nep-pbe New Economics Papers
on Public Economics
Issue of 2006‒07‒02
thirty papers chosen by
Peren Arin
Massey University

  1. Joint Taxation and the Labour Supply of Married Women: Evidence from the Canadian Tax Reform of 1988 By Thomas F. Crossley; Sung-Hee Jeon
  2. Infrastructure and public utilities privatization in developing countries By Picard, Pierre M.; Auriol, Emmanuelle
  3. The Distributive Impact of Fiscal Policy in Cameroon: Tax and Benefit Incidence By Tabi Atemnkeng Johannes; Tafah Akwi; Peter Etoh Anzah
  4. A New-Open-Economy Macro Model for Fiscal Policy Evaluation By Dennis P. J. Botman; Dirk Muir; Andrei Romanov; Douglas Laxton
  5. Subnational fiscal sustainability analysis : what can we learn from Tamil Nadu ? By Nagarajan, Mohan; Liu, Lili; Ianchovichina, Elena
  6. Domestic Taxes and International Trade: Some Evidence By Murtaza H. Syed; Michael Keen
  7. Fiscal Reform and its Firm-Level Effects in Eastern Europe and Central Asia By John E. Anderson; ;
  8. Brain Drain and Fiscal Competition: a Theoretical Model for Europe By Pierpaolo Giannoccolo
  9. Public debt, the unit root hypothesis and structural breaks: a multi-country analysis By Merih Uctum; Thom Thurston; Remzi Uctum
  10. Income Inequality over the Later-Life Course: A Comparative Analysis of Seven OECD Countries By Robert L. Brown; Steven G. Prus
  11. A Tax Evasion - Bribery Game: Experimental Evidence from Ukraine By Volodymyr Bilotkach
  12. Original Sin, Good Works, and Property Rights in Russia: Evidence From a Survey Experiment By Timothy Frye; ;
  13. Privatization and State Capacity in Postcommunist Society By Lawrence King; Patrick Hamm;
  14. Beggar thy thrifty neighbour : the international spillover effects of pensions under population ageing By Adema,Yvonne; Meijdam,Lex; Verbon,Harrie A.A.
  15. Renegotiation without Holdup: Anticipating Spending and Infrastructure Concessions By Eduardo Engel; Ronald Fischer; Alexander Galetovic
  16. Understanding Fiscal Space By Peter S. Heller
  17. Foreign aid and fiscal policy By Riccardo Faini
  18. An Age Perspective on Economic Well-Being and Social Protection in Nine OECD Countries By Thai-Thanh Dang; Herwig Immervoll; Daniela Mantovani; Kristian Orsini; Holly Sutherland
  19. Debt, Deficits, and Destabilizing Monetary Policy in Open Economies By Andreas Schabert; Sweder van Wijnbergen
  20. Financial Implications of the Shrinking Supply of U.S. Treasury Securities By Charles Frederick Kramer; Garry J. Schinasi; T. Todd Smith
  21. Is Taking a Pill a Day Good for Health Expenditures? Evidence from a Cross Section Time Series Analysis of 19 OECD Countries from 1970 – 2000 By Verbelen, Bart
  22. Transition Economies: How Appropriate is the Size and Scope of Government? By Shamit Chakravarti; Sanjeev Gupta; Luc Leruth; Luiz de Mello
  23. Transition with Heterogeneous Labor By Katalin Balla; János Köllo; András Simonovits
  24. Linking public investment programs and SPAHD macro models : methodology and application to aid requirements By Pinto Moreira, Emmanuel; Bayraktar, Nihal; Agenor, Pierre-Richard
  25. Reforms and Economic Growth in Transition Economies: Complementarity, Sequencing and Speed By Karsten Staehr
  26. Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment By Jan C. van Ours; Milan Vodopivec
  27. The Eurasian Growth Paradox By Anders Åslund; Nazgul Jenish
  28. How Does Privatization Work? Ownership Concentration and Enterprise Performance in Ukraine By Alexander Pivovarsky
  29. Teaching to the Rating: School Accountability and the Distribution of Student Achievement By Randall Reback
  30. Institutional Change and Economic Transition: Market-Enhancing Governance, Chinese-Style By Joachim Ahrens; Philipp Mengeringhaus

  1. By: Thomas F. Crossley; Sung-Hee Jeon
    Abstract: The Canadian federal tax reform of 1988 replaced a spousal tax exemption with a non-refundable tax credit. This reduced the "jointness" of the tax system: after the reform, secondary earners' effective "first dollar" marginal tax rates no longer depended on the marginal tax rates of their spouses. In practice, the effective "first dollar" marginal tax rates faced by women with high income husbands were particularly reduced. Using difference-in-difference estimators, we find a significant increase in labour force participation among women married to higher income husbands.
    Keywords: Labour supply, Canadian tax reform, Married women, Difference-in-difference
    JEL: J22 H24
    Date: 2006–02
  2. By: Picard, Pierre M.; Auriol, Emmanuelle
    Abstract: The paper analyzes governments ' tradeoff between fiscal benefits and consumer surplus in privatization reforms of noncompetitive industries in developing countries. Under privatization, the control rights are transferred to private interests so that public subsidies decline. This benefit for tax-payers comes at the cost of price increases for consumers. In developing countries, tight budget constraints imply that privatization may be optimal for low profitability segments. For highly profitable public utilities, the combination of allocative inefficiency and critical budgetary conditions may favor public ownership. Finally, once a market segment gives room for more than one firm, governments prefer to regulate the industry. In the absence of a credible regulatory agency, regulation is achieved through public ownership.
    Keywords: Economic Theory & Research,Public Sector Economics & Finance,Privatization,Markets and Market Access,State Owned Enterprise Reform
    Date: 2006–06–01
  3. By: Tabi Atemnkeng Johannes; Tafah Akwi; Peter Etoh Anzah
    Abstract: Most fiscal incidence studies neither analyze simultaneously the tax and benefit indicence (simply known as net fiscal incidence) nor actually relate poverty indices to fiscal impact. This paper jointly and separately examines the redistributive and poverty effects of the tax and transfer (education and health) systems in Cameroon. Broadly speaking, the tax system is generally progressive but less so when compared with the benefits of education and health. The net tax system is found to reduce inequality. Interestingly, while overall public spending on education and health are most progressive in rural areas, followed by semi-urban and urban areas, the opposite is true for tax incidence. Tax burden weighs more on the urban, followed by the rural and semi-urban, population. When we consider the two sets of policies together, they are found to mainly reflect fiscal policies in that they are more progressive and poverty-reducing when we use relative poverty lines in rural areas, followed by semi-urban and urban areas, respectively. Though we also realized a poverty-increasing effect of the net tax system using absolute poverty lines, the poverty impact still remains minimal in the rural areas where poverty is high and inequality actually increased between 1996 and 2001 than in urban areas. Overall, the current government policy can help, however, by making sure that the tax burdens of the poor are nil or very low and that the composition and direction of public expenditures on education and health favor the poor.
    Keywords: Fiscal policy, taxes, public expenditures, incidence, inequality, poverty, Cameroon
    JEL: F15 H2 H51 H52 H22 I32 I31
    Date: 2006
  4. By: Dennis P. J. Botman; Dirk Muir; Andrei Romanov; Douglas Laxton
    Abstract: We develop a New-Open-Economy-Macro model in which Ricardian equivalence does not hold because of (i) distortionary labor and corporate income taxation; (ii) limited asset market participation; and (iii) because the overlapping-generations structure results in a disconnect between current and future generations. We consider a permanent increase in government debt following a cut in labor or corporate income taxes in a small and large open economy. We analyze the sensitivity of the results to the key structural parameters of the model and argue that under plausible assumptions there will be significant crowding-out effects associated with permanent increases in government debt.
    Keywords: Fiscal policy , Taxes , Public debt , Economic models ,
    Date: 2006–02–28
  5. By: Nagarajan, Mohan; Liu, Lili; Ianchovichina, Elena
    Abstract: In the late 1990s the Indian state of Tamil Nadu experienced an unprecedented fiscal deterioration, which was part of the widespread fiscal deterioration in Indian states. This deterioration was troubling because current expenditure outgrew total revenue, leaving little fiscal space for infrastructure spending. The paper presents a framework for subnational fiscal sustainability analysis and applies it to Tamil Nadu where subsequent fiscal adjustment has been ambitious and politically challenging, but has promised to put state finance on a sustainable path and create fiscal space for infrastructure investment. The paper emphasizes the differences between fiscal sustainability analysis at the national and subnational levels, attempts to take into account uncertainty, and discusses the key components of the state ' s fiscal accounts and how they respond to reforms and shocks. Risks to Tamil Nadu ' s fiscal outlook include interest rate shocks, pressures on the primary balance, and contingent liabilities. Though the state ' s efforts to remove constraints to economic growth, minimize recurrent expenditures and maximize its revenue potential will be critical for fiscal sustainability, national policies feature prominently in subnational fiscal adjustment. Tamil Nadu ' s quest for fiscal sustainability is relevant for other countries. Decentralization has given subnational governments in developing countries significant spending and taxation responsibilities, and the capacity to incur debt. The fiscal stress of the Indian states echoed the fiscal crises of subnational governments in several other major emerging economies.
    Keywords: Banks & Banking Reform,Fiscal Adjustment,Public Sector Economics & Finance,Economic Theory & Research,Economic Stabilization
    Date: 2006–06–01
  6. By: Murtaza H. Syed; Michael Keen
    Abstract: The effects on trade performance of corporate taxes and the value-added tax (VAT) continue to excite controversy but have received little empirical attention. This paper uses panel data for OECD countries from 1967 to 2003 to examine the effects of these taxes on export performance, paying particular attention to the potentially complex dynamic effects to which theory points. It finds that increased reliance on VAT revenue tends to be associated with a sharp reduction in net exports, which quickly fades. This may reflect unrelated movements in consumption, and our preferred specifications point to no trade effects of the VAT in either the short or the long run. Our results also point, however, to powerful and complex effects from the corporate tax, the pattern of which is as theory would predict from a source-based tax of this kind. Increases in corporate taxation-whether measured by revenues or the statutory rate-are associated with sharp short-run increases in net exports (consistent with induced capital flows abroad); these are then subsequently and quickly reversed (consistent with increased income from investments abroad), leaving an increase in net exports that converges to zero.
    Keywords: Taxation , Value added tax , International trade , Economic models ,
    Date: 2006–03–02
  7. By: John E. Anderson; ;
    Abstract: This paper reports the first empirical evidence that fiscal reform efforts in transition countries have positive effects. Using the EBRD BEEPS I and II data, reported in 1999 and 2002, rigorous econometric models are estimated showing that the share of bribes paid to tax collectors is reduced in countries with more extensive fiscal reforms. This effect controls for selection bias in the likelihood that firms are required to make unofficial payments to tax authorities. On the basis of this evidence, we now have some confidence in the success of fiscal reform efforts. In addition, we have insight regarding what forms of fiscal reform may be more successful as the share of revenues generated from direct taxes (both personal and corporate) has an impact on tax bribes.
    Keywords: Fiscal reform, Bribery, Transition economies, Eastern Europe, Central Asia
    JEL: C21 H25 O23 O52
    Date: 2005–08–01
  8. By: Pierpaolo Giannoccolo
    Abstract: In this paper we study Brain Drain (BD) and Fiscal Competition (FC) in a unified framework for the European Union (EU) specific context. Potential mobility of educated workers can increase the degree of FC through taxation or the provision of public education. An increase in FC can be caused by competition among different jurisdictions that aim to attract educated workers. When the importance of FC increases, then the European States may employ FC as a new policy tool. We propose a simple model in which is possible describe different scenarios: Brain Gain (when BD may increase average productivity in the source economy); Brain Drain (when there is unidirectional flow of highly skilled workers that is welfare-deteriorating in the source economy); Migration Competition (when the regions have not high differences in the productivity and they compete attracting educated workers); Fiscal Competition (when jurisdictions compete either to attract a mobile tax base), This simple model help us to explain several policies implemented by European regions.
    Keywords: Brain Drain; Fiscal Competition; Migration Competition; Growth.
    JEL: F02 F22 H30 H52 O15 O40
    Date: 2003–09
  9. By: Merih Uctum (Brooklyn College - [City University of New York], Graduate Center - [City University of New York]); Thom Thurston (Graduate Center - [City University of New York], Queen's College - [City University of New York]); Remzi Uctum (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre])
    Abstract: We assess fiscal performances in G7 and selected Latin American and Asian countries. We analyze two questions: (i) have public finances been sustainable? (ii) do countries follow more restrictive fiscal policies when debt starts to rise? We find that: (i) The traditional unit root tests often overlook the corrective actions taken by many governments. Controlling for structural breaks changes the nonstationarity results dramatically among the three groups; (ii) Estimation of a reaction function for governments, expanded by incorporating structural breaks, provides further evidence for significant active anti-debt policies among the G7 and to a lesser extent in the other regions.
    Keywords: fiscal policy; sustainability; government reaction function; structural breaks
    Date: 2006–06–23
  10. By: Robert L. Brown; Steven G. Prus
    Abstract: This paper examines income inequality over stages of the later-life course (age 45 and older) and systems that can be used to mitigate this inequality. Two hypotheses are tested: (i) Levels of income inequality decline during old age because public benefits are more equally distributed than work income; (ii) Because of the progressive nature of government benefits, countries with stronger public income security programs are better able to reduce income inequalities during old age. The analysis is performed by comparing age groups within seven OECD countries (Canada, Germany, the Netherlands, Norway, Sweden, the United Kingdom, and the United States) using Luxembourg Income Study data. Both hypotheses are supported. Several conclusions are drawn from the findings.
    Keywords: retirement, income dynamics, comparative analysis, public pensions
    JEL: J26 H55
    Date: 2006–06
  11. By: Volodymyr Bilotkach
    Abstract: This paper examines the issue of tax evasion by enterprises through underreporting activity. We develop a view of this phenomenon as an equilibrium of the game between a businessman and an imperfectly monitored supervising official, in which a businessman can hide part of his profit and offer bribe to official. We determine conditions under which such tax evasion and bribery become wide-spread in the society, resulting in shadow economy. The game is put into an experimental setting in Kiev, Ukraine, with the emphasis of spreading of the tax evasion and bribery activity in the laboratory setting. We find that once it becomes known that substantial share of subjects playing the role of supervising officials agree to accept bribes from subjects playing the role of businessmen, the latter offer bribes more aggressively. Yet, this in turn does not affect the behavior of subjects playing the role of supervising officials.
    JEL: H32 D73 H26 C91
    Date: 2006–06–12
  12. By: Timothy Frye; ;
    Abstract: Are property rights obtained through legally dubious means forever tainted with original sin or can rightholders make their ill-gotten gains legitimate by doing good works?2 This is a critical question for developing countries (and Russia in particular) where privatization is often opaque and businesspeople may receive property, but remain unwilling to use it productively due to concerns about the vulnerability of their rights to political challenge. Using a survey of 660 businesspeople conducted in Russia in February 2005, I find that the original sin of an illegal privatization is difficult to expunge. Businesspeople, however, can improve the perceived legitimacy of property rights by doing good works, such as investing in the firm and by providing public goods for the region. Finally, managers that provide public goods for their region are more likely to invest in their firms than those who did not. The finding that public goods providers invest at higher rates is at odds with standard economic logic, but fits well with the more political view of property rights developed here. These findings have implications for political economy and contemporary Russia.
    Keywords: Property Rights, Transition, Rule of Law, Privatization
    JEL: K11 P14 P16
    Date: 2005–09–01
  13. By: Lawrence King; Patrick Hamm;
    Abstract: Economists have used cross-national regression analysis to argue that postcommunist economic failure is the result of inadequate adherence liberal economic policies. Sociologists have relied on case study data to show that postcommunist economic failure is the outcome of too close adherence to liberal policy recommendations, which has led to an erosion of state effectiveness, and thus produced poor economic performance. The present paper advances a version of this statist theory based on a quantitative analysis of mass privatization programs in the postcommunist world. We argue that rapid large-scale privatization creates severe supply and demand shocks for enterprises, thereby inducing firm failure. The resulting erosion of tax revenues leads to a fiscal crisis for the state, and severely weakens its capacity and bureaucratic character. This, in turn, reacts back on the enterprise sector, as the state can no longer support the institutions necessary for the effective functioning of a modern economy, thus resulting in deindustrialization. Using cross-national regression techniques we find that the implementation of mass privatization programs negatively impacts measures of economic growth, state capacity and the security of property rights.
    Keywords: privatization, transition economies, state capacity, property rights, institutions, growth
    JEL: B52 C31 H11 D02 D23 F02 P26 P51
    Date: 2005–12–01
  14. By: Adema,Yvonne; Meijdam,Lex; Verbon,Harrie A.A. (Tilburg University, Center for Economic Research)
    Abstract: This paper explores the international spillover effects of ageing through capital markets when countries have different pension systems. We use a two-country twoperiod overlapping-generations model, where the two countries only differ in their pension schemes. Two forms of population ageing are considered, namely an increase in longevity and a fall in fertility. It is shown that in the long run a country using a funded pension system experiences negative spillovers from the fact that the other country uses a PAYG system. The short-run spillovers, however, are opposite to the spillovers in the long run.
    Keywords: ageing;pensions;spillovers
    JEL: F21 H55 J11
    Date: 2006
  15. By: Eduardo Engel (Cowles Foundation, Yale University); Ronald Fischer (University of Chile - Center of Applied Economics (CEA)); Alexander Galetovic (Universidad de los Andes)
    Abstract: Infrastructure concessions are frequently renegotiated after investments are sunk, resulting in better contractual terms for the franchise holders. This paper offers a political economy explanation for renegotiations that occur with no apparent holdup. We argue that they are used by political incumbents to anticipate infrastructure spending and thereby increase the probability of winning the upcoming election. Contract renegotiations allow administrations to replicate the effects of issuing debt. Yet debt issues are incorporated in the budget, must be approved by Congress and are therefore subject to the opposition's review. By contrast, under current accounting standards the obligations created by renegotiations circumvent the budgetary process in most countries. Hence, renegotiations allow incumbents to spend more without being subject to Congressional oversight.
    Keywords: Build-operate-and-transfer (BOT), Concessions, Renegotiation, Public-private partnerships
    JEL: H21 L51 L91
    Date: 2006–06
  16. By: Peter S. Heller
    Abstract: With new initiatives to provide low income countries with external assistance in support of the Millennium Development Goals (MDGs), donors and NGOs are seeking to understand whether "fiscal space" can be provided in the context of IMF-supported programs to support these initiatives. This paper defines the concept of fiscal space and its link to fiscal sustainability, describes alternative ways in which fiscal space can be created, and notes how the IMF can support appropriate efforts to create fiscal space. The paper underscores that the issues that arise in creating fiscal space are not novel, but have always confronted governments in judging whether there is scope for additional expenditure.
    Keywords: Fiscal policy , Millennium Development Goals , Fund-supported adjustment programs ,
    Date: 2005–04–01
  17. By: Riccardo Faini (Università di Roma Tor Vergata, Centro Studi Luca d’Agliano, IZA and CEPR)
    Abstract: Foreign aid has been on a downward trend since at least the early eighties. Despite the commitments of donor governments, the GDP share of foreign aid for DAC countries has fallen to slightly more than 0,2% in the early part of this decade. The purpose of this paper is to explore the macro determinants of the amount of foreign aid. Surprisingly enough, not much attention has been devoted in the literature to this issue. Most of the research has focussed either on the effectiveness of aid (“does aid promote growth and help alleviating poverty”?) or to the cross country allocation of a given amount of foreign aid (“is foreign aid motivated by donor’s political and commercial interests or by recipients’ needs?”). In both cases, the total aid budget is taken as given and its determinants remain therefore unexplored. Our main finding is that the size of the budget aid is a function of the donor country’s fiscal situation, even after controlling for the government’s political orientation, the cyclical position of the donor economy, and its income per capita level. In light of these results, we argue that advocates of foreign aid should strongly lobby in favour of fiscal discipline. The alternative strategy of pushing for a more lenient budgetary treatment of foreign aid may be loaded with risks, and even turn to be counterproductive, particularly if the list of “virtuous” exceptions becomes exceedingly long. This is exactly what seems to have happened with the revision of the Stability and Growth pact.
    Keywords: foreign aid, fiscal policy
    JEL: F35 E62
    Date: 2006
  18. By: Thai-Thanh Dang (OECD); Herwig Immervoll (OECD, ISER, University of Essex, European Centre Vienna and IZA Bonn); Daniela Mantovani (Universita di Modena e Reggio Emilia); Kristian Orsini (Catholic University Leuven); Holly Sutherland (ISER, University of Essex)
    Abstract: This paper quantifies the economic well-being of different age groups and the extent of their reliance on incomes from public and private sources. The aim is to establish how social benefits, and the taxes needed to finance them, affect income levels and disparities across different age groups. Results are compared across nine OECD countries using household micro-data and microsimulation models to illustrate the influence of market income patterns, household structures and social protection measures on the income distribution among and between different age groups. We use information from the late 1990s to establish a "distributional baseline" that refers to an early phase of the projected increase in dependency ratios and also pre-dates some of the major reforms that are introduced to address these. Results even for this period show that social protection was already largely "old-age" protection, with those aged 65 and over typically receiving almost three times the (net) cash transfers of the average person. In most countries, the incidence of "low" incomes was nevertheless higher among old-age individuals than for the population as a whole. We argue, however, that the cross-country evidence suggests some scope for re-balancing social protection spending without necessarily compromising distributional objectives.
    Keywords: inequality, poverty, social protection, ageing, demographics, microsimulation
    JEL: C81 D31 H22 H55
    Date: 2006–06
  19. By: Andreas Schabert (University of Amsterdam); Sweder van Wijnbergen (University of Amsterdam)
    Abstract: Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the CB is aggressively raising the interest rate in response to higher expected inflation. The constraint on stabilizing interest rate policy is tighter the higher the primary deficit and the more open the economy is. If the government cannot borrow from abroad in its own currency, stability requires interest rate policy to be accommodating (passive). Inflation stabilization is nevertheless feasible if the CB uses an instrument not associated with default risk, e.g. money supply.
    Keywords: Fiscal-monetary policy interactions; sovereign default risk; foreign debt; inflation targeting; original sin
    JEL: E52 E63 F41
    Date: 2006–05–17
  20. By: Charles Frederick Kramer; Garry J. Schinasi; T. Todd Smith
    Abstract: Recent improvements in fiscal positions in advanced countries have sharply curtailed the issuance of government securities and created the possibility that government securities could disappear in some countries. The possibility that this might occur in the United States has attracted the most attention, in large part because of the international role of the U.S. dollar and the widespread perception that U.S. treasury securities have the lowest total financial risk (the combination of credit, market, and liquidity risks) among U.S. dollar assets. This paper analyzes the unique features of government securities and links them to the important roles that government securities, in particular U.S. treasury securities, have come to play in national and international financial markets. The paper then identifies and examines financial market-oriented public policy questions raised by the shrinking supply of U.S. treasuries.
    Keywords: Capital markets , United States , Public debt ,
  21. By: Verbelen, Bart (CEPS/INSTEAD (IMPALLA))
    Abstract: This paper differs in two ways from previous comparative health system research. First, it focuses on the impact of pharmaceutical expenditures on total health expenditures as trends in pharmaceutical expenditures have been blamed of being a major driver of national health expenditures. In addition to pharmaceutical expenditures, other variables of interest are income, public financing, public delivery, ageing and urbanization. Second, the analysis includes a thorough sensitivity analysis on the proposed model using four samples (with and without the US, and imputed and not imputed data) to address the issue of robustness. Based on a typology of health care systems, trends of relevant explanatory variables are described using OECD Health Data 2003 data. Unlike any other of the variables, pharmaceutical expenditures show contradicting trends when measured as per capita pharmaceutical expenditures and pharmaceutical share of total health expenditures. Next, a regression analysis is performed on data from 1970 – 2000 for 19 OECD countries. Regression diagnostics indicated the absence of multicollinearity but the presence of heteroscedasticity and autocorrelation. Based on the Hausman test, a fixed effect model was chosen. As in all previous empirical research, per capita GDP turned out to be the most influential explanatory variable. While public financing of health care was always three out of four samples significantly inversely related to health expenditures, public delivery as a NHS dummy was always significantly positively related to the dependent variable. Unlike previous research, ageing is consistently and significantly related to higher total health expenditures and, so is urbanization. Finally, all samples show a highly negative relationship between share of pharmaceutical expenditures and health expenditures, suggesting support for the substitution theory.
    Keywords: health care expenditure; health care system ; health economics ; health policy ; comparative
    Date: 2006–05
  22. By: Shamit Chakravarti; Sanjeev Gupta; Luc Leruth; Luiz de Mello
    Abstract: This paper assesses changes in the size and scope of government in 24 transition economies. Whereas these governments have retrenched in terms of public expenditures in relation to GDP, as well as public employment as a share of population, some indicators suggest that size remains high (e.g., rising indebtedness, a heavy regulatory burden, and prevalence of noncash transactions). At the same time, the scope of government activities-although evolving-has not necessarily become appropriate. This paper provides some recommendations for aligning the scope of government with the increasing market orientation of these economies.
    Keywords: Transition economies , Government expenditures , Public debt ,
  23. By: Katalin Balla (Hungarian Academy of Sciences); János Köllo (Hungarian Academy of Sciences and IZA Bonn); András Simonovits (Hungarian Academy of Sciences, Budapest University of Technology and CEU)
    Abstract: We extend the benchmark model of Aghion and Blanchard (1994), assuming two segments of the emerging private sector that differ in workers’ productivity. We look at the paths of employment, wages, taxes, labor costs and profits during and after the transition, up until the shock is fully absorbed. Viability is a function of the speed of job destruction and the strength of the initial shock to employment. In the long run, the system asymptotically converges to full employment. If the rate of job destruction is sufficiently low, the unemployment rates can get close to steady-state values during the transition. Within the realm of feasible scenarios, unemployment differentials are simultaneously determined by the speed of destruction, the level of benefits and the cross-subsidization of low-productivity groups. Lower benefits induce higher aggregate employment and inequalities throughout the redeployment process, while higher subsidies are conducive to lower inequalities and higher aggregate employment. The choice between low versus high benefits is a matter of preferences but the systems with subsidies dominate the systems with no subsidies. The subsidy has strongest marginal effect on employment and income when job destruction is fast and benefits are high.
    Keywords: transition, heterogeneous labor, job creation, unemployment benefit, wage subsidy
    JEL: J64 P31 H53
    Date: 2006–06
  24. By: Pinto Moreira, Emmanuel; Bayraktar, Nihal; Agenor, Pierre-Richard
    Abstract: The authors propose a " bottom up " approach to link public investment programs with a class of macro models recently developed to quantify Strategy Papers for Human Development (SPAHD) in low-income countries. The methodology involves establishing constant-price projections of investment outlays (disaggregated into infrastructure, education, and health), spending on maintenance and other goods and services, salaries, and user charges. These estimates are incorporated in a SPAHD macro framework to calculate, under alternative scenarios, domestic financing, foreign borrowing, and aid requirements. The authors also evaluate the impact on growth and indicators associated with the Millennium Development Goals. They use illustrative applications, based on a SPAHD model for Niger, to highlight the link between tax reform and aid requirements.
    Keywords: Public Sector Economics & Finance,Economic Theory & Research,Public Sector Expenditure Analysis & Management,Investment and Investment Climate,Population Policies
    Date: 2006–06–01
  25. By: Karsten Staehr
    Abstract: This paper considers the effects of sequencing and reform speed on output performance in transition countries. These largely unsettled issues are addressed using principal component techniques to construct reform clusters and by explicit tests of speed effects. The results indicate that broad-based reforms are good for output growth, but so is a policy of liberalisation and small-scale privatisation without structural reforms. Conversely, large-scale privatisation without adjoining reforms, market opening without supporting reforms and bank liberalisation without enterprise restructuring affect growth negatively. Swift reform policies allow transition countries to benefit from higher growth for longer time. The speed of reforms appears otherwise to have little effect on growth in the short and medium term.
    JEL: P21 P30 H11 C33
    Date: 2005–12–07
  26. By: Jan C. van Ours (Tilburg University, CentER, CEPR and IZA Bonn:); Milan Vodopivec (World Bank and IZA Bonn)
    Abstract: This paper investigates how the potential duration of unemployment benefits affects the quality of post-unemployment jobs. It takes advantage of a natural experiment introduced by a change in Slovenia’s unemployment insurance law that substantially reduced the potential benefit duration. Although this reduction strongly increased job finding rates, the quality of the post-unemployment jobs remained unaffected: the paper finds that the law change had no effect on either the type of the contract (temporary vs. permanent), the duration of the postunemployment jobs, or the wage earned in this job.
    Keywords: unemployment insurance, potential benefit duration, job separation rates, post-unemployment wages
    JEL: C41 H55 J64 J65
    Date: 2006–06
  27. By: Anders Åslund (Institute for International Economics); Nazgul Jenish (University of Maryland)
    Abstract: In the first decade of postcommunist transition, multiple growth regressions showed that the more radical and comprehensive market economic reform was, the earlier a country returned to economic growth and the more vigorous its growth, and that Central Europe took the lead. Since 2000, however, the Commonweath of Independent States (CIS) countries have had more than 4 percentage points higher annual growth than the Central European countries. A regression analysis for 20 postcommunist countries shows, with strong significance, that reducing public expenditures has most effectively stimulated economic growth. As expected, oil exports are also positive and significant. The distance from the European Union is also positive and significant: that is, the further from the European Union, the higher the economic growth. The effect of corruption is negative for growth but only marginally significant. Neither the laggard effect nor investment reveals any significant effect. The conclusion is that at least among postcommunist countries more emphasis should be given to reducing public expenditures to boost economic growth.
    Keywords: economic systems, transition, economic growth, public sector economy, oil
    JEL: E62 H30 O23 P27 P35 Q43
    Date: 2006–06
  28. By: Alexander Pivovarsky
    Abstract: This paper investigates the relationship between ownership concentration and enterprise performance in Ukraine. Using data on 376 medium and large enterprises, it finds that ownership concentration is positively associated with enterprise performance in Ukraine. The paper also finds that concentration of ownership by foreign companies and banks is associated with better performance than ownership concentrated by the domestic owners. Ownership by Ukrainian investment funds and holding companies does not have a positive effect on performance. In contrast to predictions by many observers of early transition, privatization methods had a lasting effect on ownership structure in Ukraine.
    Keywords: Privatization , Ukraine , Governance , Transition economies ,
  29. By: Randall Reback (Barnard College, Columbia University)
    Abstract: This paper examines whether minimum competency school accountability systems, such as those created under No Child Left Behind, influence the distribution of student achievement. Because school ratings in these systems only incorporate students' test scores via pass rates, this type of system increases incentives for schools to improve the performance of students who are on the margin of passing but does not increase short-run incentives for schools to improve other students' performance. Using student-level, panel data from Texas during the 1990's, I explicitly calculate schools' short-run incentives to improve various students' expected performance, and I find that schools do respond to these incentives. Students perform better than expected when their test score is particularly important for their schools' accountability rating. Also, low achieving students perform better than expected in math when many of their classmates' math scores are important for the schools' rating, while relatively high achieving students do not perform better. Distributional effects appear to be related to broad changes in resources or instruction, as well as narrowly tailored attempts to improve the performance of specific students.
    Keywords: School Accountability; Performance measures; Test scores; No Child Left Behind; School Ratings; Incentives; Distributional Effects; Minimum Competency
    JEL: I28 H39
    Date: 2006–05
  30. By: Joachim Ahrens; Philipp Mengeringhaus
    Abstract: This study introduces a coherent comparative concept of governance, applies it to China, and elaborates to what extent the Chinese institutional matrix exhibits characteristics of a market-enhancing governance structure (MEGS). It is argued that a subtle interplay of political and economic institutions created a stable and viable politico-institutional foundation which made China's unorthodox transition strategy politically feasible and economically effective. The paper concludes with an assessment of the quality of the overall Chinese governance structure and its expected implications for the future transition process.
    JEL: H70 H83 P26 P35
    Date: 2006–06–12

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