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This paper overviews different exit strategies for the U.S. from the debt-overhang, and analyses their implications for emerging markets and global stability. These strategies are discussed in the context of the debates about secular-stagnation versus debt-overhang, the fiscal theory of the price level, the size of fiscal multipliers, prospects for a multipolar currency system, and historical case studies. We conclude that the reallocation of U.S. fiscal efforts towards infrastructure investment aiming at boosting growth, followed by a gradual tax increase, aiming at reaching a modest primary fiscal surplus over time are akin to an upfront investment in greater long-term global stability. Such a trajectory may solidify the viability and credibility of the U.S. dollar as a global anchor, thereby stabilizing Emerging Markets economies and global growth. [ABSTRACT FROM AUTHOR]

The global crisis highlights the continued vulnerability of developing countries to shocks from advanced economies. Just a few years after the global crisis, the eurozone sovereign debt crisis has emerged as the single biggest threat to the global outlook. In this paper, we apply the event study methodology to gauge the scope for financial contagion from the EU to developing countries. More specifically, we estimate the responsiveness of equity and bond markets in developing countries to global crisis period and eurozone crisis news. Overall, we find that whereas global crisis period had a consistently negative effect on returns of equity and bond markets in developing countries, the effect of eurozone crisis news was more mixed and limited. [ABSTRACT FROM AUTHOR]

Abstract: We examine how financial cycles affect the broader economy through their impact on real economic sectors in a panel of countries over 1960–2005. Periods of accelerated growth of the financial sector are more likely to be followed by abrupt financial contractions than are periods of slower financial sector growth. Sharp fluctuations in the financial sector have strongly asymmetric effects, with the majority of real sectors adversely affected by contractions, but not helped by expansions. The adverse effects of financial contractions are transmitted almost exclusively through the financial openness channel, with precautionary foreign exchange reserve holdings serving as a key buffer. [Copyright &y& Elsevier]

Purpose – The purpose of this paper is to investigate the factors which affect the market for international venture capital (VC) investments, relying on comprehensive deal-level data sources, covering three decades and about 100 countries. Design/methodology/approach – A gravity analysis indicates that distance, common language, and colonial ties may have been significant factors in directing these flows. Findings – The paper documents major shifts in the nature of international flows. The presence of high-end human capital, a better business environment, military expenditure, and deeper financial markets are important local factors that appear to attract international VC. There is some evidence indicating network effects and/or fixed costs of entry may be at work. France, Israel, Canada, India and China were consistent net importers of VC deals, with China emerging as the largest net importer of VC. Originality/value – The paper investigates the increasing internationalization of VC investments in recent years and assesses the factors which determine the destination of cross-border VC investment flows. [ABSTRACT FROM AUTHOR]

Summary: We investigate inflation targeting (IT) in emerging markets, focusing on the role of the real exchange rate and the distinction between commodity and non-commodity exporters. IT emerging markets appear to follow a “mixed strategy” whereby both inflation and real exchange rates are important determinants of policy interest rates. The response to real exchange rates, however, is more constrained than in non-IT regimes. We also find that the response to real exchange rates is strongest in those countries following IT policies that are relatively intensive in exporting basic commodities; and present a theoretical model that explains these empirical results. [ABSTRACT FROM AUTHOR]

This paper evaluates the impact of globalisation on tax bases of countries at varying stages of development. We see globalisation as a process that induces countries to embrace greater trade and financial integration. This in turn should shift their tax revenue from 'easy to collect' taxes (tariffs and seigniorage) towards 'hard to collect' taxes (value added and income taxes). We find that trade and financial openness have a positive association with the 'hard to collect' taxes, and a negative association with the easy to collect taxes. [ABSTRACT FROM AUTHOR]

This paper evaluates the political economy and structural factors explaining the collection efficiency of the Value Added Tax (VAT), where the collection efficiency is determined by the probability of audit and by the penalty on underpaying, and implementation lags imply that the present policy maker determines the efficiency of the tax system next period. Theory suggests that the collection efficiency is affected by political economy considerations - greater polarization and political instability would reduce the efficiency of the tax collection, and collection is impacted by structural factors affecting the ease of tax evasion (such as urbanization, agriculture share, openness). We evaluate the VAT collection efficiency (VAT revenue over the aggregate consumption divided by the standard VAT rate) in a panel of 44 countries over 1970-99. A one standard deviation increase in durability of political regime, and in the ease and fluidity of political participation, increases the VAT collection efficiency by 3.1% and 3.6%, respectively. A one standard deviation increase in urbanization, trade openness and the share of agriculture, changes the VAT collection efficiency by 12.7%, 3.9% and -4.8%, respectively. Qualitatively identical results apply for the ratio of VAT revenue to GDP divided by the standard VAT. [ABSTRACT FROM AUTHOR]

This paper clarifies one of the puzzling results of the economic growth literature: the impact of military expenditure is frequently found to be non-significant or negative, yet most countries spend a large fraction of their GDP on defense and the military. We start by empirical evaluation of the non-linear interactions between military expenditure, external threats, corruption, and other relevant controls. While growth falls with higher levels of military spending, given the values of the other independent variables, we show that military expenditure in the presence of threats increases growth. We explain the presence of these non-linearities in an extended version of Barro and Sala-i-Martin (1995), allowing the dependence of growth on the severity of external threats, and on the effective military expenditure associated with these threats. [ABSTRACT FROM AUTHOR]

This paper studies the patterns of optimal tax rates and borrowing in a developing country characterized by a costly tax collection. Its access to the international credit market is determined by the efficiency of the tax system, the relative bargaining power of creditors, and the outstanding debt. Country risk modifies considerably the pattern of taxes and borrowing in recessions. The tax rate exhibits strong counter-cyclical patterns in economies operating close to the credit ceiling, whereas the tax rate exhibits very few cyclical patterns in economies operating on the elastic portion of the supply of credit, where country risk factors are absent. [ABSTRACT FROM AUTHOR]

Provides information on an interpretation of contagion effects as an increase in the volatility of shocks on the economy, focusing on the Mexico peso crisis of December 1994. Details on Argentina's economic crisis; Information on financial output and the credit market; Significance of the crisis to financial markets around the world.

This article highlights economic factors determining the choice of technology and openness in an intertemporal context in the presence of institutional constraints in the labour market. It considers the case in which a 'more aggressive' development strategy involves an investment in a modern technology. This technology raises the degree to which real wages and productivity depend on external factors while at the same time it also raises the expected value of real income. In the absence of such investment, production takes place in a traditional sector, using a technology that limits exposure to external shocks. The analysis evaluates the dependence of the choice of technology on the volatility of the shocks affecting the economy, the expected productivity gains, the investment cost associated with the modern technology, and the attitude towards risk. The dependence of openness, investment, and real wages on the attitude towards risk is derived for such an economy. The analysis also discusses the interaction between the institutional structure of the labour market and the use of protective measures that attempt to reduce exposure to external shocks. [ABSTRACT FROM AUTHOR]