nep-reg New Economics Papers
on Regulation
Issue of 2006‒08‒05
twelve papers chosen by
Christian Calmes
Universite du Quebec en Outaouais, Canada

  1. Banks’ regulatory capital buffer and the business cycle: evidence for German savings and cooperative banks By Stolz, Stephanie; Wedow, Michael
  2. Cyclical implications of minimum capital requirements By Heid, Frank
  3. Reforming Employment Protection Legislation in France By Jian-Ping Zhou
  4. Legislature size and government spending in Italian regions: forecasting the effects of a reform. By Fiorino, Nadia; Ricciuti, Roberto
  5. Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden By Per Engström; Bertil Holmlund
  6. Ambiguity Aversion and the Criminal Process By Uzi Segal; Alex Stein
  7. Corruption and Development Indicators: An Empirical Review By Nelson Ramírez-Rondán; Saki Bigio
  8. Corruption and the shadow economy: An empirical analysis By Axel Dreher; Friedrich G. Schneider
  9. Privatization and Efficiency: from Principals and Agents to Political Economy By Alberto Cavaliere
  10. Is Crime Contagious? By Jens Ludwig; Jeffrey R. Kling
  11. The Effect of Court-Ordered Hiring Quotas on the Composition and Quality of Police By Justin McCrary
  12. The Regulation of Professional Migration in ASEAN - Insights from the Health and IT Sectors By Chris Manning; Alexandra Sidorenko

  1. By: Stolz, Stephanie; Wedow, Michael
    Abstract: This paper analyzes the effect of the business cycle on the regulatory capital buffer of German savings and cooperative banks in the period 1993–2003. The capital buffer is found to fluctuate anticyclically over the business cycle. The fluctuation is stronger for savings banks than for cooperative banks, as, for savings banks, risk-weighted assets fluctuate more strongly with the business cycle. Further, low-capitalized banks do not catch up with their wellcapitalized peers. The gap between low-capitalized and well capitalized banks even widened over the observation period. Finally, low-capitalized banks do not decrease risk-weighted assets in a business cycle downturn by more than well-capitalized banks. This finding seems to imply that their low capitalization does not force them to retreat from lending.
    Keywords: Capital Regulation, Bank Capital, Business Cycle Fluctuations
    JEL: G21 G28
    Date: 2005
  2. By: Heid, Frank
    Abstract: Capital requirements play a key role in the supervision and regulation of banks. The Basel Committee on Banking Supervision is now changing the current framework by introducing risk-sensitive capital charges. There have been concerns that this will unduly increase volatility in the banks’ capital. Furthermore, when the credit supply is rationed, capital requirements may exacerbate an economic downturn. We examine the problem of cyclicality in a macroeconomic model which explicitly takes regulatory constraints into account. We find that the capital buffer which banks hold on top of the required minimum plays a crucial role in mitigating the volatility in capital requirements. Therefore, despite the fact that capital charges may vary significantly over time, the effects on the macroeconomy will be moderate.
    Keywords: minimum capital requirements, regulatory capital, economic capital, capital buffer, pro-cyclicality, business cycle, bank lending channel
    JEL: E32 E44 G21
    Date: 2005
  3. By: Jian-Ping Zhou
    Abstract: Over the last 15 years, the reforms of employment protection legislation (EPL) in European countries have mainly eased hiring and firing restrictions for temporary employment while leaving the strict EPL provisions for regular or permanent contracts unchanged. Recent reforms in France follow this pattern. Using a search-matching model, we argue that this type of partial reform is inefficient: easing restrictions on temporary jobs fosters both job creation and job destruction, but strict EPL discourages both. The overall impact on equilibrium unemployment is thus ambiguous, depending on the characteristics of the specific labor market. Simulations of the model, calibrated for the French labor market, suggest that the job destruction effect is stronger, thus raising the unemployment rate.
    Keywords: Unemployment , France , Labor markets , Economic models ,
    Date: 2006–05–10
  4. By: Fiorino, Nadia; Ricciuti, Roberto
    Abstract: We analyze the effect of different legislature size on per capita regional expenditure in Italy. According to the theory, legislature size has an indefinite effect on government spending because logrolling and transaction costs may have canceling effects. We find a large and significantly positive effect of the number of legislators. We use these findings to forecast the effects of the increase in the number of legislators that is taking place in some regions: a 10% increase in legislature size commands on average a 12% increase in per capita regional expenditure.
    Keywords: Legislature size, regional expenditure
    JEL: H72 H73
    Date: 2006–07
  5. By: Per Engström; Bertil Holmlund
    Abstract: Self-employed individuals have arguably greater opportunities than wage earners to underreport their incomes. The incentives for underreporting should be especially strong in an economy with generally high taxes. This paper uses recent income and expenditure data to examine the extent of underreporting of income among self-employed individuals in Sweden. A key hypothesis is that underreporting of incomes among the self-employed would be visible in the data as “excess food consumption”, for a given level of observed income. Our results confirm the underreporting hypothesis. In particular, we estimate that households with at least one self-employed member underreport their total incomes by around 30 percent. Underreporting appears to be twice as prevalent among self-employed people with unincorporated businesses as among those with incorporated businesses.
    Keywords: tax evasion, self-employment, Engel curves
    JEL: D12 H24 H25 H26
    Date: 2006
  6. By: Uzi Segal (Boston College); Alex Stein (Benjamin N. Cardoso School of Law)
    Abstract: This is the first article to examine the effects of ambiguity aversion on the criminal process. Ambiguity aversion is a person’s rational attitude towards probability's indeterminacy. When a person is averse towards such ambiguities, he increases the probability of the unfavorable outcome to reflect that fear. This observation is particularly true about a criminal defendant who faces a jury trial. Neither the defendant nor the prosecution knows whether the jury will convict the defendant. Their best estimation relies on a highly generalized probability that attaches to a broad category of similar cases. The prosecution, as a repeat player, is predominantly interested in the conviction rate that it achieves over a long series of cases. It therefore can depend on this general probability as an adequate predictor of this rate. The defendant only cares about his individual case and cannot depend on this general probability. From the defendant's perspective, his individual probability of conviction is ambiguous. The defendant consequently increases this probability to reflect his fear of that ambiguity. Because most defendants are ambiguity-averse, while the prosecution is not, the criminal process systematically involves and is thoroughly affected by asymmetric ambiguity-aversion.
    Date: 2005–08–02
  7. By: Nelson Ramírez-Rondán (Central Bank of Peru); Saki Bigio (New York University)
    Abstract: In this paper we report international evidence on the relationship between corruption and several development indicators such as economic stability, quality in educational expenditures, fiscal income, inequality, investment and economic growth. We first show how this relationship is negative by presenting simple unconditional correlations between corruption and these indicators. We then procede to quantify the effects of corruption on growth: we estimate a Dynamic Panel Data model for a sample of 80 countries and taking 1960-2000 as our sample period. Our findings suggest that in improvement in corruption indicators from levels in Latina America and Africa to developed country standards would increase output growth in 0,5% and 0,7% respectively.
    Keywords: Corruption, Development, Growth
    JEL: D73 O11 O50
    Date: 2006–06
  8. By: Axel Dreher (Department of Management, Technology, and Economics, KOF, ETH Zürich (Swiss Federal Institute of Technology Zurich), CH-8092 Zürich, Switzerland); Friedrich G. Schneider (Department of Economics, Johannes Kepler University Linz, Austria)
    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
  9. By: Alberto Cavaliere (Università di Pavia)
    Abstract: We survey the theoretical literature on privatization and efficiency by tracing its evolution from the applications of agency theory to recent contributions in the field of political economy. The first ones extend the theory of regulation with incomplete information to address privatization issues, comparing State Owned Entreprises (SOEs) with private regulated firms. The benefits of privatization may either derive from the constraints it places on malevolent agents or to the impossibility of commitment by a benevolent government because of incomplete contracts. Contributions dealing with political economy issues separate privatization from restructuring decisions. They either explore bargaining between managers and politicians or analyze the impact of privatization shaped by political preferences on efficiency. The theoretical results regarding the relation between privatization and efficiency do not lead to any definitive conclusion. Privatization may increase productive efficiency when restructuring takes place whereas its effects on allocative efficiency still remain uncertain.
    Keywords: Regulation, Imperfect Information, Political Preferences
    JEL: L33 D82 P26
    Date: 2006–06
  10. By: Jens Ludwig (Georgetown University, NBER and IZA Bonn); Jeffrey R. Kling (Brookings Institution and NBER)
    Abstract: Understanding whether criminal behavior is "contagious" is important for law enforcement and for policies that affect how people are sorted across social settings. We test the hypothesis that criminal behavior is contagious by using data from the Moving to Opportunity (MTO) randomized housing-mobility experiment to examine the extent to which lower localarea crime rates decrease arrest rates among individuals. Our analysis exploits the fact that the effect of treatment group assignment yields different types of neighborhood changes across the five MTO demonstration sites. We use treatment-site interactions to instrument for measures of neighborhood crime rates, poverty and racial segregation in our analysis of individual arrest outcomes. We are unable to detect evidence in support of the contagion hypothesis. Neighborhood racial segregation appears to be the most important explanation for across-neighborhood variation in arrests for violent crimes in our sample, perhaps because drug market activity is more common in high-minority neighborhoods.
    Keywords: endogenous effects, social multiplier, arrests, social experiment
    JEL: H43 I18 J23
    Date: 2006–07
  11. By: Justin McCrary
    Abstract: Arguably the most aggressive affirmative action program ever implemented in the United States was a series of court-ordered racial hiring quotas imposed on municipal police departments. My best estimate of the effect of court-ordered affirmative action on workforce composition is a 14 percentage point gain in the fraction African American among newly hired officers. Evidence on police performance is mixed. Despite substantial black-white test score differences on police department entrance examinations, city crime rates appear unaffected by litigation. However, litigation lowers slightly both arrests per crime and the fraction black among serious arrestees.
    JEL: H4 H7 J1 J4 J7 K3 K4
    Date: 2006–07
  12. By: Chris Manning; Alexandra Sidorenko
    Abstract: This study assesses the extent of regulation of in-migration of professionals into ASEAN countries. The focus is on two selected sectors, health care and information technology (IT). Both sectors have been given special attention in regional trade negotiations which seek to increase the mobility of professionals in ASEAN. The study is set in the framework of rising demand for more skilled manpower, associated with rapid economic growth and a high income elasticity of demand for services. We develop measures to assess the extent of regulation of in-migration in recipient countries, as well as the depth of commitments to the mobility of professionals under Mode 4. The study links several indices of regulation to stages of economic development. It finds that the more advanced countries in ASEAN tend to have made more liberal commitments under Mode 4. They also had more liberal regimes for international movements of skilled manpower in both health and IT. However there was less difference between more and less developed countries regarding general visa and work permit arrangements. Finally, because of their greater social significance, regulations related to the migration of health professionals tended to be more restrictive than for IT professionals.
    Keywords: International Migration, Trade and Labour Markets, Professional Labour, Health Care Professionals
    JEL: F16 F22 I18 J44
    Date: 2006

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