nep-reg New Economics Papers
on Regulation
Issue of 2006‒02‒05
thirteen papers chosen by
Christian Calmes
Universite du Quebec en Outaouais, Canada

  1. Potential competitive effects on U.S. bank credit card lending from the proposed bifurcated application of Basel II By William W. Lang; Loretta J. Mester; Todd A. Vermilyea
  2. Dérégulation et R&D dans le secteur énergétique européen By GROSSE Olivier; SEVI Benoît
  3. Product Market Deregulation and the U.S. Employment Miracle By Monique Ebell; Christian Haefke
  4. Canadian compulsory school laws and their impact on educational attainment and future earnings By Oreopoulos, Phil
  5. Anticipated versus Realized Benefits: Can Event Studies be Used to Predict the Impact of New Regulations By Kara M. Reynolds
  6. Corruption and the Shadow Economy: An Empirical Analysis By Axel Dreher; Friedrich Schneider;
  7. Endogenous Corruption and Tax Evasion in a Dynamic Model By Antonio Acconcia
  8. Dumping on U.S. Farmers: Are There Biases in Global Antidumping Regulations? By Kara M. Reynolds
  9. Asset Return Correlation in Basel II: Implications for Credit Risk Management. By Marie-Paule Laurent
  10. Romania, between the “magnetism” of Structural Funds and the “corrective” tools of EU state aid regulations By Gabriela Dragan
  11. Strategic city projects, legal systems and professional effectiveness By Menno Van der Veen; Willem Korthals Altes
  12. Evaluating the impact of investment incentives - the case of the Italian Law 488 By Raffaello Bronzini; Guido De Blasio
  13. Bureaucratic Rents and Life Satisfaction By Simon Luechinger; Stephan Meier; Alois Stutzer

  1. By: William W. Lang; Loretta J. Mester; Todd A. Vermilyea
    Abstract: This paper analyzes the potential competitive effects of the proposed bifurcated application of Basel II capital regulations in the United States on bank credit card lending activities. For this purpose, the authors consider the Basel II regulations as stated in the June 2004 Basel Committee Framework Agreement.
    Date: 2005
  2. By: GROSSE Olivier; SEVI Benoît
    Date: 2005
  3. By: Monique Ebell (Humboldt University of Berlin and University of Pennsylvania); Christian Haefke (CSIC, Universitat Pompeu Fabra, CREA and IZA Bonn)
    Abstract: We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matching model with monopolistic competition in the goods market and individual wage bargaining. Product market competition affects unemployment by two channels: the output expansion effect and a countervailing effect due to a hiring externality. Competition is then linked to barriers to entry. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980’s and 1990’s could be attributed to product market deregulation. Our quantitative analysis suggests that under individual bargaining, a decrease of less than two tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount.
    Keywords: product market competition, barriers to entry, wage bargaining
    JEL: E24 J63 L16 O00
    Date: 2006–01
  4. By: Oreopoulos, Phil
    Abstract: Compulsory school laws have existed in Canada for more than a hundred years, and policies to mandate further education continue to be discussed. This paper examines the impact of these laws on education attainment and on subsequent social economic outcomes for individuals compelled to stay in school. The findings indicate that mandating education substantially increased adult income and substantially decreased the likelihood of being below the low income cut-off, unemployed, and in a manual occupation. Considering possible costs incurred while attending school, these findings suggest compulsory schooling legislation was effective in generating large lifetime gains to would-be-dropouts.
    Date: 2005–05–19
  5. By: Kara M. Reynolds (Department of Economics, American University)
    Abstract: Economists often use event study methodology to evaluate the impact of new regulations on firms. This research investigates the degree to which event study methodology can provide useful information in this regard by studying how accurately markets predict the actual benefits associated with a new law.
    Keywords: Byrd Amendment, Antidumping, Event Study
    JEL: F13
    Date: 2006–01
  6. By: Axel Dreher (Swiss Federal Institute of Technology, Zurich); Friedrich Schneider (University of Linz and IZA Bonn);
    Abstract: This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a crosssection of 120 countries and a panel of 70 countries for the period 1994-2002. Our results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. We also find that stricter regulations increase both corruption and the shadow economy.
    Keywords: corruption, shadow economy, regulation, tax burden
    JEL: D73 H26 O17 O5
    Date: 2006–01
  7. By: Antonio Acconcia (Università di Napoli Federico II and CSEF)
    Abstract: I analyze a model where the size of tax evasion, the di¤usion of bureaucratic corruption, and the strength of deterrence are jointly determined with capital accumulation, in a framework with private and public inputs of production. I show that, at any time t, the government’s ob jective of reducing the di¤usion of corruption, through more tough punishment, is found to be potentially responsible for greater evasion; an increase in …scal pressure causes more tax evasion and may also induce more corruption. The long-run performance of the economy is signi…cantly a¤ected by corruption, its impact depending upon the size of the public sector and the cost of deterrence. When the government heavily distorts the composition between public and private inputs of production, by implementing an high tax rate, corruption could mitigate the ensuing ine¢ciency. In this case, an higher cost of deterrence determines a higher level of income. Otherwise, corruption is negatively correlated with the level of development. Finally, under nonconvexities in the activity of deterrence poverty traps emerge, and the steady state level of income depends upon the initial condition. Some implications of the model are in line with recent empirical evidence.
    Keywords: Tax evasion, corruption, public spending, poverty traps
    JEL: D73 H26 H41 K42 O41
    Date: 2006–01–01
  8. By: Kara M. Reynolds (Department of Economics, American University)
    Abstract: The explosion of antidumping activity over the past 10 years has raised concern among agriculture analysts that antidumping regulations are biased toward imposing more protection on U.S. agricultural goods than other products. This research fails to find a statistically significant bias in the outcomes of antidumping investigations involving agricultural goods compared to other products, nor does it find significant evidence that foreign antidumping investigations into imports of food products have resulted in higher levels of protection than U.S. investigations. However, the results from a comprehensive case study analysis suggest that despite the lack of statistical evidence of bias, U.S. agricultural producers have reason to question the fairness of global antidumping regulations. Given these results, government officials should consider whether U.S. food producers could be better served by changes to both U.S. antidumping regulations and the World Trade Organization Antidumping Agreement.
    Keywords: antidumping, agriculture trade, import protection
    JEL: F13 Q17
    Date: 2006–01
  9. By: Marie-Paule Laurent (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
    Abstract: The Basel Committee is currently reviewing the Accord on capital adequacy. It should provide new approaches that are more sensitive to risks. This paper focuses on the Internal Rating Based Advanced approach for retail exposures, which is compared to a one systematic factor model in order to highlight the underlying hypotheses of Basel II. The Basel framework assumes that the asset return correlation is solely determined by the probability of default (PD). However, the one-factor model highlights the influence of the volatility of PD on the asset return correlation, especially for low PDs. The assumption of the Basel framework implies first that there may be opportunities for regulatory arbitrage. Second, as the regulatory capital curve is concave in PD, it gives an incentive to decompose the portfolio into segments only for reducing the capital requirement. Finally, the inaccurate measure of asset return correlation might be misleading for credit risk management. The Basel framework is applied to a large portfolio of retail contracts (35,787 individual automotive lease contracts) provided from a major European financial institution. We show that the outcomes of Basel II are empirically relevant.
    Keywords: credit risk, Basle II, asset correlation
    JEL: G11 G18
    Date: 2004–04
  10. By: Gabriela Dragan
    Abstract: The paper intends to explain the relevance of the acquis communautaire on state aid in the context of Romanian regional policy-making. EU state aid regulations impose a number of restrictions on regional aid spending, which in their combination are intended to concentrate and modulate overall spending within priority areas. The paper reviews the Romanian legal, institutional and procedural frameworks on state aids and briefly analyses the main financial support schemes designed by the Romanian authorities to support regional development. The information presented in this paper are based on a more exhaustive research project which I coordinated in the framework of a Phare Project (see: Gabriela Dragan (coordinator), Isabela Atanasiu, “Romanian special development zones and EU state aid policy”, Pre-Accession Impact Studies, European Institute of Romania,
    Date: 2005–08
  11. By: Menno Van der Veen; Willem Korthals Altes
    Abstract: Differences between the legal systems of common law and civil law have attained attendance in the economic literature of “the new comparative economics” (Djankov et al, 2003) A relevant difference between these legal systems is in the principle of good faith, which has a specific meaning in private law. It does not only refer to a principle of honesty and fair dealing (subjective good faith) but the good faith provisions in the civil code are also a basis for a judge to interpret, supplement or even set aside contract provisions parties have agreed on (objective good faith). Whereas the principle of good faith is accepted in civil law (the law of the European continent), the common law (Anglo-American law) has until now not accepted a general (objective) good faith principle. This paper will relate this aspect of difference of these legal systems to two different models of professional practice that are developed by Argyris and Schön (1974) in the classical work “Theory in practice: increasing professional effectiveness”. The paper shows that common law system fits better with a model 1 of professional behavior and the civil law system with model 2. Relevant is that according to Argyris and Schön these models are not equally effective, i.e., “double-loop learning” would not occur in model 1, unless through revolutionary change. The paper investigates whether these theoretical insights come to the ground in strategic city projects. Two case studies are analyzed, i.e. the Mahler 4 project in the South Axis of Amsterdam and to plot 16/17 in Battery Park City, New York. It shows that the relationships between agents in these projects reflect the differences in legal systems, and that this has also consequences for professional competences. The paper proposes research questions to develop further insights in the practical meaning, to strategic urban projects, of the different doctrines of good faith in common law and civil law.
    Date: 2005–08
  12. By: Raffaello Bronzini; Guido De Blasio
    Abstract: Since the second half of the ’90s, investment incentives channelled through the Law 488 have represented the main policy instrument for reducing territorial disparities in Italy. From 1996 to 2003, the total amount of funds distributed to industrial firms has accounted for 16 billion of euro, involving 27,846 financed projects, mainly in southern regions. The Law 488 allows firms willing to invest in lagged areas to receive a public subsidy that covers a fraction of the investment outlays. The incentives are assigned through competitive auctions according to pre-determined specific criteria, such as the proportion of own funds invested in the project; the number of jobs involved and the value of assistance sought as a proportion of the maximum award rate applicable to the project. This paper aims at evaluating the impact of Law 488 subsidies on firms’ investment by using the econometric tools of program evaluation. We employ a unique dataset provided by the Italian Ministry of Industry, which records all the firms that have requested the grants (either subsidised or non subsidised firms), and match these data with the balance sheet information from the Company Account Data Service for the period 1994-2001. Our matched dataset allows us to evaluate whether the Law 488 made it possible investments that otherwise would not have been done. In doing so, we tackle two issues that have plagued the empirical analyses so far. First, we analyse the extent to which investments have been triggered by intertemporal substitution. In expectation of the introduction of the Law 488 firms could have postponed (anticipated) investment projects originally planned for the pre (post) Law 488 period. Second, we study the role of cross-sectional substitution. Subsidised firms could have taken some of the investment opportunities that non subsidised firm would have got in absence of the incentives.
    Date: 2005–08
  13. By: Simon Luechinger; Stephan Meier; Alois Stutzer
    Abstract: The monopoly position of the public bureaucracy in providing public services allows government employees to acquire rents. Those rents can involve higher wages, monetary and non-monetary fringe benefits (e.g. pensions and staffing), and/or bribes. We propose a direct measure to capture the total of these rents: the difference in reported subjective well-being between bureaucrats and people working in the private sector. In a sample of 38 countries, we find large variations in the extent of rents in the public bureaucracy. The extent of rents is determined by differences in institutional constraints and correlates with perceptions of corruption. We find judicial independence to be of major relevance for a tamed bureaucracy.
    Keywords: public sector, rents, life satisfaction, corruption, judicial independence
    JEL: D72 D73 I31 J30 J45 K42 H11 H83
    Date: 2006–01

This nep-reg issue is ©2006 by Christian Calmes. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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