nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒01‒29
thirty-two papers chosen by
Peren Arin
Massey University

  1. The Subsidiarity Bias in Regulation By Jean-Jacques Laffont; Jerome Pouyet
  2. Labour and Product Market Reforms in the Economy with Distortionary Taxation By Bokan, Nikola; Hughes Hallett, Andrew
  3. Price Differentials in Monetary Unions: The Role of Fiscal Shocks By Fabio Canova; Evi Pappa
  4. The elusive costs and the immaterial gains of fiscal contraints By Fabio Canova; Evi Pappa
  5. Top Incomes and Top Taxes in Germany By Stefan Bach; Giacomo Corneo; Viktor Steiner
  6. Rent-Seeking Competition from State Coffers: A Calibrated DSGE Model of the Euro Area By Konstantinos Angelopoulos; Apostolis Philippopoulos; Vanghelis Vassilatos
  7. Artificial Time Inconsistency as a Remedy for the Race to the Bottom By Alfons Weichenrieder; Oliver Busch
  8. Optimum Taxation of Life Annuities By Johann K. Brunner; Susanne Pech
  9. Fiscal federalism in big developing countries: China and India By Fraschini, Angela
  10. Wage Bargaining and Political Strength in the Public Sector By Torberg Falch; Bjarne Strøm
  11. The Political Economy of Intergenerational Cooperation By Alessandro Cigno
  12. Long-Term Public Debt and the Fiscal Theory of the Price Level By Bloise, Gaetano; Reichlin, Pietro
  13. The Evolution of Public Spending on Higher Education in a Democracy By Alexander Haupt
  14. Taxation in Europe: towards more competition or more co-ordination By Henri Sterdiyniak
  15. Explaining Open Source By Markku Stenborg
  16. International Capital Market Integration, Educational Choice and Economic Growth By Hartmut Egger; Peter Egger; Josef Falkinger; Volker Grossmann
  17. Do Consumers Buy Less of a Taxed Good? By Hans Jarle Kind; Marko Köthenbürger; Guttorm Schjelderup
  18. Political Competition and Convergence to Fundamentals: With Application to the Political Business Cycle and the Size of Government By J Stephen Ferris; Soo-Bin Park; Stanley L. Winer
  19. Learning, voting and the information trap By Aleksander Berentsen; Esther Bruegger; Simon Loertscher
  20. Market and Public Provision in the Presence of Human Capital Externalities By De Fraja, Gianni
  21. Citizens Should Vote on Secession By Essi Eerola; Niku Määttänen; Panu Poutvaara
  22. Performance Related Pay and Labour Productivity By Gielen, Anne; Kerkhofs, Marcel J M; van Ours, Jan C
  23. Clientelism and Aid By Casamatta, Georges; Vellutini, Charles
  24. The Finnish Pension Reform of 2005 By Jukka Lassila; Tarmo Valkonen
  25. Social security, inequality and growth By Gilles Le Garrec
  26. Universal Vouchers and White Flight By Eric Brunner; Jennifer Imazeki; Stephen L. Ross
  27. What Explains the Variation in Estimates of Labour Supply Elasticities? By Michiel Evers; Ruud de Mooij; Daniel J. van Vuuren
  28. An ALM Model for Pension Funds using Integrated Chance Constraints By Klein Haneveld, Willem K.; Streutker, Matthijs H.; Vlerk, Maarten H. van der
  29. Sudden Deaths: Taking Stock of Political Connections By Faccio, Mara; Parsley, David
  30. Protection for Sale Made Easy By Baldwin, Richard; Robert-Nicoud, Frédéric
  31. The European Commission - Appointment, Preferences and Institutional Relations By Napel, Stefan; Widgrén, Mika
  32. Bangladesh 2020: An Analysis of Growth Prospect and External Sector Behaviour By Debapriya Bhattacharya; Uttam Kumar Deb

  1. By: Jean-Jacques Laffont (IDEI and GREMAQ (UMR 5603 CNRS), Universite des Sciences Sociales, Place Anatole-France,); Jerome Pouyet (CERAS-ENPC (URA 2036 CNRS), 28 rue des Saint Peres, 75007 Paris, France.)
    Abstract: We study the choice of the regulatory structure when a regulated firm engages in different activities for different countries. Under decentralization each activity is regulated independently and the contracts offered to the firm suffer from two oppos- ite distortions with respect to centralization: the competition between regulatory authorities forces them to offer too high-powered incentive contracts; however, be- cause the ownership structure of the firm is dispersed across the countries, each regulator does not fully internalize the effect of his regulation on the firm's rent and contracts tend to be too low-powered. When the activities of the firm are suf- ficiently substitutable we show that decentralization always leads to an inefficient drift of the regulatory contracts towards fixed-price contracts. Nonetheless, when regulators have private agendas and possess the discretion to distort their policy to gain the support of some interest groups, then decentralization of the regulat- ory powers may be preferred to centralization as competition between regulatory authorities eradicates their discretionary power.
    Keywords: incentives, decentralization, regulation
    JEL: D72 H41 H70 L20
  2. By: Bokan, Nikola; Hughes Hallett, Andrew
    Abstract: It is widely accepted that in order to improve the economic position of the EU relative to the USA certain structural reforms need to be undertaken, mainly in the labour market. However few EU countries have undertaken such reforms. The reason lies in the fact that those reforms are going to be costly in terms of economic performance, unemployment and hence the cost of financing them - at least in the short term. Blanchard and Giavazzi (2003) develop a model based on imperfect competition in both product and labour markets in order to show the impact of deregulation on the economy. However they do not consider the question of how to finance such reforms or overcome the short run costs, a key consideration if the short run costs are large relative to the long run gains. We extend their model by including the effects of another inevitable source of imperfections: distortionary taxation - not only the most likely candidate for reform, but also the most likely instrument for financing the restructuring process. By extending the model in this way we can establish formally that reforms imply significant short run costs as well as long run gains; that (political opposition apart) the financing of such reforms will be the main stumbling block. We come to a number of conclusions which reverse the Blanchard and Giavazzi results; and find that, in addition, the composition of the reform package matters, as does the distribution of the tax burden. This model therefore supplies new results on the design and sequencing of reforms.
    Keywords: short vs. long runs substitutability; structural reform; wage bargains
    JEL: E24 H23 J58
    Date: 2006–01
  3. By: Fabio Canova; Evi Pappa
    Abstract: We study the effect of regional expenditure and revenue shocks on price differentials for 47 US states and 9 EU countries. We identify shocks using sign restrictions on the dynamics of deficits and output and construct two estimates for structural price differentials dynamics which optimally weight the information contained in the data for all units. Fiscal shocks explain between 14 and 23 percent of the variability of price differentials both in the US and in the EU. On average, expansionary fiscal disturbances produce positive price differential responses while distortionary balance budget shocks produce negative price differential responses. In a number of units, price differential responses to expansionary fiscal shocks are negative. Spillovers and labor supply effects partially explain this pattern while geographical, political, and economic indicators do not.
    Keywords: Price differentials, Fiscal policy, Monetary unions, Bayesian methods
    JEL: E3 E5 H7
    Date: 2005–06
  4. By: Fabio Canova; Evi Pappa
    Abstract: We study whether and how fiscal restrictions alter the business cycle features macrovariables for a sample of 48 US states. We also examine the 'typical' transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed.
    Keywords: Business cycles, excessive debt, fiscal restrictions and US states
    JEL: E3 E5 H7
    Date: 2005–12
  5. By: Stefan Bach; Giacomo Corneo; Viktor Steiner
    Abstract: We analyze the distribution and taxation of top incomes in Germany during the 1990s on the basis of individual tax returns data. We derive a measure of economic income from taxable gross income as reported in the tax returns. Thanks to complete sampling, we can deliver a very precise description of very high incomes, in terms of both distribution and composition by source. We also provide a measure of the effective average rate of taxation for various income groups. Our main findings are as follows: (i) incomes are highly concentrated in Germany, more than commonly thought; (ii) the German economic elite relies much less than elites in France or the US upon income from wages and salaries; (iii) income taxes are highly concentrated in Germany, more than commonly thought; (iv) although effective tax rates are significantly lower than statutory ones, the income tax is effectively progressive; (v) income taxation substantially reduces income inequality in Germany.
    Keywords: income distribution, personal income tax, taxing the rich
    JEL: D31 H24 H26
    Date: 2006
  6. By: Konstantinos Angelopoulos; Apostolis Philippopoulos; Vanghelis Vassilatos
    Abstract: This paper incorporates an uncoordinated struggle for extra fiscal favors into an otherwise standard Dynamic Stochastic General Equilibrium model. This reflects the popular belief that interest groups compete for privileged transfers and tax treatment at the expense of the general public interest, and so the aggregate economy stagnates. The model is calibrated to the euro area over the period 1980-2003. Our results show that rent-seeking competition can contribute to explaining the European macroeconomic experience. We also get quantitative evidence of the fraction of collected tax revenues grabbed by rent seekers.
    Keywords: rent seeking, fiscal policy, real business cycles
    JEL: E32 E62 H23
    Date: 2006
  7. By: Alfons Weichenrieder; Oliver Busch
    Abstract: A long-standing concern in the literature has been that household mobility implies a serious threat to the viability of redistributive taxation. This paper considers the effects of deferred integration of migrants into the redistributive system of the target country. In a model of symmetric regions, deferred integration introduces a time consistency problem into governments' tax plans which reduces a region's incentive to undercut other regions' tax rates and can bring tax competition to a halt. On the one hand, rich migrants cease to benefit from the lower tax rate in the current period. On the other hand, the region's promise of a continuing low rate in the future is not credible. We also explore the case where poor recipients of social assistance are mobile while the rich are immobile.
    Keywords: tax competition, federalism, mobility, social assistance, time consistency
    JEL: H25
    Date: 2005
  8. By: Johann K. Brunner; Susanne Pech
    Abstract: The market for private life annuities is characterised by adverse selection, that is, contracts offer lower than fair payoffs to individuals with low life expectancy. Moreover, life expectancy and income have been found to be positively correlated. The paper shows that a linear tax on annuity payoffs, which raises more revenues from long-living individuals than from short-living, represents an appropriate instrument for redistribution, in addition to an optimally designed labour income tax. Further, we find that a nonlinear tax on annuity payoffs can be directly employed to correct the distortion of the rate of return caused by asymmetric information. These results are contrasted with theoretical findings concerning the role of a tax on capital income.
    Keywords: optimum taxation, life annuities, adverse selection
    JEL: G20 H20
    Date: 2006
  9. By: Fraschini, Angela
    Abstract: In South and East Asian countries a highly centralized government prevails, although recently some trends are moving toward a greater degree of decentralization. Also the two giants China and India, which cannot rely on a merely centralized Government, have experienced a greater or lesser degree of fiscal unionism. As to China the local government system provides four levels: provincial level; city level; county level; township level. Intergovernmental fiscal relations were revamped by the 1994 reform that established a new tax sharing system and gave local governments more control over the administration of local taxes but no significant degree of tax autonomy and no substantial expenditure assignments. The local financial revenue mainly derives from local taxes, shared taxes, and nontax revenue. As to India, the federal system is quite complex. The center-states relations are envisaged in the Constitution also for the financial aspects: two constitutional amendments adopted in 1992 made India one of the most politically decentralized countries among developing ones. However, the implementation of the decentralization program is still lagging: till now India seems to have considered decentralization mainly in terms of the local election system, without the transfer of all functions provided for devolution to local bodies. Only India set up a different system of local bodies in rural and urban areas with different expenditure responsibilities and financing powers. On the contrary, China has a unitary fiscal system. In India it is necessary to redesign the transfer system to improve accountability, incentives and equity, whereas in China, the fiscal revenue sharing schemes limit intergovernmental budget transfers. Finally, the rule of hard budget constraint in China is faced by all levels of government, while in India sub-national governments face soft budget constraint.
    Date: 2006–01
  10. By: Torberg Falch; Bjarne Strøm
    Abstract: This paper analysis the link between political strength and public sector wages using a unique matched individual-employer data set for Norwegian local governments during the period 1990-1998. The results indicate that political strength, measured in several ways, has a positive effect on wages, while administrative strength, measured by the tenure of the chief executive, has a negative effect. The positive effect of political strength is consistent with a model in which the budgetary process is a multistage game and employment is determined in an interaction with interest groups prior to the wage bargain.
    Keywords: public sector labor market, wage bargaining, political strength, budgetary process
    JEL: D73 H72 J45
    Date: 2005
  11. By: Alessandro Cigno
    Abstract: The paper examines the scope for mutually beneficial intergenerational cooperation, and looks at various attempts to theoretically explain the emergence of norms and institutions that facilitate this cooperation. After establishing a normative framework, we examine the properties of the laissez-faire solution in a pure market economy, and in one where reproductive decisions and intergenerational transfers are governed by self-enforcing family constitutions. We then show that first and second-best policies include a pension and a child benefit scheme. Finally, we look at the possibility that intergenerational redistribution might be supported by either a constitution, or some kind of voting equilibrium.
    Keywords: intergenerational cooperation, family, fertility, saving, private transfers, education, child benefits, pensions, self-enforcing constitutions, direct democracy, representative democracy, constitutions
    JEL: D70 D82 D91 H20 H31 H50 I20 J10
    Date: 2005
  12. By: Bloise, Gaetano; Reichlin, Pietro
    Abstract: The fiscal theory of the price level asserts that the price level is determined by the ratio of outstanding public nominal debt into the present value of real primary budget surpluses of the government. We here argue that the logic of the fiscal theory fails when at least part of the public debt takes the form of securities of infinite maturity. Indeed, no equilibrium restriction prevents the occurrence of a speculative bubble on long-term public debt, so as to balance public budget intertemporally in the case of an unexpected increase in the price level. Thus, the price level is indeterminate.
    Keywords: fiscal policy; fiscal theory of the price level; indeterminacy; monetary policy; public debt
    JEL: E31 E42
    Date: 2006–01
  13. By: Alexander Haupt
    Abstract: This paper analyses political forces that cause an initial expansion of public spending on higher education and an ensuing decline in subsidies. Growing public expenditures increase the future size of the higher income class and thus boost future demand for education. This demand shift implies that the initial subsidy per student becomes too expensive to be politically sustainable. Despite a voters’ backlash that curbs education subsidies, overall enrolments continue to rise. But the participation rate of the children of lower income families, that went up in the expansion period, declines over time, both in absolute terms and relative to the rate of their counterparts from higher income households.
    Keywords: higher education, voting, social stratification, social mobility, overlapping generations
    JEL: D72 H52 I22 I28 O15
    Date: 2005
  14. By: Henri Sterdiyniak (Observatoire Français des Conjonctures Économiques)
    Date: 2005
  15. By: Markku Stenborg
    Keywords: open source software, incentives, licensing choice, coordination, empirical evidence
    JEL: L86 L31 H41
    Date: 2004–11–17
  16. By: Hartmut Egger; Peter Egger; Josef Falkinger; Volker Grossmann
    Abstract: This paper examines the impact of capital market integration (CMI) on higher education and economic growth. We take into account that participation in higher education is non-compulsory and depends on individual choice. Integration increases (decreases) the incentives to participate in higher education in capital-importing (-exporting) economies, all other things equal. Increased participation in higher education enhances productivity progress and is accompanied by rising wage inequality. From a national policy point of view, education expenditure should increase after integration of similar economies. Using foreign direct investment (FDI) as a measure for capital flows, we present empirical evidence which largely confirms our main hypothesis: An increase in net capital inflows in response to CMI raises participation in higher education and thereby fosters economic growth. We apply a structural estimation approach to fully track the endogenous mechanisms of the model.
    Keywords: capital mobility, capital-skill complementarity educational choice, education policy, economic growth, wage income inequality
    JEL: F20 H52 J24 O10
    Date: 2005
  17. By: Hans Jarle Kind; Marko Köthenbürger; Guttorm Schjelderup
    Abstract: This paper shows that consumers may buy more of a taxed good if it is sold by a two-sided platform firm. Two-sided platform industries serve distinct customer groups that are connected through interdependent demand, and include major businesses such as the media industry (newspapers/magazines and advertisers), banking (cardholder and merchant), and the software industry (users and application developers). The paper compares ad-valorem and specific taxes and shows that they may have opposite effects on quantities sold, and that the ad-valorem tax - the most commonly used tax throughout the OECD - has effects on prices and quantities not previously recognized.
    Keywords: two-sided markets, ad-valorem taxes, specific taxes
    JEL: D40 D43 H21 H22 L13
    Date: 2005
  18. By: J Stephen Ferris; Soo-Bin Park; Stanley L. Winer
    Abstract: We address the problem of how to investigate whether economics, or politics, or both, matter in the explanation of public policy. The problem is first posed in a particular context by uncovering a political business cycle (using Canadian data for 130 years) and by taking up the challenge to make this fact meaningful by finding a transmission mechanism through actual public choices. Since the cycle is in real growth, and it is reasonable to suppose that public expenditure would be involved, the central task then is to investigate the role of (partisan and opportunistic) political factors, as opposed to economic fundamentals, in the evolution of government size. We proceed by asking whether the data allow us to distinguish between the convergence and the nonconvergence hypotheses. Convergence means that political competition forces public spending to converge in the long run to a level dictated by endowments, tastes and technology. Nonconvergence is taken to mean that political factors other than the degree of political competition prevent convergence to that long run. The general idea here, one that may be applied in any situation where the key issue is the role of economics versus politics over time, is that an overtly political factor can be said to play a distinct role in the evolution of public choices if it can be shown to lead to departures from a dynamic path defined by the evolution of economic fundamentals in a competitive political system.
    Keywords: public expenditure, size of government, long run versus short run, opportunism, partisanship, political competition, cointegration
    JEL: H10 H30 H50
    Date: 2006
  19. By: Aleksander Berentsen; Esther Bruegger; Simon Loertscher
    Abstract: We consider a median voter model with uncertainty about how the economy functions. The distribution of income is exogenously given and the provision of a public good is financed through a proportional tax. Voters and politicians do not know the true production function for the public good, but by using Bayes rule they can learn from experience. We show that the economy may converge to an inefficient policy where no further inference is possible so that the economy is stuck in an information trap.
    Keywords: Learning; voting and the information trap
    JEL: D72 H10 D83
    Date: 2005–04
  20. By: De Fraja, Gianni
    Abstract: This paper suggests that human capital externalities are important in determining whether goods and services should be privately or publicly provided. We study situations where that the cost incurred by an individual provider for providing quality is affected by the human capital of her colleagues. This is the case for goods such as health, education, legal services, police protection, and so on. The mode of provision (private or public) affects a supplier’s incentive to acquire human capital and therefore her colleagues’ cost of provision. The paper shows that either mode of provision may be preferable, depending on the nature of the human capital externality: private provision of the final goods and services provides stronger incentives to human capital acquisition (and may therefore be socially preferable) if own human capital and one’s colleagues’ human capital are substitutes, and suppliers with high human capital benefit more benefit more than suppliers with low human capital from their colleagues’ human capital, but not excessively so.
    Keywords: education; health; human capital externality; public provision of private goods; public-private partnership; training
    JEL: H23 H42 J24
    Date: 2006–01
  21. By: Essi Eerola; Niku Määttänen; Panu Poutvaara
    Keywords: federalism, secession, the European Union, referendum
    JEL: H77 D72 D61
    Date: 2004–10–20
  22. By: Gielen, Anne; Kerkhofs, Marcel J M; van Ours, Jan C
    Abstract: This paper uses information from a panel of Dutch firms to investigate the labour productivity effects of performance related pay (PRP). We find that PRP increases labour productivity at the firm level with about 9%.
    Keywords: labour productivity; performance related pay
    JEL: C41 H55 J64 J65
    Date: 2006–01
  23. By: Casamatta, Georges; Vellutini, Charles
    Abstract: Using a model of probabilistic voting, we analyse the impact of aid on the political equilibrium in the recipient country or region. We consider two kinds of politicians: the benevolent one is interested in promoting social welfare whereas the other one is clientelistic, his only goal being to maximize his chances of being elected. We find that the impact of aid on the political equilibrium and therefore on the quality of the policy (using the utilitarian social welfare as a benchmark) in the recipient country ultimately depends on the value of the elasticity of marginal consumption, which governs how the sensitivity of voters to a clientelistic allocation of resources (over a socially optimal one) varies with the level of consumption. When the elasticity is low, the probability that the clientelistic politician be elected increases and the expected policy outcome gets further away from the socially desirable policy set. This case of substitution of policy quality by aid can help to explain the poor performance of conditionality in improving policy. Perhaps more surprising is the opposite case, which arises for high values of the elasticity of marginal utility: an increase in aid worsens the clientelistic candidate’s election prospects and thus improves the expected policy set.
    Keywords: aid; clientelism; voting
    JEL: D72 H23 H41 H71
    Date: 2006–01
  24. By: Jukka Lassila; Tarmo Valkonen
    Abstract: A major reform in the Finnish private-sector earnings-related pension system came into effect on January 1st, 2005. It was negotiated in 2001 – 2002 between the central organisations of employers and trade unions and representatives of the central government. This paper describes the reform and analyses its effects on selected macroeconomic variables, on the pension system and on the position of different birth cohorts and different educational groups. The reform appears to be successful in many respects. It simplifies the private-sector pension system and makes it a model that other pension systems in Finland will converge to. The reform rewards postponing retirement. It curbs the increase in contribution rate without endangering the adequacy of replacement rates. The increase in labour supply will have beneficial welfare effects. The new system also responds rather well to uncertain future demographics. Despite this apparent success of the reform there remains a serious doubt of its adequacy, as contribution rates are still expected to rise by several percentage points.
    Keywords: pension reform, population ageing, stochastic population simulations
    JEL: H55 J11
    Date: 2006–01–20
  25. By: Gilles Le Garrec (Observatoire Français des Conjonctures Économiques)
    Date: 2005
  26. By: Eric Brunner (Quinnipiac University); Jennifer Imazeki (San Diego State University); Stephen L. Ross (University of Connecticut)
    Abstract: Opponents of school vouchers often argue that school vouchers will lead to “white flight†from public schools that are disproportionately nonwhite, creating more racially segregated schools. However, recent studies that examine white flight from public schools into private schools have produced conflicting evidence on whether or not white flight actually exists. In this paper, we present new evidence on whether universal vouchers will lead to more racially segregated schools. Specifically, we use data on vote outcomes from a state-wide universal voucher initiative to estimate the likelihood that white households with children currently in public schools will use vouchers to switch out of more-integrated schools. Our results indicate that white households with children attending schools with large concentrations of nonwhite schoolchildren are significantly more likely to support school vouchers, an effect that is absent for non-white households with children and households without children. However, it also does not appear to be race, per se, that is the primary concern, but other school factors that are correlated with race, such as test scores and limited English proficiency.
    JEL: H3 I2 R2
    Date: 2006–01
  27. By: Michiel Evers; Ruud de Mooij; Daniel J. van Vuuren
    Abstract: This paper performs a meta-analysis of empirical estimates of uncompensated labour supply elasticities. We find that much of the variation in elasticities can be explained by the variation in gender, participation rates, and country fixed effects. Country differences appear to be small though. There is no systematic impact of the model specification or marital status on reported elasticities. The decision to participate is more responsive than is the decision regarding hours worked. Even at the intensive margin, we find that the elasticity for women exceeds that for men. For men and women in the Netherlands, we predict an uncompensated labour supply elasticity of 0.1 and 0.5, respectively. These values are robust for alternative samples and specifications of the meta regression.
    Keywords: labour supply, meta-analysis, uncompensated elasticity
    JEL: H20 J22
    Date: 2005
  28. By: Klein Haneveld, Willem K.; Streutker, Matthijs H.; Vlerk, Maarten H. van der (Groningen University)
    Abstract: We discuss integrated chance constraints in their role of short-term risk constraints in a strategic ALM model for Dutch pension funds. The problem is set up as a multistage recourse model, with special attention for modeling the guidelines proposed by the regulating authority for Dutch pension funds. The paper concludes with a numerical illustration of the importance of such short-term risk constraints.
    Date: 2005
  29. By: Faccio, Mara; Parsley, David
    Abstract: Many firms voluntarily incur the costs of attempting to influence politicians. However, estimates of the value of political connections have been made in only a few cases. We propose a new approach to valuing political ties that builds on these previous studies. We consider connected to a politician all companies headquartered in the politician's hometown, and use an event study approach to value these ties at their unexpected termination. Analysis of a large number of sudden deaths from around the world since 1973, yields a 2% decline in market value of connected companies. Our stronger results are likely due to the lack of a clear event in earlier studies, and lead us to conclude that previous estimates understate the value of political ties.
    Keywords: political connections; sudden deaths
    JEL: G3 H8
    Date: 2006–01
  30. By: Baldwin, Richard; Robert-Nicoud, Frédéric
    Abstract: Formal analysis of the political economy of trade policy was substantially redirected by the appearance of Gene Grossman and Elhanan Helpman's 1994 paper, 'Protection for Sale'. Before that article a fairly wide range of approaches were favoured by various authors on various issues, but afterwards, the vast majority of theoretical tracts on endogenous trade policy have used the Protection for Sale framework (PFS for short) as their main vehicle. The reason, of course, is that the framework is both respectable - because its microfoundations are distinctly firmer than were those of the earlier lobbying approaches - and it is very easy to work with. Despite the popularity of the PFS framework, it appears that no one has presented a simple diagram that illustrates how the PFS frameworks and explains why it is so easy. This short note aims to remedy that omission.
    Keywords: endogenous protection; protection for sale
    JEL: H32 P16
    Date: 2006–01
  31. By: Napel, Stefan; Widgrén, Mika
    Abstract: The paper analyses the appointment of the European Commission as a strategic game between members of the EU's Council of Ministers and the European Parliament. The focal equilibrium results in Commissioners that duplicate policy preferences of national Council representatives. Different internal decision rules still prevent the Commission from being a Council clone in aggregate. Rather, it is predicted that Commission policies are on average more in accord with the aggregate position of the Parliament than the Council. A data set covering 66 dossiers with 162 controversial EU legislative proposals passed between 1999 and 2002 is investigated to test this. In fact, the Council is significantly more conservative than Parliament and Commission; the latter two are significantly closer to each other than Council and Commission.
    Keywords: collective choice; European Commission; European integration; power
    JEL: C70 D71 H77
    Date: 2006–01
  32. By: Debapriya Bhattacharya; Uttam Kumar Deb
    Abstract: External factors such as export, import, remittances and foreign aid have always played important rolesto Bangladesh’s economy, though the relative importance of various external factors has changed over time. This study has analysed the trend, structure and changing features of the external sector of Bangladesh. Based on the past performance and changes in the global economy, the study has projected the growth prospect and likely behaviour of Bangladesh’s external sector under three scenarios: (i) optimistic scenario (8% GDP growth per annum), (ii) business as usual scenario (6% GDP growth per annum), and (iii) base case scenario (4% GDP growth per annum). Under these three scenarios, the study has projected the level of total GDP and per capita GDP of Bangladesh till FY2020. Projections are made about the required level of exports, imports, remittances, foreign aid and foreign investment to attain a consistent GDP growth at the rate of 4%, 6% and 8% up to the year 2020. The paper has also put forward the implications of the findings for policies related to the external sector of Bangladesh. The paper suggests that Bangladesh needs a steady growth based on foreign investment, service income and trade. The report adds that future growth of Bangladesh will depend on promoting export, sustaining remittances, and triggering export. Bangladesh will require a breakthrough in the performance of the external sector. According to the report, the key to the breakthrough lies in effective integration of Bangladesh’s economy with the global economy which will ultimately depend on the ability of political leadership to undertake necessary policy reforms and institution building measures.
    Keywords: External Sector,Growth, Bangladesh
    JEL: E61 H60
    Date: 2006–01

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