corporate taxation and capital accumulation evidence from sectoral panel data for 14 oecd countries abstract we present new empirical evidence that sector level capital output ratios are strongly influenced by corporate tax incentives as summarised by the tax component of a standard user cost of capital measure we use sectoral panel data for the usa japan australia and eleven eu countries over the period 1982 2007 our panel combines internationally consistent data on capital stocks value added and relative prices from the eu klems database with corporate tax measures from the oxford university centre for business taxation our results for equipment investment are particularly robust and strikingly consistent with the basic economic theory of corporate investment

financial factors and investment in belgium france germany and the united kingdom a comparison using company panel data we construct company panel data sets for manufacturing firms in belgium france germany and the united kingdom covering the period 1978 1989 these data sets are used to estimate empirical investment equations and to investigate the role played by financial factors in each country a robust finding is that cash flow and profits terms appear to be both statistically and quantitatively more significant in the united kingdom than in the three continental european countries this is consistent with the suggestion that financial constraints on investment may be relatively severe in the more market oriented u k financial system

trade policy and income inequality new evidence abstract this paper uses recently available data to investigate the link between income inequality and trade protection it finds that among less developed countries more open economies experienced increased income inequality during the late 1980s trade policy has had no effect on income inequality in developed countries

the effect of business risk on manufacturing investment sectoral survey evidence from ireland abstract this paper analyses the results of a special sample survey on risk and investment carried out using the european union investment survey sampling frame for ireland the paper looks at decision making by large manufacturing firms located in ireland to see whether their investment decisions can be understood within the various models of risk that economists use equilibrium and disequilibrium models are examined to see what best explains the behaviour revealed by the firms responses the paper develops a categorisation of the main theoretical channels of influence from risk to investment in the light of this theory the survey replies of irish firms are used to assess the importance of the different channels of influence

fiscal policy seasonality and intertemporal substitution of investment spending in the uk abstract the effects of three pre announced changes in fiscal policy on manufacturing investment in equipment and in industrial buildings are estimated using the enger granger two step procedure the strong seasonal variation in the expenditure series is interpreted as an economic process within the same framework

budgetary policy and unemployment dynamics in an olg model with collective bargaining we consider a dynamic general equilibrium model with capital accumulation and collective wage bargaining and investigate how unemployment responds to structural shocks under two stylised budgetary policies under balanced budgets tax adjustments lead to higher unemployment on impact but enable a quick recovery of employment by contrast unbalanced budgets mitigate unemployment effects on impact but dynamics are more persistent due to weaker capital accumulation and future fiscal consolidations these results are consistent with empirical evidence on a positive cross country relationship between government borrowing and unemployment persistence this paper starts out from the well known fact that many european countries have suffered from persistently high unemployment over the past two decades there is a large literature which attempts to explain this development as resulting from a combination of structural shocks and mechanisms which make the effects of any such shifts more persistent one prominent branch of this literature stresses that adverse structural shocks tend to induce a slowdown in capital accumulation which reinforces the employment losses and adds to unemployment persistence bean 1989 benassy 1997 blanchard 1997 burda 1988 caballero and hammour 1998 daveri and tabellini 2000 similarly these studies point out that when the shock is over the recovery of employment depends critically on the speed with which investments in capital respond to the new situation the purpose of this paper is to reconsider this capital shortage hypothesis by linking it explicitly to the stance of fiscal policy to see the importance of fiscal policy in this context consider a government which faces an adverse structural shock such as a drop in employment due to a wage setting shock and decides whether it should keep its budget balanced or not this decision will affect the overall structure of assets in the economy i e the mix between capital and government bonds and this mix will in turn be an important determinant of the speed with which the economy can create employment once the shock is over in particular according to the capital shortage hypothesis the recovery in terms of employment is likely to take longer under a policy which temporarily accepts structural budget deficits particularly when crowding out effects have been substantial

regional policy and investment behaviour the case of greece 1971 1982 louri h 1989 regional policy and investment behaviour the case of greece 1971 1982 reg studies 23 231 239 the present paper reports an attempt to evaluate the relative effects of regional policy on investment in greek manufacturing industry during 1971 82 a generalized neoclassical model of investment behaviour is used allowing for separate estimates of the effects of different policy instruments both regional investment incentives and infrastructure expenditures were found to exert a significant influence on capital formation simulations with alternative policy combinations showed that if incentives were accompanied by more equally distributed infrastructure expenditures the cost of the policy would be the same but its effects would be enhanced an equal amount of investment would be created with a fairer regional distribution louri h 1989 la politique regionale et le comportement d investissement etude de cas de la grece de 1971 a 1982 reg studies 23 231 239 cet article fait un comp

income distribution political instability and investment abstract this paper successfully tests on a sample of 71 countries for the period 1960 85 the following hypotheses income inequality by fuelling social discontent increases sociopolitical instability the latter by creating uncertainty in the politico economic environment reduces investment as a consequence income inequality and investment are inversely related since investment is a primary engine of growth this paper identifies a channel for an inverse relationship between income inequality and growth we measure socio political instability with indices which capture the occurrence of more or less violent phenomena of political unrest and we test our hypotheses by estimating a two equation model in which the endogenous variables are investment and an index of socio political instability our results are robust to sensitivity analysis on the specification of the model and the measure of political instability and are unchanged when the model is estimated using robust regression techniques

the electoral budget cycle on municipal waste collection expenditure abstractthis article analyses the determinants of municipal waste collection expenditure specifically the effects of electoral cycles on municipal waste collection expenditure we use a database with information on spanish municipalities with more than 1000 inhabitants for the period 2002 2011 our results reveal that incumbents adopt an opportunistic behaviour increasing spending on waste in the preelection year and reducing it in the election and post election years therefore we confirm an electoral budget cycle on waste collection expenditures in spain additionally we find that the levels of income unemployment and upper level governments transfers have a positive impact on waste collection spending finally population density level of urbanization average age of the population of the municipality and less fragmented governments negatively influence waste collection spending

central bank transparency and the volatility of exchange rates abstract we analyze the effect of monetary policy transparency on bilateral exchange rate volatility we test the theoretical predictions of a stylized model using panel data for 62 currencies from 1998 to 2010 we find strong evidence that an increase in the availability of information about monetary policy objectives decreases exchange rate volatility using interaction models we find that this effect is more pronounced for countries with a lower flexibility of goods prices a lower level of central bank conservatism and a higher interest rate sensitivity of money demand

economic policy in germany was there a turnaround germany under kohl martin hellwig and manfred neumann chancellor kohl came to power when germany was suffering its greatest post war confidence crisis output was stagnant the trade balance deteriorating unemployment rising and inflation uncomfortably high immediate priority was given to fiscal consolidation to bring the growing budget deficit under control the authors argue that in this instance fiscal contraction sufficiently boosted private sector confidence that overall demand was actually stimulated together fiscal rectitude by the federal government and monetary austerity by the bundesbank made possible sustained output growth against a background of falling inflation lower deficits also crowd in private investment in the longer run thus the authors judge kohl s macroeconomic policy a considerable success however unemployment has remained stubbornly high the authors attribute this to supply side failures the german labour market remains subject to many distortions which the kohl government has done little to remove nor has it seriously pursued deregulation of product markets german unemployment is likely to remain high at least until favourable demographic changes take effect in the 1990s

u s deficits since world war i the tax smoothing theory suggests that deficits would respond particularly to recession temporarily high government spending and anticipated inflation my empirical estimates indicate that a relation of this type is reasonably stable in the u s since at least 1916 in particular the statistical evidence does not support the idea that there has been a shift toward a fiscal policy that generates either more real public debt on average or that generates larger deficits in response to recessions further the deficits for 1982 3 and popular projections formed in 1984 for 1984 5 are consistent with the previous structure the high values of these deficits reflect the customary response to substantial recession interacting with big government and to expected inflation

government size government debt and globalization this article empirically investigates the effect of globalization on government size and debt using panel heterogeneous cointegration techniques to a panel of developing and developed countries i

the impact of perceived expectations and uncertainty on firm investment this paper analyses the differential impact of perceived expectations and uncertainty on investment spending in small and large firms we analyse two types of investment viz aggregate investment and investment in energy saving technologies using dutch firm level data the results show that expectations and uncertainty about input and output prices and domestic demand have sub stantial but different effects on investment spending in firms of different sizes furthermore we find evidence at least for small firms that there are important differences between the effects of uncertainty about input and output variables

should generational accounts replace public budgets and deficits the author assesses the concept of generational accounts and the specific accounts constructed by alan auerbach jagadeesh gokhale and laurence kotlikoff 1991 although these accounts support the assertion of present orientation in fiscal policy they rest on numerous assumptions based on judgments that are open to question these involve the treatment of the public budget constraint the benefits from public exhaustive expenditures economic and population projections the discount rate and fiscal incidence alternative and equally reasonable assumptions could yield radically different conclusions the author concludes that the auerbach gokhale and kotlikoff accounts should not replace the annual public budget as they argue

energy policy and energy market performance the argentinean case in the early 1990s argentina liberalized and privatized the energy system trending to a total market oriented system and abandoning the use of energy policy since 2004 as a result of a boom in energy demand and constrains in energy supply argentina has gone through an energy problem mainly related to natural gas and electricity which derived in energy shutdowns in this frame this study explores the role of energy policy and institutions in argentina with the aim of discussing whether it has been properly used to contrast the observed lack of coordination between fossil energy reserves management and the demand of fuels in power generation the results of the analysis enhance the relevance of regulatory and control authorities as well as the active use of long run energy policy for the energy system performance in order to avoid coordination failures between subsectors of the system the relevance of energy consumption for the development process and the particular characteristics of energy systems require a wide planning perspective

searching for political business cycles in germany one reslt of the revitalised literature on political business cycles is that there are signs in german data that elections and ideology have an impact however using monthly data for the period 1950 1989 and standard methods of time series analysis we reject both the nordhaus hypothesis of opportunistic cycles and the partisan approaches by hibbs ans alesina we show that some results are sensitive to the assumption of stationarity there are signs of policy cycles in m1 it is hard though to bring this in line with the rogoff hypothesis of rational opportunistic cycles because of the german institutional setting

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

aggregate uncertainty capacity utilization and manufacturing investment theory suggests that the level of uncertainty affects the investment decision for firms although the sigh of the effect is ambiguous a garch m estimator is used to model the conditional variance of gdp as a proxy for uncertainty this measure is then employed in a simple model of the investment decision the results are that the level of aggregate uncertainty has a significant negative effect on manufacturing investment in particular periods there were very large effects on average uncertainty reduces investment by about 5 but in 1974 the effect peacked at 48

public sector deficits and macroeconomic performance in the 1980s chronic public sector deficits forced countries to undertake fiscal adjustment the need to face hard choices continues in the 1990s but the problem is not a simple and easily diagnosed one with an obvious solution rather public sector deficits have had widely differing consequences high inflation in some countries low inflation but also low investment and growth in others and in still others no evident short term macroeconomic spillovers this book presents the findings of a world bank research project designed to shed light on the complex dynamics of public sector deficits it includes an in depth examination of eight countries argentina chile colombia cote d ivoire ghana morocco pakistan and zimbabwe these cases are analyzed within a comprehensive theoretical framework elaborated for the study and in conjunction with cross country data from a larger set the book draws the following conclusions the ways chosen to finance deficits money creation debt or arrears go far to explain medium term financial and macroeconomic imbalances but in the short term these relations are blurred deficits tend to be bad for growth they increase financial and price instability and crowd out private investment public saving typically reduces private saving only slightly increasing public saving is a very effective policy instrument for raising national saving fiscal adjustment typically leads to a lower trade deficit and a moredepreciated real exchange rate finally the blame for large systemic public deficits must be placed not on bad luck but on unwise policy choices and conversely sound fiscal policies can set a country on a path leading to stability and growth

what s to know about hypothetical bias in stated preference valuation studies abstract hypothetical bias arises in stated preference valuation studies when respondents report a willingness to pay wtp that exceeds what they actually pay using their own money in laboratory or field experiments although this bias is not found in all stated preference surveys hypothetical wtp typically exceeds the actual value by a factor of two to three unfortunately there is no widely accepted general theory of respondent behaviour that explains hypothetical bias therefore two meta analyses are reviewed to test current hypotheses regarding the causes of this overstatement of wtp and the associated recommendations to mitigate the bias suggestions for future research are made including the development of a general theory

financial liberalization private investment and portfolio choice financialization of real sectors in emerging markets abstract using firm level panel data we analyze the impacts of rates of return gap between financial and fixed investments under uncertainty on real investment performance in three emerging markets argentina mexico and turkey employing a portfolio choice model to explain the low fixed investment rates in developing countries during the 1990s we suggest that rather than investing in irreversible long term fixed investments firms may choose to invest in reversible short term financial investments depending on respective rates of returns and the overall uncertainty in the economy the empirical results show that increasing rates of return gap and uncertainty have an economically and statistically significant fixed investment reducing effect while the opposite is true with respect to financial investments

fiscal adjustment in eu countries a balance sheet approach abstract several european union countries have recently implemented or are envisaging fiscal operations which improve budgetary figures but have no structural impact on government finances we evaluate some of these measures using a balance sheet approach in particular we examine the degree to which reductions in government debt in eu countries has been accompanied by a decumulation of government assets in the runup to maastricht we find a strong correlation between changes in government liabilities and government assets and larger declines in government assets in countries starting from higher public debt levels

unemployment in britain male unemployment in britain has risen from around 2 per cent in the 1950s to around 17 per cent in 1985 see figure 1 the figures are for male unemployment because there is no consistent series for women 1 even more remarkably unemployment has fallen in only three years out of the last twenty 1973 1978 and 1979 to account for this we need a model that explains both changes in the natural or non accelerating inflation rate of unemployment nairu and deviations from it we use a three equation supply side model centred on the labour market this has two main features the first concerns the determination of employment in the short run the labour demand function that we use cuts through the fruitless debate now raging especially in europe as to whether current unemployment is classical or keynesian according to the classical view employment is too high because real wages are too high according to the keynesian view real wages are not binding and unemployment is high because the product market does not clear with prices too high relative to nominal demand the whole debate is set in the framework of perfect competition yet in perfect competition prices are set by impersonal forces and it is not clear what could possibly stop prices clearing the market it is much more reasonable to think of prices as being set by imperfectly competitive firms existing prices being the best they can think of given the demand they face in this context firms demand for labour will depend on both the real product wage and the level of real aggregate demand this is the demand function we estimate and it conforms both to common sense and to the data however this does not imply that employment can be made to grow without limit by pumping up real demand for in the medium term when price surprises are eliminated our model determines three variables employment real wages and real demand on the basis of three equations an employment equation a price equation and a wage equation thus in the medium term there is a natural level of employment and corresponding to this a natural level of real aggregate demand the second key feature of our model concerns the medium term determination of unemployment in the medium term the planned mark up of wages over prices in wage settlements must be consistent with the mark up of prices over wage costs in employers pricing behaviour for if wage setters try to set real product wages higher than is consistent with employers pricing behaviour this generates ever increasing inflation thus the key to understanding unemployment in the medium term is the behaviour of wage setters if events occur that push them towards too high real wages then unemployment has to rise to offset these influences we shall call these influences wage pressure variables or push factors and they are clearly crucial in understanding unemployment the variables here include the social security system employment protection

trade in financial services capital flows and the value at risk of countries in light of the recent financial crises in the emerging markets the coming into force of the financial services agreement under the gats has been considered a success while the agreement provides for little new liberalization but rather formalizes the status quo it was feared that governments could even backtrack on previous commitments in the belief that more open markets could increase the degree of susceptibility by undermining financial stability strengthening the financial system s ability to evaluate and manage risk has therefore been identified as a precondition for more ambitious liberalization efforts in the future dobson and jacquet 1998 encouragingly in some countries banks have begun to implement value at risk approaches as a tool to assess their balance sheet vulnerability as this paper argues such an approach could also play a useful role in determining the extent of market risk on the macroeconomic level with potentially important implications regarding trade in financial services capital account convertibility and international crisis management

monetary policy in the uk the authors argue that the institutional dimension of the bank of england monetary policy and the role the uk hm treasury assumes in this framework are both firmly based on the new consensus in macroeconomics ncm this is also the theoretical framework upon which the inflation targeting element of monetary policy is firmly based this paper discusses these aspects of uk monetary policy and then assesses the policy that has been pursued since 1997 with some reference made to the period between 1992 and 1997 when a version of the framework was introduced the strategy has been successful in terms of keeping uk inflation rates within the targets set by hm treasury however a number of problematic issues are highlighted and discussed

good bad or ugly on the effects of fiscal rules with creative accounting abstract do fiscal rules lead to fiscal adjustment or do they encourage the use of creative accounting this question is studied with a model in which fiscal rules are imposed on measured fiscal variables which can differ from true variables because there is a margin for creative accounting the probability of detecting creative accounting depends on its size and the transparency of the budget the model studies the effects on fiscal policy of a budget rule separating structural from cyclical effects and examines how these effects depend on the underlying fiscal distortion and on the degree of transparency of the budget

the voracity effect abstract we analyze an economy that lacks a strong legal political institutional infrastructure and is populated by multiple powerful groups powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock in equilibrium this leads to slow economic growth and a voracity effect by which a shock such as a terms of trade windfall perversely generates a more than proportionate increase in fiscal redistribution and reduces growth we also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks jel f43 o10 o23 o40

permanent and transitory effects of fiscal policy on investment in the uk a major change in the british corporate tax system had only a weak effect on the level of manufacturing investment but caused a large and highly significant reduction in its seasonal variance the explanation of this change sheds new light on the impact of pre announced tax changes

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

g 7 fiscal restructuring in the 1990s macroeconomic effects fiscal restructuring g 7 fiscal restructing in the 1990s macroeconomic effects during the 1990s many countries are undertaking major fiscal restructuring cutting expenditures and raising taxes the objectives are varied ranging from the need to stabilize public debts to increasing efficiency by reducing distortions this paper assesses the macroeconomic effects of such measures in the case of the g 7 countries it presents the policy measures already taken or currently planned and analyses their effects both locally and on partner countries the general picture is one where fiscal restructuring initially leads to output losses followed by a recovery in the longer run the choice of instruments makes a significant difference those countries which rely primarily on expenditure cuts or indirect tax increases in their fiscal restructuring the united kingdom france and japan are projected to enjoy output gains from their adjustment over the long run while those countries relying mainly on labour and capital taxes italy germany and the usa are projected to suffer output losses leonardo bartolini assafrazin and steve symansky

defining the government s debt and deficit although the budget deficit and the public debt feature prominently in political debate and economic research there is no agreement about how they should be measured they can b e defined for different sets of public institutions including the nested sets corresponding to central government general government and the public sector and for any definition of government there are many measures of the debt and deficit including those generated by four kinds of accounts cash financial full accrual and comprehensive which can be derived from four nested sets of assets and liabilities each debt and deficit measure says something about public finances but none tells the whol e story each is also vulnerable to manipulation and is likely to be manipulated if it is subject to a binding fiscal rule or target narrow definitions of government encourage the shifting of spending to entities outside the defined perimeter of governme nt narrow definitions of debt and deficit encourage operations involving off balance sheets assets and liabilities while broad measures are susceptible to the mismeasurement of on balance sheet assets and liabilities reviewing the literature on these is sues the paper concludes that governments should publish several measures of the debt and deficit in a form that clearly reveals their interrelationships

government spending interest rates prices and budget deficits in the united kingdom 1701 1918 abstract the british data from the early 1700s through wwi provide an unmatched opportunity for studying temporary changes in government purchases temporary increases which appeared mainly as wartime spending raised long term interest rates but significantly increased the growth rates of money and prices only during suspensions of the gold standard 1797 1821 and 1914 1918 temporary changes in military spending accounted for the bulk of budget deficits over the sample of more than 200 years i found only two major non war deficits one associated with compensation payments to slaveowners in 1835 1936 and the other with a dispute over the income tax in 1909 1910 interest rates did not react much to these exogenous deficits

structural factors associated with primary fiscal balances in developing countries the study explores the conditions under which a government in a developing country is likely to run a balanced or surplus budget we contend that primary fiscal deficits are likely to persist where the economy is too saving constrained to raise private sector investment to conduct the investigation a logit model is applied to a sample of developing countries to see whether the saving constraints are associated with the fiscal stance of governments accordingly income level growth external current account balance and foreign direct investment are used as indicators of the saving constraint with the exception of economic growth positive developments in these variables turned out to be significant to the likelihood of the government adopting a surplus budget

research and development cash flow agency and governance uk large companies this paper investigates the determinants of r d expenditure using a sample of uk listed companies with the highest spend from 2000 to 2005 we investigate the effect of corporate governance and ownership on r d using panel data the results provide some evidence that more governance tends to depress r d activity a finding that is robust to whether a composite or disaggregated index of governance is used one innovation of the paper is that we treat agency and finance effects interactively the ownership stake of the ceo appears to be supportive for r d

income distribution factor endowments and trade openness abstract this paper studies the empirical links among factor endowments trade and personal income distribution by using panel data we show that land and capital intensive countries have a less equal income distribution while skill intensive countries have a more equal income distribution we also show that the effects of trade openness on inequality depend on factor endowments in a way consistent with several recent case studies but not with the simple hecksher ohlin framework our results are robust to the division of the sample according to level of income the inclusion of different regressors the use of different measures of trade openness and of relative factor abundance and tests for possible problems of endogeneity

the impact of exchange rate uncertainty on the level of investment conventional wisdom has it that increasing price or exchange rate uncertainty will depress investment using the dixit pindyck model we find that there are situations where this will happen and situations where it does not there are threshold effects which allows us to identify when rising volatility would increase or decrease investment and also to identify which types of industries would gain and which would suffer from a move to fixed exchange rates this is important for monetary union in europe since it is likely that even if trade is insensitive to exchange rate volatility investment with its longer horizon will be affected textbook theories of investment under uncertainty present a rather oversimplified rule for a firm deciding whether to invest or not if the project s expected net present value npv is positive the firm invests otherwise it does not this implies that if the investment is reversible the firm will simply disinvest if the npv turns negative but if investment is irreversible then if a firm decides not to invest it will never invest this is not a realistic approach given uncertainty firms often find it convenient to wait rather than to commit themselves one way or another waiting is therefore a proper alternative to investing or not investing and firms will be confronted with an invest wait do not invest decision rather than an invest do not invest one dixit and pindyck 1994 have developed a model in which the option value of an investment project is evaluated to represent the value of waiting that option value then becomes part of the investment costs because once an irreversible investment is made the possibility of exercising this option to invest later on when better information is available has been lost thus the decision rule is still invest if npv 0 otherwise do not invest but the npv now represents the present value of the expected revenues less the value of the option to invest later less the present value of any other investment costs in this paper we extend the dixit pindyck model for varying degrees of uncertainty and price drift and specifically for the case where that uncertainty is caused by exchange rate volatility such an extension is important not only because it is a new development but also because we need to understand how monetary union will affect investment expenditures in europe for simplicity we assume the domestic prices are fixed and that the only uncertainty is in the exchange rate and hence the domestic value of foreign currency revenues that leaves us with various problems the first is to determine the threshold at which exchange rate price uncertainty is sufficient to affect investment adversely second under what conditions does that uncertainty actually reduce investment third do exchange rate misalignments or exchange rate volatility damage investment more we show that answers to such questions can be c55

large company capital formation and effects of market share turbulence micro data evidence from the pims database the possible effect of demand uncertainty on company investment decisions is investigated at the micro level a standard investment function is employed and modified to incorporate demand uncertainty the data comes from the pims data base on business units of large firms in concentrated markets in dynamic panel data estimation significance was found for a variable representing market share turbulence in a number of industries this variable causes a depressing effect on capital investment either on its own or in combination with indicators of vertical integration which indicate insulation from demand uncertainty the results constitute some of the best available evidence that demand uncertainty constraints capital investment

explaining fiscal policies and inflation in developing countries abstract in this paper we investigate empirically the determinants of inflation seigniorage and fiscal deficits in developing countries we first test the optimal taxation theory of inflation for a group of 21 lcds we find that the implications of this theory are rejected for all these countries we then proceed to implement a number of tests based on the new political economy approach to macroeconomic policies we deal with some of the implications of a credibility and reputation model and of a strategic government behavior model we find that the data support the most important predictions of the political economy view of fiscal policy our measures of political instability and political polarization play an important role in explaining cross country differences in seigniorage inflation government borrowing and fiscal deficits we end by discussing directions for future research

seigniorage dollarization and public debt the lebanese civil war and recovery experience 1982 97 abstract the paper develops theoretical frameworks to explain the phenomena of seigniorage dollarization and public debt and then applies them to the lebanese macroeconomic situation over 1982 97 more specifically it analyzes the implications of seigniorage and dollarization to see what extent they were responsible for the inflation and exchange rate depreciations during the civil war period it also studies the sustainability of postwar debt the conclusions that emerge from the analysis are that budget deficits were only one of the reasons behind the war inflation and depreciations dollarization could still impose some problems for macroeconomic stability and tax reforms are essential for fiscal balance

tax uncertainty and investment a cross country empirical examination i introduction spanning a period of nearly 100 years of economic research a substantial body of literature has developed with the goal of explaining the behavior of investment over time 1 although many of these studies have considered the implications of tax policy for investment in an uncertain world most have also implicitly assumed that the tax policy itself does not contribute to the uncertainty the problem is that tax policy can be very uncertain in many cases 2 and to date we know little about the consequences especially from an empirical standpoint more generally empirical evaluations of uncertainty and investment are very limited compared with the development of theoretical analyses calcagnini and saltari 2000 and the case of tax uncertainty is no exception this article sets out to fill part of the intellectual void by empirically investigating the impact of volatility in effective tax rates on investment in a cross section of countries namely the 15 countries of the european union eu the united states and japan in doing so i first estimate tax rate volatility using an arch specification with data on effective capital tax rates i then provide panel regression results using the system generalized method of moments gmm sys estimator of arellano and bover 1995 see also blundell and bond 1998 which suggest that the volatility of effective tax rates on capital have a significant negative impact on investment per worker in these countries the remainder of the article proceeds as follows section ii briefly reviews the existing literature on tax policy uncertainty and investment as well as existing empirical studies of uncertainty in general and investment section iii develops the empirical model i employ to estimate the relationship between tax volatility and investment section iv then presents an analysis of effective tax rates in the eu countries the united states and japan followed by a discussion of the data and econometric issues in section v and an examination of the effects of tax rate volatility on investment in section vi section vii provides concluding remarks ii theoretical foundations tax policy uncertainty and investment although most of the voluminous literature on tax policy and investment under uncertainty ignores observed randomness in tax policy a recent set of literature has begun to explore these issues in some detail mostly through simulation 3 the basic premise underlying these studies is that because output price uncertainty tends to retard investment pindyck 1988 4 tax uncertainty might be expected to harm investment as well hassett and metcalf 1999 further credence to a negative relationship between tax uncertainty and investment is given by the business community s mantra that they cannot make plans if they don t have confidence in the tax structure bizer and judd 1989 223 these simulation studies however demonstrate that the impact of tax uncertainty depends crucially on the source and nature of the uncertainty contrary perhaps to conventional wisdom in some cases increased uncertainty can be shown to have positive effects on investment growth or welfare bizer and judd 1989 simulate the economic effects of introducing random tax policy in a dynamic general equilibrium model they find that if random tax rates or credits are serially correlated the target capital stock falls when taxes are high and rises when taxes are low their more interesting case considers independently and identically distributed random tax shocks in this case the authors find that randomness in investment tax credits generates large fluctuations in investment which have the effect of reducing both utility and production because both are concave functions as well revenue 5 they find that variance in future tax rates however is not important for long term investments and in fact raises nontrivial mounts of revenue at a welfare cost that is never more than the cost associated with raising an equivalent amount of revenue with a permanent increase in a deterministic tax rate

terms of trade shocks in africa are they short lived or long lived abstract this paper examines the persistence of shocks to the terms of trade using annual data on 42 sub saharan african countries for the period 1960 96 instead of using unit root tests to distinguish between stationary and random walk processes for the terms of trade this paper characterizes the persistence of shocks using point and interval estimates of the half lives of terms of trade shocks using median unbiased mu estimation techniques that remove the downward bias of standard least squares ls estimators we find that the cross country average of the half lives of terms of trade shocks is about 6 years it is also found that the estimated persistence of african terms of trade shocks varies widely for about one half of the countries their half lives are short lived less than 4 years while for one third of the countries their half lives are long lived permanent the majority of african countries are found to have terms of trade that typically experience finitely persistent transitory shocks which is consistent with the reversion of terms of trade to their long run trends

capital market imperfections and financialization of real sectors in emerging markets private investment and cash flow relationship revisited summary the paper analyzes the impacts of cash flow from multiple investments in real and financial sectors on the new fixed investment spending of real sector firms the empirical results based on the euler equation approach and semi annual firm level data from two major emerging markets mexico and turkey suggest that profits and rates of returns from fixed and financial assets have differential effects on fixed investment spending of real sector firms accordingly increasing availability and accessibility of alternative investment opportunities in financial markets can become instrumental in channeling real sector savings to short term financial investments instead of long term fixed capital formation and thus lead to deindustrialization

external and budget deficits in some developing countries abstract this paper documents and explains the positive comovement between the external and budget deficits of developing countries for which post 1960 time series data are available first the estimates indicate that the empirical covariance between these deficits is always positive and is statistically significant for many cases second the empirical covariance is close to that predicted from a tractable small open economy overlapping generation model with heterogeneous goods capturing the joint behavior of the external and budget deficits also the predicted covariance is induced by shocks which are closely related to internal conditions such as domestic resources and fiscal policies and to a much lesser extent to external conditions such as the world interest rate real exchange rate and terms of trade

the relationship between employment and investment theoretical aspects and empirical evidence for italy the relationship between employment and investment activity in italy over the 1970 86 period is studied a theoretical model is used showing that the overall effect of ivestment on employment can either be positive or negative depending on the relative strength of three individual components of such global effect an empirical investigation which aims to look for a causal impact of investment activity on the employment rate is then undertaken the results of stationarity tests on our time series show that a distinction is made between short run and long run considerations in the case of the industry sector hence cointegration and causality analysis for this sector was performed in the case of the other sectors an regions we have to content ourselves with only the cyclical dimension of the series

the rise in unemployment a multi country study one of the most remarkable features of recent economic history has been the remorseless rise in unemployment throughout the industrialized countries however while the trend to higher unemployment is universal the experience of individual countries also differs widely the increase is especially marked within the european community where unemployment rates rival those reached in the interwar years by contrast in the scandinavian countries and japan unemployment is lower and has risen very much less experience in the united states lies somewhere between these extremes and in the last few years unemployment there has fallen sharply

aggregate uncertainty investment and asymmetric adjustment in the uk manufacturing sector theory suggests that the level of uncertainty facing firms should affect both the rate of adjustment to and the steady state level of investment although there is ambiguity about the sign of the effect a non linear model of investment behaviour incorporating time varying adjustment speeds with threshold effects is estimated for the uk manufacturing sector the most general non linear specification is found to be most congruent with the data uncertainty has a large and significant effect on both levels and rates of adjustment

investment and conditional uncertainty the role of market power irreversibility and returns to scale abstract market power irreversibility and returns to scale decisively determine how uncertainty affects investment we empirically show that this relationship is positive when deviations from the neoclassical paradigm are absent as frictions are introduced the positive sign gradually dies out and turns negative

what s to know about laboratory experimentation in economics abstract experimental economics has grown as a discipline from near non existence 50 years ago to a full fledged field within economics in the present much of experimental economics research involves experimental methods as a tool applied to problems in other fields of economics however some of this research is inward looking focusing on questions of the methodology of experimental economics in this note i briefly discuss two methodological issues in experimental economics that might benefit from meta analysis the pool from which experimental participants are drawn university undergraduate students versus other populations and the scale of monetary incentives faced by participants large small or hypothetical

the determinants of investment in greek manufacturing an attempt is made to provide some insight into the determinants of manufaturing investment in greece for this purpose an accelerator relative costs profits model is used and both the putty putty and putty clay versions are examined estimates reveal that demand and profits factors play an important role in investment decision while the impact of relative inputs cost is significant mainly in the short run window regression experiments show that there is a dramatic fall in profits elasticity of investment and a corresponding increase in the significance of demend factor in the later periods

corporate investment and bank dependent borrowers during the recent financial crisis abstract we use the recent financial crisis period to analyse the effect of bank credit tightening on firm investment we derive a new set of credit tightening indexes from the ecb bank lending survey combining these with annual balance sheet data from germany france italy spain belgium and portugal we exploit the heterogeneity in the dependence on bank finance of different industries to identify real effects of credit tightening we show that in response to tightening investment falls substantially more in bank dependent industries

restructuring of firms in transition ownership institutions and openness to trade we develop a theoretical framework for defensive and strategic restructuring and provide estimates of restructuring in privatized firms in an advanced transition economy slovenia our rich data point to both types of restructuring as well credit rationing and bargaining with respect to investment privatized firms display profit maximizing behavior and a firm s export orientation and institutional features such as insider vs outsider privatization employee ownership and employee control do not affect the firm s employment and investment behavior the results suggest that a major exposure to world competition induces similar economic behavior in firms with different structural and institutional characteristics

capital shortages and persistent unemployment capital shortage charles bean over the last 10 years the rate of investment has been depressed throughout the european community some people believe that as a result there is insufficient capacity to absorb the unemployed in the event of a recovery in real demand i estimate the size of this capital gap and find that investment may need to rise by as much as 20 above the levels experienced during the first half of the 1980s however this represents no more than a return to the investment rates of the early 1970s furthermore firms will respond to capital shortages by installing new capital provided it is profitable thus the required resurgence in investment will arise automatically so that capacity shortages are likely to be a temporary phenomenon at worst the real obstacles to a rapid return to full employment lie elsewhere paticularly in the labour market the presence of such transient capacity shortages during any sustained recovery does not by itself justify policy measures discriminating in favour of investment for there is no obvious market failure involved however a sustained recovery will almost certainly be associated with a significant spurt in investment it is quite appropriate for this to be financed by borrowing from abroad so governments should be willing to see a deterioration in their current accounts and should not adopt deflationary macroeconomic policies to restrain demand

optimal taxation with private government information the ramsey model of fiscal policy implies that taxes should be smooth in the sense of having small variances in contrast empirical labour tax processes are smooth in the sense of being random walks they provide prima facie evidence for incomplete government insurance this paper considers whether private government information might lie behind such incomplete insurance it shows that optimal incentive compatible policies exhibit limited use of state contingent debt and greater persistence in taxes and debt and it argues that they are better approximations to empirical fiscal policies than those implied by the ramsey model the paper also establishes that optimal incentive compatible allocations converge to allocations such that the government s incentive compatibility constraint no longer binds generally these limiting allocations are ones in which the government is maximally indebted their credibility and the interaction of incentive compatibility and credibility is briefly discussed

how does trade openness influence budget deficits in developing countries abstract this paper analyses the effects of trade openness on budget balances by distinguishing the effects of natural openness from those of trade policy revealed indicators of natural openness and trade policy are computed using gmm system estimator the econometric analysis focuses on 66 developing countries over 1974 98 the results show that trade openness increases a country s exposure to external shocks this enforces the negative impact on budget balances of terms of trade instability additionally trade openness influences budget balances through several other channels corruption income inequalities etc then natural openness and trade policy have opposite effects the former deteriorates budget balances whereas the latter enhances them

what do deficits tell us about debt empirical evidence on creative accounting with fiscal rules in the eu fiscal rules such as the excessive deficit procedure and the stability and growth pact sgp aim at constraining government behavior milesi ferretti 2003 develops a model in which governments circumvent such rules by reverting to creative accounting the amount of this depends on the reputation cost for the government and the economic cost of sticking to the rule we provide empirical evidence of creative accounting in the european union we find that the sgp rules have induced governments to use stock flow adjustments a form of creative accounting to hide deficits the tendency to substitute stock flow adjustments for budget deficits is especially strong for the cyclical component of the deficit as in times of recession the cost of reducing the deficit is particularly large

charles k rowley william f shughart ii and robert d tollison eds the economics of budget deficits the international library of critical writings in economics 153 ed by mark blaug cheltenham u k and northampton ma u s a edward elgar 2002 2 vols 1 112 pages usd 370 00 gbp 245 00 cloth

commodity prices and growth in africa a frican economies export primary commodities and most export little else policymakers as well as economists and historians of african economic development have seen these exports as both a hope and a curse the following parable tells the story once upon a time a servant of the ruler discovered a miraculous plant which grew readily in that country and whose seeds could be woven into fine cloth so desirable was this fabric that it became prized all over the world and fetched a high price after two score years the plant accounted for most of the country s trade with the world the ruler ordered the peasants to grow the plant paid them only a fraction of its price and he and his nobles became fabulously wealthy because the ruler wished to be remembered as a great ruler and as the father of his country he used his wealth to build a great army and brought machines from foreign countries to make the fine goods that previously could only be obtained from foreign merchants but the machines often broke down and the goods that they made were of poor quality and after the ruler died they were left to rust under the ruler s successor there was a war in a foreign land where the plant also grew so that there was a great shortage and its price increased threefold in only three seasons the new ruler spent his newfound riches on fantastic extravagance while immense sums were expended on public works after the manner of the east and on productive works carried out in the wrong way or too soon not even the threefold increase in prices could support these expenditures and the country soon found itself deeply in debt when the war ended and the price fell the country could no longer pay the interest on its debt or borrow more money even after it had sold its only useful public work to a foreign power so that power sent a mission to the country the publication of whose report from which the above

an empirical analysis of excess interbank liquidity a case study of pakistan we investigate the drivers of excess interbank liquidity in pakistan using the autoregressive distributed lag approach on weekly data for december 2005 to july 2011 we find that the financing of the government budget deficit by the central bank and nonbanks leads to persistence in excess liquidity moreover we identify a structural shift in the interbank market in june 2008 before june 2008 low credit demand was driving the excess liquidity holdings by banks after june 2008 banks precautionary investments in risk free securities drive excess liquidity holdings monetary policy is less effective if banks hold excess liquidity for precautionary reasons

user cost elasticity of capital revisited researchers still lack consensus about the size of the user cost elasticity of capital the divergence in prior estimates may have arisen because one of the two strands of research has neglected cointegration among capital its user costs and sales using german firm level panel data i show that estimating a distributed lag model prevalent in prior literature leads to low estimates of the user cost elasticity properly accounting for cointegration in an error correction model yields a much larger point estimate of the price elasticity of capital close to 1 non random sample attrition is found to be relatively unimportant

defining the government s debt and deficit defining the government s debt and deficit although the budget deficit and the public debt feature prominently in political debate and economic research there is no agreement about how they should be measured they can be defined for different sets of public institutions including the nested sets corresponding to central government general government and the public sector and for any definition of government there are many measures of the debt and deficit including those generated by four kinds of accounts cash financial full accrual and comprehensive which can be derived from four nested sets of assets and liabilities each debt and deficit measure says something about public finances but none tells the whole story each is also vulnerable to manipulation and is likely to be manipulated if it is subject to a binding fiscal rule or target narrow definitions of government encourage the shifting of spending to entities outside the defined perimeter of government narrow definitions of debt and deficit encourage operations involving off balance sheets assets and liabilities while broad measures are susceptible to the mismeasurement of on balance sheet assets and liabilities reviewing the literature on these issues the paper concludes that governments should publish several measures of the debt and deficit in a form that clearly reveals their interrelationships

interrelated factor demands for manufacturing a dynamic translog cost function approach abstract in this paper we report the results of estimating a joint model for labour capital and energy using the transcendental logarithmic cost function of christensen jorgenson and lau 1973 this allows us to determine both the own price and cross elasticities of substitution between labour capital and energy we combine a model of factor shares with a dynamic adjustment process for each factor we also impose on the cross equation restrictions necessary to provide additivity homogeneity and symmetry since the covariance matrix in systems of share relationships is singular we follow the suggestions of anderson and blundell 1982 and employ a mullivariate error corrrection model the results suggest that additivity symmetry and homogeneity restrictions do hold and that there are short run increasing returns to scale

what drives private saving around the world the authors investigate the policy and non policy factors behind saving disparities using a large panel data set and an encompassing approach including several relevant determinants of private saving they extend the literature in several dimensions by 1 using the largest data set on aggregate saving assembled to date 2 using panel instrumental variable techniques to correct for endogeneity and heterogeneity 3 performing robustness checks on changes in estimation procedures data samples and model specification their main empirical findings a private saving rates show considerable inertia are highly serially correlated even after controlling for other relevant factors b private sector rates rise with the level and growth rate of real per capita income so policies that spur development are in indirect but effective way to raise private saving rates c predictions of the life cycle hypothesis are supported in that dependency ratios generally have a negative effect on private saving rates d the precautionary motive for saving is supported by the finding that inflation conventionally taken as a summary measure of macroeconomic volatility has a positive impact on private saving holding other facts constant e fiscal policy is a moderately effective tool for raising national saving f the direct effect of financial liberalization are largely detrimental to private saving rates greater availability of credit reduces the private saving rate financial depth and higher real interest rates do not increase saving

the influence of uncertainty on uk manufacturing investment this paper reports the results of including proxies for growth and inflation uncertainty in an accelerator style investment equation set up in error correction form for u k manufacturing plant and machinery expenditure the uncertainty proxies are constructed as cross section dispersion indices of independent economic forecasts the results confirm the importance of output growth uncertainty as a negative determinant of capital formation inflation uncertainty was found to have a short run influence only copyright 1991 by royal economic society