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Various second-best policy mixes of investment measures and environmental taxes for a polluted, small open economy with foreign capital and immovable trade restrictions are examined. The optimal policy mix depends on the types of trade restrictions. When tariffs are in place, strict policies of pollution taxes and export requirements are optimal for alleviating tariff-induced consumption and production distortions. When involuntary quotas are used in lieu of tariffs, however, the optimal policy mix is a zero export requirement and Pigouvian taxes on pollution. For the case of VERs, however, the optimal policy demands export requirements and a less stringent pollution tax.

Excise taxes are popular as regulatory policy. This popularity stems in part from their simple disincentive mechanism: higher prices mean less consumption of the regulated item. The size of the disincentive, however, may not be the whole story since governments rarely regulate without sending signals about why the regulation is necessary. This paper integrates signaling into a model designed to test the effectiveness of regulatory policies. By focusing on how signaling can be used in conjunction with more traditional policy analysis models, we offer a more complete understanding of regulation.

Past research on budgeting has ignored the existence of an equilibrating tendency in U.S. federal revenues and expenditures through time. Using time series error-correction models, show the existence of such an equilibrating tendency in federal budgets from 1904 to 1996, and theorize that it is due to the balanced-budget norm. Time-varying parameter estimation methods are then used to reveal substantial variations in the strength of the equilibrating tendency through time. Descriptive evidence from the time-varying coefficients shows that the equilibrating tendency in the federal budget was actually weaker prior to the Great Depression and the acceptance of Keynesian principles. There is little evidence of temporal change in the equilibrating tendency in the modern era due to partisanship or divided government. The results suggest that the balanced budget force is important in changing federal revenues and expenditures, but in a manner more complex than has been suggested by facile theories of the past.

Government expenditure on public inputs such as human capital formation and public infrastructure can significantly affect productivity. An interesting and highly relevant policy question is whether such expenditure should be financed according to the benefit-taxation principle. Focusing on factor-augmenting public inputs, in this paper we derive the specification of the appropriate set of benefit taxes. Rather than fall on industries according to the degree to which the public input increases their productivities, these taxes must take the form of differential taxes on factor incomes.

In an attempt to answer the question of how the introduction of policy alters incentives in the political process, the authors present a dynamic model which shows how political failure comes from lack of support from voters for policies that provide temporary efficiency benefits, believing that they will persist after they have been implemented.

An examination of the growth patterns of developing countries shows that most poor countries are falling far behind economically. However, it is also shown that a number of developing countries have bucked this trend and have experienced steady growth during the 1960-1990 period. They tend to be countries with macroeconomic stability and well-crafted economic policies such as the countries of East Asia. Strong educational systems and capital investments have also helped these faster-growing countries. Most Third World countries, however, remain poor and face uncertain economic futures.

Governmental constraints on the financial sector was shown to be the limiting factor that determines the average productivity of capital in five South East Asian economies. This factor, coupled with market imperfections and asymmetric information, can result in market failure in the extreme or a loss of confidence in the country's financial infrastructure. The governmental constraints take the form of control in the interest rate, credit programs and reserve and liquidity requirements.

One of Adam Smith's major contributions was the development of a theory of order that demonstrated the possibility of beneficial outcomes emerging from the independent contributions of many individuals pursuing [...]

In this note, we reexamine an anomaly that appeared in estimates of the post-1973 textbook Keynesian consumption function as first reported in this journal by Shapiro (1988). The anomaly is the nearly unit value of the marginal propensity to consume and the significant negative intercept term obtained in post-1973 estimates. This result is contrary to the earlier estimates of the Keynesian consumption function and to the traditional Keynesian assumptions. We consider the possibility that the anomaly is due to omitted variable bias. By incorporating variables like the real rate of interest, the expected rate of inflation, and lagged wealth, the anomaly disappears. These variables have thus assumed more importance in explaining consumption as the U.S. economy became more volatile in the early 1970s., In the Spring, 1988 issue of this journal, Edward Shapiro observed that estimates of the short run textbook Keynesian consumption function utilizing post-1973 data are radically different from those which [...]

This article investigates whether the Chilean banking reforms of the 1980s have contributed to reducing market imperfections in Chilean financial markets in the late 1980 and early 1990s. To analyse this issue, patterns of investment and its finance for different types of firms are studied based on balance sheet information of a panel of 70 firms. The most important conclusion is that those specific reforms, aimed at reducing intraconglomerate lending, seem to have been successful, since access of non-conglomerate firms has increased indicating a reduction of existing market imperfections for such firms., In recent years, a large body of empirical literature has investigated the impact of information problems in financial markets on investment decisions of firms in developed countries [Fazzari, Hubbard and [...]

Byline: David E. Wildasin (1) Author Affiliation: (1) Department of Economics, Vanderbilt University, Nashville, TN, 37235, U.S.A Article History: Registration Date: 30/09/2004

A theory of endogenous ideology formation is described to examine for differences in state economic intervention levels and economic policy formation in a sample of former colonies. Analysis of the theory reveals the presence of an empirical relationship between state economic intervention and colonialism. However, no significant relationship is found between government intervention and structural variables included in economic policy formation such as land area, total and per capita gross domestic product and population.

The effects of economic reforms on the productivity of the food manufacturing industry in Bangladesh are studied. Results show that capacity realization in some firms improved following economic reforms affecting the convertibility of the currency, foreign investment and trade. It also argued that a significant amount of unrealized productive capacity in the food industry can be eliminated with additional reforms.

The hypothetical firm approach is proposed as the best method for measuring tax and other economic incentives used in studies of local and state economic development policy. This method overcomes several problems associated with calculating aggregate tax burden, counting programs and measuring total expenditures. The development of the hypothetical firm method and the results of tax comparison studies are described. The major assumptions are also presented with empirical estimates of the sensitivity of results to the assumptions., INTRODUCTION A great deal of research has been conducted over the past two decades on state and local government economic development policy, particularly the use of taxes and incentives to [...]

The consequences of monetary policy and currency devaluation in different economies are determined by the measure of unionization and openness of the various sectors. This analysis was based on two-sector economy, which is classified as classical/Keynesian in the labor market and traded/nontraded in the product market. Authorities must regard the essential characteristics of the different sectors in the economy prior to the framing policies.

This paper examines the 1994 inflation in China, which occurred at a time when the government was vigorously conducting macroeconomic contraction. The event deserves more attention for both academic and policy research reasons. The paper shows that the inflation was led by food price increases, a step of price reform intended to adjust relative price ratios to the equilibrium level. The nature of the inflation was structural rather than monetary. This kind of structural inflation is common in transitional economies. Indeed, it largely characterizes chronic price increases that have occurred in such countries. A proper monetary policy curbing inflation should take into account the structural factor. Monetary growth should be targeted to the extent that it accommodates structural adjustment but does not cause pure monetary inflation., I. INTRODUCTION As compared with other former socialist countries in transition, China has done extremely well in maintaining price stability and achieving strong economic momentum. The economy on average grew [...]

Countries face an ongoing need for fiscal adjustment and economic reform - adjustment and reforms that involve short-term transition costs. Thus economic agents, depending on their time preference for present consumption or on the level of economic populism in a given society, will postpone the required measures. On the other hand, if the corrective measures are not adopted, after a certain lapse of time procrastination costs arise. The net transition costs of adjustment and reform are the difference between these two costs: they may explain the timing of reform. If adjustment and reform is undertaken soon after economic distortions appear, the net transition costs will be high, but, as a tradeoff, recovery will come sooner. As economic agents show a greater preference for present consumption, they will postpone adjustment and reform. Then, the procrastination costs will start to rise. This trend may reach a point where the cost curve of adjustment and reform cross the procrastination cost curve. At this point net transition costs turn negative, so that even for the more populist economic agents that give full preference for present consumption, it becomes rational to adjust and reform. Key words - transition costs, adjustment, reform, procrastination, timing, time preference

The shift in the Mexican government's industrial policy from import substitution to foreign investment for export production is examined using a household-level analysis of industrial workers from various factory regimes. Results show the significant role played by gender restructuring in the said shift. Company-provided single-sex communities were transformed into extended family households. Moreover, a relationship have been found to exist between production regimes and gender relations.

A mathematical model was developed to find the basis of the decision by the Federal Reserve's Open Market Committee (FOMC) to tighten its monetary policy in 1994. OLS regressions and Vector Auto Regressive modeling were performed on data representing various economic indicators. Results of the modeling showed the FOMC's decision to tighten its monetary policy was based on an anticipated incidence of inflation rather than on an actual condition of inflation.

The transformation from centrally planned economies to market-based economies appears to be a complicated process. Much attention has been paid to such macroeconomic aspects as price liberalization, stabilization, and privatization. [...]

The long-term impact of economic development policies that encourage additional firm activity on resident welfare is examined through a comparative static analysis of a closed, urban economy with an explicit labor market. The significance of this study is underscored by the increasing interest on such programs as enterprise zones which aim to remove or reduce central city poverty via urban economic growth and revitalization. Analysis shows that these policies do not necessarily increase resident welfare due to the competition for land between firms and households. Nevertheless, findings demonstrate that income transfer do improve resident welfare. It should be noted that these results are based on the assumption that an urban economy is efficient.

A model for the investigation of the effects of growth on economic policy, particularly redistributive taxation, is developed. The impact of changes in the growth rate and in many other variables on the outcome of a political process that determines taxes and transfers is examined. Results reveal that redistribution will be the option of more rapidly growing economies, depending on risk aversion. Lower taxes in faster-growing economies are also predicted.

This paper analyses and forecasts annual time series of aggregate real income per head in the US. The approach integrates elements from recent univariate time series analyses with multi-equation macromodels in which policy feedback rules have been endogenized. The main conclusions are as follows. Firstly, aggregate real per capita income is subject to significant trend reversion. This conclusion comes through more clearly by examining the data at an annual rather than the more usual quarterly frequency and by incorporating multivariate economic content in the income process. Secondly, there is significant evidence for the Lucas (1976) or Haavelmo (1944) critique: in the US there appears to have been a shift in the structural macropolicy reaction function causing a corresponding shift in the reduced form income forecasting equation. This is associated with increased concern in the late 1980's over the size of US budget deficits. Thirdly, with the above proviso, useful real income forecasts can be made as far as three years ahead. Finally, the paper provides empirical evidence for the effectiveness of monetary policy on real output or income. The change in the short-term interest rate is highly significant in forecasting income growth up to three years after the change., The accuracy of estimates of US annual real per capita aggregate income is examined using indices of disequilibrium and macro-policy feedbacks. The policy variables used include changes in short-term interest rates and the ratio of government surplus to GDP. Disequilibrium indices include unemployment rates and trade deficit ratios. Results indicate that the three-year accuracy of the US income forecasting equation can be improved with a small number of ancillary equations.

This paper explores the effect of policy variability (or frequency of regime switching) on economic growth and welfare. We study a one-sector growth model where investment can be subsidized at either a positive rate or not subsidized at all. We find that the lack of persistence in policies per se need not be welfare reducing and that it is likely to decrease growth. Higher variability implies more frequent changes in consumption and investment. But, by creating a stronger intertemporal link across regimes, variability reduces the fluctuation in investment rates, thus decreasing the magnitude of changes in consumption and increasing welfare.

We analyze market impediments to the process of structural adjustment. We focus on incomplete contract inefficiencies in the transactions between workers and firms that render the quasi-rents from 'specific' investment appropriable. During adjustment, the result is a depressed rate of creation of the new productive structure and excessive destruction of the old one, leading to an employment crisis. Moreover, appropriability weakens the incentives for extensive restructuring, and results in a 'sclerotic' productive structure. An adequate managed adjustment program ought to combine vigorous creation incentives in the expanding sector with measures to support employment in the contracting one. In contrast, the common prescription of gradualism does not act as an effective 'synchronizer' of creation and destruction, for it can only reduce destruction by also reducing an already depressed creation rate. Keywords: Structural adjustment; Appropriability; Creation and destruction; Sclerosis; Gradualism; Managed adjustment

A Keynes-Wicksell-type descriptive dynamic macroeconomic model that incorporates financial, labor, and goods markets is formulated. Five differential equations make up the general model's dynamics. Two- and three-dimensional subcases are analyzed to demonstrate the existence of monetary and real cycles. Numerical simulation is used to examine the model's dynamics and the impact of government monetary and fiscal policies.

The Rhenish model economy, which works within the framework of longterm relations between shareholders and employees, has a successful history in Austria, Germany, Switzerland, the Benelux countries, Japan and Scandinavia. The model's contractual framework promotes social values such as fairness, mutualisation of risks, and trust. However, the Rhenish model has to be adjusted due to challenges posed by the globalization of world economy. If the scope of economic activities reduces under Rhenish economy, the homogeneity of its contractual pattern may weaken.

This paper analyzes Poland's economic performance following the introduction of shock therapy as compared to China's performance under its transformation policies. Both nation's economic policies are evaluated within the context of the goals, perceptions and performance criteria selected by Polish policymakers. Evidence indicates that shock therapy had mixed results and that ideology has influenced previous analyses of such policies. Since China's performance based upon the same criteria has been no less favorable, lessons from its transformation experience deserve attention from Central and East European policymakers comparable to that given Poland.

Since 1988, Nicaragua has applied structural adjustment programs, including stabilization and liberalization measures. As of 1991, these measures succeeded in combating inflation but they did not lead to increased production, nor to an improved trade balance. The Nicaraguan manufacturing sector was especially vulnerable because of a decade-long lack of investment and the non-market environment in which firms operated in the 1980s. The combination of trade liberalization with an overvalued exchange rate, and financial liberalization had, in particular, negative effects on manufacturing production and investment. In addition, specific industrial policies are necessary to increase manufacturing competitiveness.

Study results suggest that, in order to improve domestic output and employment, foreign aid increases need to be combined with suitable, expansionary, domestic demand policies. 'Too much' foreign aid, by depressing an economy's demand level below its potential supply capacity, can have a negative impact on aggregate domestic demand. Even in cases of positive influence, the use of aid to stimulate demand can be wasteful.

A modified transition model is used to evaluate the monetary and financial factors that affect economic transitions. Data on countries belong to the former Soviet Union show that successful transition is negatively affected by the absence of effective tax systems and financial intermediaries and reliance on seigniorage. Although strict monetary policy and selective taxation can help control high inflation and induce effective transition, its unreasonable speed can also lead to its failure.

Economic policy reform requires an extensive analysis of the current political conditions and the reform's possible implications. Economists should collaborate with political scientists and apply appropriate analytical models for an in-depth study of economic and political policies. Moreover, the nearsightedness of political policies should be identified and avoided to prevent the conflict between the reforms and political interests which could defeat the reform's purpose of providing public good.