agree on certain weak assumptions with regard to the social welfare function the method is based on an extension of the criterion of second degree stochastic dominance and is illustrated using data from israel copyright 1991 by american economic association

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

party systems and electoral volatility in latin america a test of economic institutional and structural explanations three different theoretical explanations are tested for the exceptionally high level of electoral volatility found in contemporary latin america economic voting institutional characteristics of political regimes and party systems and the structure and organization of class cleavages a pooled cross sectional time series regression analysis is conducted on 58 congressional elections and 43 presidential elections in 16 latin american countries during the 1980s and 1990s institutional variables have the most consistent effect on volatility while the influence of economic performance is heavily contingent upon the type of election and whether the dependent variable is operationalized as incumbent vote change or aggregate electoral volatility the results demonstrate that electoral volatility is a function of short term economic perturbations the institutional fragilities of both democratic regimes and party systems and relatively fluid cleavage structures

does competition for capital discipline governments decentralization globalization and public policy competition among countries or regions within them to attract mobile capital is often thought to discipline their governments motivating them to invest more in infrastructure reduce waste and corruption and spend less on non productive public goods the result should be convergence on business friendly policies we argue that this requires an assumption units start out very similar that is often unrealistic if units are heterogeneous in natural resources geographical location inherited human capital or infrastructure capital mobility often weakens discipline on the poorlyendowed units this may help explain disappointing results of liberalizing capital flows within russia and sub saharan africa jel f36 h73 h87

dalton improving indirect tax reform a tax reform is dalton improving if it improves social welfare for all possible social welfare functions that conform to hugh dalton s principle of transfers according to this principle there exists a prior social ranking of households and a transfer is approved if it it distributes from high ranking rich to low ranking poor households without altering the ranking itself in this paper the authors develop a procedure for identifying marginal dalton improving reforms in the context of indirect taxation the methodology is illustrated using data on excise taxes in the united kingdom copyright 1995 by american economic association

federalism chinese style the political basis for economic success in china china s remarkable economic success rests on a foundation of political reform providing a considerable degree of credible commitment to markets this reform reflects a special type of institutionalized decentralization that the authors call federalism chinese style this form of decentralization has three consequences first it fosters competition not only in product markets but also among local governments for labor and foreign capital this competition in turn encourages local government experimentation and learning with new forms of enterprises regulation and economic relationships second it provides incentives for local governments to promote local economic prosperity finally it provides a significant amount of protection to local governments and their enterprises from political intrusion by the central government

insider privatization with a tail the screening contract and performance of privatized firms in rural china abstract this paper studies insider privatization in rural china and provides an explanation of why some firms have performed well after privatization but others have not we show theoretically that the underperformance of insider privatized firms could be due to the manager cum owner s lack of incentives after privatization a screening theory predicts that the buyout price is correlated with the postprivatization incentives and a firm s postprivatization performance increases with both the buyout price and postprivatization incentives drawing on data we collected in china we find evidence supporting the theory we also find that the buyout price decreases with the degree of information asymmetry

dilemmas of local governance under the development zone fever in china a case study of the suzhou region this article aims to explore the mechanisms of the development zone fever in the suzhou region located in the fast growing yangtze river delta and investigates from an institutional perspective the practice of relevant intragovernmental governance in the context of rapid industrialisation since the 1990s a specific mode of governance the evaluative economic indicators scheme inherited from the earlier socialist planning system combined with the party state s promotion evaluation system plays an essential role in this transformation of farmland property rights however this model of development is not necessarily helpful for local financial conditions and it results in the disclacement of peasants and the loss of land resources based on the resulting dilemmas of governance it is argued that in addition to the economic paradigm which focuses on consequences of fiscal reforms and devolution scholars should pay more attention to factors such as the party state s promotion evaluation system and

local elites and popular support for economic reform in china and india this article analyzes why it is that china an authoritarian political system has managed to generate more popular support for the reform process than india a democracy the authors argue that when local politicians and bureaucrats are more supportive of the reform process there is likely to be greater popular support for economic reform local political elite may be more supportive of reform in an authoritarian than in a democratic system because the level of local elite support for the reform process is influenced by the incentives faced by local elite in china institutional reform changed the incentives faced by local elite whereas in india reforms have not been accompanied by institutional changes that would encourage local elite to support reform to the same extent as in china the argument is based on local elite and mass surveys conducted in china and india in 1990 and 1996 respectively a logit model controlling for a variety of alternative explanations provides evidence that local elite

swallowing the bitter pill sources of popular support for neoliberal reform in latin america what accounts for the surprisingly widespread popular approval that painful neoliberal reforms elicited in several latin american countries this article compares the explanatory power of two rival hypotheses which draw on conventional rational choice and psychological decision theory the compensation hypothesis claims that governments can engineer support for costly reforms by compensating the losers through targeted social benefits the rescue hypothesis questions this claim and maintains that draconian adjustment only finds support if it promises to revert a deep crisis and avert further losses data from argentina bolivia brazil mexico peru and venezuela suggest that the rescue hypothesis accounts much better for the initial endorsement of neoliberal shock programs immediately after their enactment when these shock programs bring about economic stabilization and recovery targeted social benefits help consolidate support for neoliberalism which a statistical analysis of the impact of social s

neoliberalism and lower class voting behavior in peru it is often assumed that lower classes will resist market oriented neoliberal reforms that impose economic austerity on popular sectors and exacerbate social inequalities however the peruvian cas

the political economy of expenditures by the peruvian social fund foncodes 1991 95 the peruvian social fund foncodes was created by president alberto fujimori in 1991 with the stated objectives of generating employment alleviating poverty and improving access to social services this article uses province level data on monthly expenditures socioeconomic indicators and electoral outcomes to analyze political influences on the timing and geographic distribution of foncodes expenditures between 1991 and 1995 i reach three main conclusions first these expenditures increased significantly before national elections second foncodes projects were directed at provinces in which the marginal political effect of expenditures was likely to be largest third these projects favored the poorest provinces which suggests that the program also had a redistributive function the results are robust to a large number of specifications and controls the peruvian data support predictions made in the literature on political business cycles as well as the literature on political influences on the allocation of discretionary funds

incremental changes and dual track transition understanding the case of china dual track transition in china fan gang this paper explains why china has taken the incremental approach to economic reform while others have taken a radical approach why china has been successful in its gradual transition in the 1980s while others had failed in the 1970s and why and how the reform objective model has evolved over time in china when comparing china with the former socialist economies which are undertaking reforms the paper gives particular attention to the following two factors first the initial economic situations especially the growth of real incomes during the pre reform period this first factor determines what approach to reform would be politically acceptable the second factor is the economic structures inherited from the previous regime specifically did there exist a repressed sector which could serve as a source from which the new system could emerge and develop this second factor determines what approach is economically feasible different approaches are therefore rationalized as conditional optimum in different circumstances the paper also investigates the special problems and difficulties for an incremental dual track transition such as delayed ownership reform in the state sector distorted allocation of resources between the state and non state sectors and macroeconomic instability during the transition a better formulation of reform strategies and stabilization policies is recommended although it is recognized that incremental reform is in many ways a spontaneous bottom up process

on the past and future of china s township and village owned enterprises abstract this paper proposes an explanation of the historical success of industrial enterprises owned by township and village governments in china i argue that conditions peculiar to china s prereform economy fostered the growth of a skilled workforce and high savings created unusual market niches and encouraged entrepreneurial undertakings by local political elites especially in areas adjacent to certain cities i then discuss the allocative and technical efficiency of local public enterprises in china from a theoretical standpoint and review some relevant econometric findings finally i consider proposals for reform of town and village enterprise tve ownership and discuss the possible advantages of cooperative forms

dynamics of china s provincial level specialization in strategic emerging industries this paper examines the dynamics of technological specialization in strategic emerging industries seis within each of mainland china s 31 provinces and the likely effectiveness based on the experiences of taiwan and south korea of the provinces strategies for developing these industries grounded in economic decentralization theories the empirical method employed includes analyzing the scores on an sei specialization promotion index per each province alongside several analytics of invention patent data from each province in the seven seis newly designated by the central level government as of 2010 the data is quantitatively analyzed according to four groups of indicators based on the following specialization relevant concepts comparative advantages and technological capabilities economy size and income technological uncertainty and lifecycles and latecomer entry into complex technologies where knowledge is most cumulative the analysis finds that china s system of economic decentralization has partially worked to ensure provincial industrial policymaking is effective whereby a notable number of provinces are seemingly pursuing sei development strategies in terms of sei selection and promotion that may enable catch up however paradoxically at the same time the system appears to sometimes facilitate provincial sei development strategies that are quite risky or even likely ineffective

financial control in the transition from classical socialism to a market economy the transition from socialism to capitalism poses severe problems of financial management that have yet to be resolved in principle let alone in practice one unfortunate consequence is continual financial turmoil as socialist economies of the soviet union and eastern europe attempt reform inflation either open or repressed first accompanies and then undermines attempts to decentralize decision making to dampen inflation and prevent economic chaos even reform governments may be provoked to reintervene by seizing the financial assets of enterprises reinstituting price controls or commandeering outputs through state orders and similar devices but why should the transition from central planning to a market economy be inflationary understanding the system of financial control in the preexisting regime of classical socialism is the key to understanding what might go wrong in the transition under classical socialism all the means of production industrial and agricultural are state owned output targets input levels wages and prices are all set by a stalinist system of central planning accordingly i shall first identify 1 how domestic fiscal and monetary processes interact with and complement central planning in the classical socialist economy and then discuss 2 why this mechanism for securing domestic financial control and avoiding inflation under classical socialism tends to break down when decentralization begins and central planning is weakened the discussion will then turn to 3 how in a more deliberate transition domestic tax and monetary arrangements might be managed to keep the average price level stable as the market prices of individual goods and services become free to fluctuate after sufficient domestic financial control is secured

regional decentralization and fiscal incentives federalism chinese style abstract aligning the interests of local governments with market development is an important issue for developing and transition economies using a panel data set from china we investigate the relationship between provincial government s fiscal incentives and provincial market development we report three empirical findings first we find that during the period of fiscal contracting system the discrepancy between ex ante contracts and ex post implementation was relatively small suggesting that the fiscal contracts were credible second we find a much higher correlation about four times between the provincial government s budgetary revenue and its expenditure during 1980s and 1990s as compared to 1970s demonstrating that provincial governments faced much stronger ex post fiscal incentives after reform third we find that stronger ex ante fiscal incentives measured by the contractual marginal retention rate of the provincial government in its budgetary revenue are associated with faster development of the non state sector as well as more reforms in the state sector in the provincial economy this holds even when we control for the conventional measure of fiscal decentralization finally we compare federalism chinese style to federalism russian style

political decentralization and corruption evidence from around the world abstract how does political decentralization affect the frequency and costliness of bribe extraction by corrupt officials previous empirical studies using subjective indexes of perceived corruption and mostly fiscal indicators of decentralization have suggested conflicting conclusions in search of more precise findings we combine and explore two new data sources an original cross national data set on particular types of decentralization and the results of a firm level survey conducted in 80 countries about firms concrete experiences with bribery in countries with a larger number of government or administrative tiers and given local revenues a larger number of local public employees reported bribery was more frequent when local or central governments received a larger share of gdp in revenue bribery was less frequent overall the results suggest the danger of uncoordinated rent seeking as government structures become more complex

the welfare state and competitiveness in all industrial countries fiscal policy is increasingly about redistribution in this paper the authors study redistribution across different types of agents in a world characterized by the presence of labor unions and distortionary taxation they show that an increase in transfers financed by distortionary taxation has nonlinear effects on unit labor costs relative to the other countries depending on the degree of centralization of the wage setting process in the labor market the authors find considerable empirical support for the model in a sample of fourteen oecd countries copyright 1997 by american economic association

land tenure choice in chinese villages the rational versus the political model the rational and political decision models are developed and tested for the land tenure choice in rural china a novelty of the test is to link the collective decision with general relative factor scarcities competing hypotheses are developed for the two models and tested with panel data collected on 83 chinese villages the results show that neither model is strongly rejected although the political model fares slightly better in more sophisticated econometric testing this suggests that popular political participation is emerging in chinese villages implications of this finding to chinese land policy are discussed

from privatization to deindustrialization implications of chinese rural industry and the ownership debate revisited summary this paper examines the evolution of chinese rural industry since the rural reform in the late 1970s and revisits the debate on the role of ownership based on a case study of w county in southern jiangsu province as well as drawing on national data the author shows that the community based market dynamic had been a key factor in the expansion of rural enterprises and that its weakening in recent years has led to the closing of village enterprises and deindustrialization of the countryside large scale land expropriation sponsored by local government is the principal factor responsible for the change

neoliberalism and the transformation of populism in latin america the peruvian case latin american populism is generally associated with the developmental stage of import substitution industrialization it is thus widely presumed to have been eclipsed by the debt crisis of the 1980s and the free market reforms of the neoliberal era however the leadership of alberto fujimori in peru suggests that new forms of populism may be emerging despite the fiscal constraints of neoliberal austerity this new variant of populism thrives in a context where economic crisis and social dislocation undermine traditional representative institutions enabling personalist leaders to establish unmediated relationships with heterogeneous atomized masses political support can be cultivated through populist attacks on entrenched political elites or institutions along with targeted but highly visible poverty alleviation programs this new form of populist autocracy complements the efforts of neoliberal technocrats to circumvent the representative institutions that are integral to democratic accountability the peruvian case thus demonstrates that populism has been transformed rather than eclipsed during the neoliberal era and that it should be decoupled theoretically from any particular phase or model of economic development

social inequalities in reforming state socialism between redistribution and markets in china this article extends market transition theory to an analysis of inequality under the conditions of partial reform in china logit regression analysis indicates cadres officials have no greater odds than other households of being among the privileged or avoiding poverty entrepreneurs andformer team cadres however are advantaged despite the rise of a hybrid elite of entrepreneurs who are currently cadres that capitalizes on redistributive power to gain competitive advantage in the marketplace increases in income inequality are modest when market reform stimulates improved economic performance the poor appear to benefit and experience comparable improvements in household income as a result there is only a slight increase in inequality at least in the early stages of market reform the empirical analysis is based on survey data collected in rural china in 1985

public support for economic reforms in poland using monthly surveys the author examines the impact of aggregate economic conditions on the dynamic of support for the polish program of economic reforms the balcerowicz plan to highlight the ambiguity of the standard retrospective model the author analyzes the impact of subjective perceptions of economic conditions on postures toward the reform program asking if people were extrapolating the past when forming predictions about the future then the effect of these predictions on the postures toward reform is studied finally the author focuses on the distributional effects substantive conclusions concerning the impact of economic conditions on the support of economic reform programs under democracy close the article

land leasing and local public finance in china s regional development evidence from prefecture level cities by analysing the evolution of local governments roles in different periods of china s growth in transition this paper explores local fiscal incentives to use subsidised land and infrastructure as key instruments in regional competition for manufacturing investment since the mid 1990s local land development behaviour is related to china s current land use institutions and intergovernmental arrangements on the basis of panel data covering prefectural level cities from 1999 to 2003 the paper empirically identifies and compares the fiscal impacts of different forms of land leasing by negotiation versus by auction tender policy implications are drawn from this analysis for the further reform of china s urban land system and fiscal institutions

completing china s move to the market beginning in late 1978 by luck as much as design china arrived at a strategy for market oriented economic reform that combined substantial reform with rapid growth in gdp and exports the sequencing of reform began with the easy to reform sectors agriculture and foreign trade and then took up the more difficult task of reforming the large state owned enterprises with respect to agriculture small scale industry and foreign investment china found ways of introducing meaningful property rights into the increasingly marketized system a partially unreformed financial system and inadequate autonomy of large state enterprises accounts however for the current stop go nature of chinese development

the theory of reform and indian indirect taxes abstract given a set of value judgements an initial state and a model of the economy one can ask whether some feasible tax change would increase welfare we do this by defining the marginal cost in terms of welfare of raising an extra rupee from the i th good the inverse optimum problem is the calculation of non negative welfare weights on households which imply that the initial state is optimum if no such welfare weights exist then a pareto improvement is possible we illustrate the concepts and results using data from the indian economy for 1979 1980 directions of tax reform for a number of specific social welfare functions and for pareto improvements are presented

public opinion and market reforms the limits of economic voting the broadly held view that promarket reforms are good for most people is in conflict with the equally broadly held view that in democracies reforms will generate widespread resistance resistance is expected because reforms typically produce economic downturns at least over the short term under normal circumstances we expect citizens to withdraw support from governments during periods of economic decline if citizens withdraw support then governments worried about the next election may abandon reforms but our expectations should be different of new democracies pursuing promarket reforms citizens may believe governments when they claim that things have to get worse before they get better or that economic stagnation is the fault of the past model research in poland peru and mexico reported in this special issue supports these expectations hence under democracy there is more scope for support of painful reforms than frequently acknowledged

the political economy of transformation this article gives an analysis of the political economy of transformation which stresses the major achievements of some countries the fact that the transformation is not yet over the existence of both winners and losers and the limitations of transition orthodoxy attention is paid to the implications of transformation up until now for social philosophy and the washington consensus it is argued that among the surprises of transformation were the importance of a sound banking system of a strong but limited state and the fact that transformation is a long and difficult process in addition the initial stress on the need for rapid privatization turned out to be one sided more important for the resumption of economic growth is the development of new private firms there are political dangers on the road ahead which for the successful applicants will be reduced by eu membership

understanding economic policy reform one of the eventual consequences of the global debt crisis was a wave of market oriented economic reforms this paper discusses the state of our knowledge on the political economy of this process why were inefficient and often unsustainable policies maintained for so long why are so many governments reforming now after decades of adherence to policies of an opposite kind have the reformers internalized the correct lessons from the east asian experience finally are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain

divided we stand united we fall the hume north jones mechanism for the rise of europe the great divergence in incomes between europe and the rest of the world occurred relatively recently why was it that western europe once a backward outpost on the fringes of the eurasian continent able to dominate in terms of income and technology the previously successful eastern economies several mechanisms have been identi ed to account for the rise of europe this paper formalizes one important mechanism the intellectual origins of which can be traced back to hume and weber and which was fully though informally articulated by e l jones this mechanism emphasizes the contrast between the european states system and the eastern empires political competition for a mobile tax base in a states system forces rulers to expropriate less from their subjects and to supply relatively more public services by effectively limiting the exit options of the ruled an empire rewards its ruler with a captive tax base that can be subjected to relatively higher levels of expropriation without a similar rise in public services provided the states system thus encourages higher levels of capital accumulation while the empire stises it the successes of the eastern empires in their consolidation phase are due to the competition they initially faced from neighboring states since europe escaped such consolidation the process of accumulation there never faced the impediments its eastern counterparts did the paper thus also provides a structural explanation for the emergence of institutions in europe that led to relatively secure property rights

experimentation in federal systems will decentralization lead to a laboratory in policy experimentation or is centralization necessary to prevent free riding in the innovation process we present a model where experiments have two dimensions all prefer quality but preferences

public employment and labour market performance public employment does it increase unemployment we explore the consequences of public employment for labour market performance theory suggests that public employment may not only crowd out private employment but also increase overall unemployment if by offering attractive working conditions it draws additional individuals into the labour force empirical evidence from a sample of oecd countries in the 1960 2000 period suggests that on average creation of 100 public jobs may have eliminated about 150 private sector jobs slightly decreased labour market participation and increased by about 33 the number of unemployed workers theoretical considerations and empirical evidence however suggest that the crowding out effect of public jobs on private jobs is only significant in countries where public production is highly substitutable to private activities and the public sector offers more attractive wages and or other benefits than the private labour market

dalton improving tax reform when households differ in ability and needs abstract in a previous paper we suggested a method for identifying tax reforms that adhere to dalton s principle of transfers approving a small enough transfer from rich to poor however even the weak requirement from that method namely prescribing a uni dimensional ordinal ranking of households by how deserving they are of a marginal income transfer is con fining here we extend the approach by formulating a two dimensional criterion for a dalton improving tax reform when there is social approval for transfers when other things are equal from the more able to the less able and from less needy households to more needy ones the possibility of applying this extended criterion in practice and a comparison with other criteria is carried out using the example of u k excise taxes

decentralization and pollution spillovers evidence from the re drawing of county borders in brazil decentralization can improve service delivery but it can also generate externalities across jurisdictional boundaries we examine the nature and size of water pollution externalities as rivers flow across jurisdictions panel data on water pollution in brazilian rivers coupled with county splits that change the locations of borders allow us to identify the spatial patterns of pollution as rivers approach and cross borders controlling for fixed effects and trends specific to each location the theory of externalities predicts that pollution should increase at an increasing rate as the river approaches the downstream exit border that there should be a structural break in the slope of the pollution function at the border and that a larger number of managing jurisdictions should exacerbate pollution externalities we find support for all four predictions in the data satellite data on growth in night time lights along rivers show that local authorities allow more settlements to develop close to rivers in the downstream portions of counties which is the likely underlying mechanism the border effects on pollution are not as pronounced when the cost of inter jurisdictional coordination is lower

fiscal policy profits and investment this paper evaluates the effects of fiscal policy on investment using a panel of oecd countries we find a sizeable negative effect of public spending and in particular of its wage component on profits and on business investment this result is consistent with different theoretical models in which government employment creates wage pressure for the private sector various types of taxes also have negative effects on profits but interestingly the effects of government spending on investment are larger than those of taxes our results can explain the so called non keynesian i e expansionary effects of fiscal adjustments jel e22 e62

the regulation of labor author s botero juan djankov simeon la porta rafael lopez de silanes florencio shleifer andrei abstract we investigate the regulation of labor markets through employment collective relations and social security laws in 85 countries we find that the political power of the left is associated with more stringent labor regulations and more generous social security systems and that socialist french and scandinavian legal origin countries have sharply higher levels of labor regulation than do common law countries however the effects of legal origins are larger and explain more of the variation in regulations than those of politics heavier regulation of labor is associated with lower labor force participation and higher unemployment especially of the young these results are most naturally consistent with legal theories according to which countries have pervasive regulaory styles inherited from the transplantation of legal systems

real interest rate and labor market performance around the world this article studies the effects of the real interest rate on labor market performance using a much larger sample of countries and more indicators of labor market performance than have been used in previous articles it finds that a rise in the real interest rate increases the unemployment rate raises the share of long term unemployed and reduces the employment rate the magnitude of these effects is very small in the short run but much more pronounced though still fairly small in the long run young people are disproportionately affected the results are robust to variations in specification

governing china s transition to the market institutional incentives politicians choices and unintended outcomes this essay reviews two books that seek to account for china s success in making economic reforms and sustaining rapid growth one perspective explains china s reformist approach in terms of politicians making choices under certain institutional rules the other sees an economic logic of market transition and emphasizes policymakers limited abilities in governing the economy the essay assesses the merits of these competing claims it calls for better specification of the causal linkages between institutional rules and politicians choices and concludes that both the dynamics and dilemmas of china s political economy are explained in terms of increasing market competition finally the essay evaluates the argument that decentralization leads to market segmentation and points to the chinese government s evolving role in dealing with the economy

consumption dominance curves testing for the impact of indirect tax reforms on poverty abstract a new tool is presented to test for the robustness of the impact on poverty of marginal tax reforms for pairs of commodities consumption dominance curves exist for every order of stochastic dominance an illustration is provided with bolivian data

the impact of regional and institutional factors on labor productive performance evidence from the township and village enterprise sector in china this paper investigates the determinants of township and village enterprise tve labour productivity in china examining behaviour at both the national and regional levels the results suggest that human capital the real wage level foreign intensity export intensity capital investment and firm size are the most important factors affecting labour productivity at the national level but their relative importance varies significantly between the regions the results also indicate that government privatization reforms had a major impact on labour productivity in the tve sector across the regions

why do entrepreneurs enter politics evidence from china this article examines the determinants of the entrepreneur s political participation by employing a unique matched firm institution data set from china we find that the likelihood of an entrepreneur s participation can be explained by the underdevelopment of markets and market supporting institutions according to our estimates the probability of entering politics decreases by 8 20 from the mean when the institutional indices improve by one standard deviation our findings support the view that the institutional environment shapes the private entrepreneur s motivation to participate in politics they also provide an example of how private entrepreneurs respond to state market failure in developing and transition countries jel g1 h00 o10 p2 p3

heterogeneous impact of the seguro popular program on the utilization of obstetrical services in mexico 2001 2006 a multinomial probit model with a discrete endogenous variable objective we evaluated the impact of seguro popular sp a program introduced in 2001 in mexico primarily to finance health care for the poor we focused on the effect of household enrollment in sp on pregnant women s access to obstetrical services an important outcome measure of both maternal and infant health

analysis of the distributional impact of out of pocket health payments evidence from a public health insurance program for the poor in mexico many governments have health programs focused on improving health among the poor and these have an impact on out of pocket health payments made by individuals therefore one of the objectives of these programs is to reach the poorest and reduce their out of pocket expenditure in this paper we propose the distributional poverty impact approach to measure the poverty impact of out of pocket health payments of different health financing policies this approach is comparable to the impoverishment methodology proposed by wagstaff and van doorslaer 2003 that compares poverty indices before and after out of pocket health payments in order to escape the specification of a particular poverty index we use the marginal dominance approach that uses non intersecting curves and can rank poverty reducing health financing policies we present an empirical application of the out of pocket health payments for an innovative social financing policy implemented in mexico named seguro popular the paper finds evidence that seguro popular program has a better distributional poverty impact when families face illness when compared to other poverty reducing policies the empirical dominance approach uses data from mexico in 2006 and considers international poverty standards of 2 per person per day

food subsidies and poverty alleviation this paper formulates the problem of the optimal pattern of food subsidies in a general setting where the objective is to minimize a class of poverty indices within the framework of the mo dern public finance theory taking explicit account of the budget con straint and preferences and technologies the authors derive rules fo r retargetting food subsidies to reduce poverty many operational rul es of thumb appear as special cases of the general results the analy sis thus provides not only the microfoundations of these operational rules but also their appropriate generalizations when the conditions under which they arise are not fulfilled copyright 1988 by royal economic society

government size and unemployment evidence from industrial countries using data from 19 industrial countries for the period 1985 to 2002 this paper analyzes how the size of the government sector affects unemployment controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects we find that a large government sector is likely to increase unemployment it appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long term unemployment it seems that dominant stateowned enterprises a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental

fiscal policy in good times and bad in the 1980s several countries with large government debt or deficit implemented substantial and in some cases drastic deficit cuts contrary to widespread expectations in many cases private consumption boomed rather than contracted this paper shows that in times of fiscal stress shocks to government revenues and especially expenditure have very different effects on private consumption than in normal times

the effect of government size on the unemployment rate recent empirical studies have revealed that the size of government is inversely related to economic growth and technical efficiency evidence is presented linking the size of government to reported unemployment rates for the industrial countries during recent years this finding helps to explain the empirical link between government size and poor macroeconomic performance

poverty dominant program reforms the role of targeting and allocation rules we propose simple graphical methods to identify poverty reducing marginal reforms of transfer programs the methods are based on program dominance curves that display cumulative program benefits weighted by powers of poverty gaps these curves can be decomposed simply as sums of targeting dominance curves and allocation dominance ones and can serve to verify whether the assessment of marginal program reforms is sensitive to the choice of poverty lines and poverty measures as well as to differences across programs in revenue sources and incentive effects

economic history and the modern economist in this book nine economists and economic historians express their concern for the present state of economics and its development in the future from a variety of different approaches these scholars reassert the importance of economic history in the training of economists and urge that this perspective should not be lost in the future

rural industry and labor market integration in eastern china abstract this paper tests the competitiveness of the labor market in a semi industrialized county located in eastern china labor market segmentation is linked to the degree of government interventions and the management structures of the local enterprises and two forms of rationing labeled entrance and time rationing are identified a test based on income maximizing behavior is developed to find the form of rationing that is consistent with the data the results show that the labor market is not competitive and time rationing prevails in the county in addition industrial wages are not responsive to experience and education but strongly biased against women and varying to government interventions

why is trade reform so popular in latin america a consumption based theory of trade policy preferences despite wavy national economies and a perception among observers that economic globalization is growing increasingly unpopular aggregate support for free trade remains quite high across latin america this finding is robust to the wording of survey questions and has been quite resilient through time even in the face of economic stagnation current theories of trade preferences including the widely applied heckscher ohlin model do not explain this trend instead the author proposes a theory of trade preferences based not on what citizens produce but on what they consume statistical analyses of different surveys including one conducted in fourteen latin american countries demonstrate that a consumption based approach best accounts for trade preferences across individuals and countries moreover the theory provides an explanation for the overall popularity of free trade in latin america citizens recognize and appreciate the lower price increased variety and higher quality of goods that have come in the wake of trade liberalization

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

local governments as industrial firms an organizational analysis of china s transitional economy despite widespread skepticism about government ownership in transitional economies china s rapid industrial growth has been led by public enterprises kornai s theory of soft budbet constraints born of the failure of earlier hungarian reforms fosters such skepticism but it assumes as fixed organizational characteristics that in fact vary widely across government jurisdictions local governments with smaller industrial bases have clearer financial incentives and constraints fewer nonfinancial interests in enterprises and a greater capacity to monitor them in china s vast public sector the fastest growth in output and productivity has occurred where government ownership rights are clearest and most easily enforced which enables officials to manage public industry as a diversified market oriented firm

public versus private ownership of firms evidence from rural china why are many of china s successful rural enterprises publically owned by local communities using a set of provincial data we find that the share of community public firms township village enterprises or tves relative to private enterprises is higher where the central government s influence is greater the community government s power is stronger and the level of market development is lower we also find that tves help achieve the community government s goals of increasing government revenue rural nonfarm employment and rural income however tves do not increase rural income given the levels of nonfarm employment and local public goods provision indicating possible inefficiency as compared with private enterprises

politics of economic liberalization in india abstract attempts at liberalizing india s import substitution model of development have had a mixed record some success in changing the policy regime highlights the role of a new technocratic leadership that has received support from both indian business groups and from external aid agencies conversely popular sectors within india including the rank and file of the ruling party the organized workers in the public sector and the numerically significant middle and lower peasantry have registered their opposition while the government remains committed to liberalizing the economy the momentum has slowed down and given the pressures of electoral politics a populist economic program has been simultaneously readopted it appears that the marriage of political and economic liberalism may not be an easy one in countries like india

economic freedom and unemployment around the world author affiliation horst feldmann department of economics and international development university of bath bath ba2 7ay united kingdom h feldmann bath ac uk1 datathis paper applies the economic freedom of the world efw index that has been developed by a group of north american economists under the auspices of the canadian fraser institute with the aid of a worldwide network of further economists and institutes gwartney and lawson 2005 the index has often been assessed to be a good measure of economic freedom and thus has been widely used in the empirical literature it subdivides economic freedom into five areas i size of government ii legal structure and security of property rights iii access to sound money iv freedom to trade internationally and v regulation of credit labor and business for variable definitions and sources see appendix a the two main authors of the index have explained their concept and measurement of economic freedom in each report e g gwartney and lawson 2005 and elsewhere e g gwartney and lawson 2003 economic freedom is complex and multidimensional a major advantage of the efw index is that it reflects all aspects of economic freedom and adequately groups them into five different areas to provide information on the overall linkage between economic freedom and unemployment we use the efw summary index additionally we use the five area indices this allows us to analyze which economic freedoms have the strongest effects as the correlation matrix indicates there is substantial correlation among several of the area variables appendix b therefore we estimate specifications that include these measures one at a time however the correlation matrix also indicates that the area variables are not highly correlated with each other therefore we also present specifications in which we include them jointly estimating the effects of the area variables both separately and jointly allows us to check the robustness of our results for these variables the efw index not only has the advantage that it covers all aspects of economic freedom and adequately groups them into five different areas it also has the advantage that it is based largely on objective data these data and the ratings derived on the basis thereof may be verified by anybody aspects of economic freedom that cannot be measured objectively mainly in the areas legal structure and property rights and regulations are measured using subjective data from the global competitiveness reports of the world economic forum and the international country risk guides of the prs group the data in the global competitiveness reports are based on annual surveys among approximately 4000 to 5000 senior business executives the data in the international country risk guides are computed from an in house panel of experts of the prs group in both cases the data are compiled professionally for example the selection of respondents for the world economic forum s surveys is largely representative of the structure of each economy and the respondents have excellent knowledge of their country s economy the international country risk guides are based on the assessments of experienced experts 1for each variable included in the efw index a total of 38 the relevant data are translated into ratings with the aid of a formula that is published in the reports of the fraser institute the rating scale ranges from 0 to 10 with 0 representing the lowest and 10 the highest degree of economic freedom the area ratings for each of the five areas are calculated as the arithmetic means of the ratings for their respective components in turn the summary rating is the average of the five area ratings applying the most recent methodology which was further developed over the years the efw index was calculated for every fifth year from 1970 on plus for the years 2001 2002 and 2003

legality and market reform in soviet type economies the classical soviet type system operates in the virtual absence of economic legality which is a prerequisite to a successful transition to a market economy in the soviet union and the nations of eastern europe in the absence of economic legality the leadership of these countries will not be able to implement a credible commitment to private property rights or any other effective market incentive mechanism in addition they will be unable to promote the growth of multilateral impersonal trade without legality a shift away from central planning toward market allocation may very likely lead to economic decline inflationary pressures and a polarization in income distribution which in turn could unleash political reaction against the reform process in general

whither russia a review of andrei shleifer s a normal country in this review the author reflects on the heated debates around views about russia s postcommunist transition expressed in essays collected in new andrei shleifer s book a normal country russia after communism harvard university press 2005 which were initially published at different times during transition she focuses on the three questions that have been in the center of the debate among academics and policymakers what should the sequencing and the speed of reforms be should a country have political centralization for fiscal decentralization to be efficient is russia normal the author argues that russia s most recent history provides convincing evidence in support of the logic of political and economic transformation as it was understood by shleifer as early as the beginning of the 1990s

leading the left to the right populist coalitions and economic reform abstract democratic political parties with a history of commitment to statist economic policies face internal stresses when they come to power and preside over programs of wholesale economic liberalization how do such parties and coalitions avoid splintering and manage to maintain electoral support examining the recent experiences of argentina and mexico edward gibson suggests that one can understand these achievements by treating each party as a combination of two separate components performing distinct functions a metropolitan policy component and a peripheral or rural electoral component his framework travels well beyond latin america and helps illuminate the different politics underlying three recent waves of economic liberalization in sri lanka

some consequences of giantism the case of india the consequences of giantism on india are discussed in terms of management of the economic system decentralization and markets human resource dimensions such as personnel training and the international sphere of trade governance and foreign aid the indian case supports the notion that population size leads to large economies which are cumbersome and function with hierarchical systems and that size handicaps effective functioning managers have limited horizontal reach or span of control over subordinates there are more virtical chains of command the population ends of delivery systems are larger than in smaller countries additional layering in the hierarchy is not trivial addition it impedes operational communications hence operations themselves adding a 10th or 11th bureaucratic level in moving from a country of 8 million to 800 million is not an arithmetic increase in but an exponential increase in distortions delays and misunderstandings the coping mechanisms available are to speed up management decision making by delegation of political and administrative decision making downward hierarchically and sideways sometimes labor saving devices such as self adjusting servomechanisms generate socially acceptable decisions without continuing day to day intervention by officials pluralism and policy experimentation in general may be encouraged growth and productive efficiency can be enhanced by greater reliance on well framed markets to lead the ordering of economic decisions internal competition must not supercede the importance of export trade which supports the imports of technology and goods there is an association of poverty with a low propensity for trading an advantage of large numbers is the enormous pool of talent from which to draw the top leaders the training of elites and professional cadres is facilitated the quality of training is a function of the size of the centers and their programs a critical mass of professionals is easily reached and brain drain is not a problem such as in bangladesh big countries have diminished representation in multilateral councils and bilateral development assistance is apportioned with less per capita aid to larger countries regional development banks have more agreeable arrangements

economic reform and public opinion in peru 1990 1995 even if they are confident that prosperity lies just over the horizon politicians who embark on promarket reforms know they are in for some stormy weather how will they fare in voters eyes once the pain is felt will voters inevitably turn against politicians who impose painful measures without an electoral mandate to do so the story of economic reform and public opinion in peru under alberto fujimori 1990 1995 poses just these questions the author uses monthly public opinion polls and monthly economic data to analyze the impact of economic changes during fujimori s reform program on opinions of the reforms and the president the author finds that limenos withdrew support from the program and the president when employment fell and inflation rose responses consistent with the findings of the economic voting literature but when real wages fell they became optimistic about the future and more likely to support reforms and the government

how to reform a planned economy lessons from china the countries of eastern europe and the former soviet union have been flooded with advice from the west on how to liberalize their planned econo mies this advice is unfortunately offered in an empirical vacuum no one knows how these econo mies will react to the proposed liberalization meas ures there exists however a neglected source of information china offers a long time series of data over a decade s worth on the effects of reforms on a planned economy china s reforms were gradual but their cumulative effect has been large and they have been remarkably successful china s experiments provide some practical les sons on what kinds of reforms can work elsewhere the dominant school of thought among economists favours the big bang policy of reforming quickly and according to a comprehensive plan partial reforms in this view are useless they will be negated by the remnants of the planning system the proponents of big bang reform have been influential with poland czechoslovakia and rus sia announcing plans for a rapid transition to capi talism

the populist road to market reform policy and electoral coalitions in mexico and argentina governing parties face two fundamental tasks they must pursue policies effectively and they must win elections their national coalitions therefore generally include two types of constituencies those that are important for policy making and those that make it possible to win elections in effect governing parties must bring together a policy coalition and an electoral coalition this distinction sheds light on how the transitional costs of major economic policy shifts can be made sustainable in electoral terms it also provides a starting point for analysis of how two of latin america s most important labor based parties the peronist party in argentina and the partido revolucionario institucional pri in mexico maintained electoral dominance while pursuing free market reforms that adversely affected key social constituencies peronism and the pri are conceived of as having encompassed historically two distinctive and regionally based subcoalitions a metropolitan coalition that gave support to the parties development strategies and a peripheral coalition that carried the burden of generating electoral majorities this framework permits a reconceptualization of the historic coalitional dynamics of peronism and the pri and sheds light on the current process of coalitional change and economic reform

law and finance at the origin what are the key determinants of financial development and growth a large literature debates the relative importance of countries legal and political environment in this paper i present evidence from ancient rome where an early form of shareholder company the societas publicanorum developed i show that the societas publicano rum flourished in a legally underdeveloped but politically supportive environment roman republic and disappeared when roman law reached its height of legal sophistication but the political environment grew less supportive roman empire in the roman case legal development appears to have mattered little as long as the law as practiced was flexible and adapted to economic needs the law as practiced in turn reflected prevalent political interests after discussing parallels in more recent history i provide a brief overview of the literature on law and finance and on politics and finance the historical evidence suggests that legal systems may be less of a technological constraint for growth than previously thought at least at the origin