nep-sea New Economics Papers
on South East Asia
Issue of 2005‒05‒07
sixteen papers chosen by
Kavita Iyengar
Asian Development Bank

  1. Effects of culture on tax compliance: A cross check of experimental and survey evidence By Ronald G. Cummings; Jorge Martinez-Vazquez; Michael McKee; Benno Torgler
  2. Making Fiscal Decentralization Work in Vietnam By Jorge Martinez-Vazquez
  3. Linking expenditure assignments and intergovernmental grants in Indonesia By Jorge Martinez-Vazquez; Jameson Boex; Gabe Ferrazzi
  4. Societal Institutions and Tax Effort in Developing Countries By Richard M. Bird; Jorge Martinez-Vazquez; Benno Torgler
  5. Getting it Right: Financing Urban Development in China By Richard M. Bird
  6. Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries By Richard M. Bird; Eric M. Zolt
  7. The Determinants of the Incidence of Intergovernmental Grants: A Survey of the International Experience By Jameson Boex; Jorge Martinez-Vazquez
  8. "NO, NO, NO, NO!": Three Sons of Connecticut Who Opposed the Chinese Exclusion Acts By Henry Cohn; Harvey Gee
  9. Loan Extension in China: a Rational Affair By Piet van Gennip
  10. Grain marketing parastatals in Asia By Rashid, Shahidur; Cummings, Ralph Jr.; Gulati, Ashok
  11. Intra-Industry Trade and Business Cycles in ASEAN By Carlos Cortinhas
  12. Third-Currency Effects in a Tri-Polar Model of Foreign Exchange By Martin Melecky
  13. Trade Barriers As Bargaining Outcomes By kishore gawande; hui li
  14. EVALUATION OF QUALITY ASSURANCE SYSTEMS IN THE AGRI-FOOD SECTOR By Maurizio Canavari; Domenico Regazzi; Roberta Spadoni
  15. Don’t Frighten the Horses – the Political Economy of Singapore’s Foreign Exchange Rate Regime since 1981 By Peter Wilson; Gavin Peebles
  16. A Dynamic Shift-Share Analysis of the Electronics Export Market 1988-2001: Can the NIEs Compete with China? By Peter Wilson; Ting Su Chern; Tu Su Ping; Edward Robinson

  1. By: Ronald G. Cummings; Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Michael McKee; Benno Torgler
    Abstract: There is considerable evidence that enforcement efforts can increase tax compliance. However, there must be other forces at work because observed compliance levels cannot be fully explained by the level of enforcement actions typical of most tax authorities. Further, there are observed differences, not related to enforcement effort, in the levels of compliance across countries and cultures. To fully understand differences in compliance behavior across cultures one needs to understand differences in tax administration and citizen attitudes toward governments. The working hypothesis is that cross-cultural differences in behavior have foundations in these institutions. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources. Results from laboratory experiments conducted in different countries demonstrate that observed differences in tax compliance levels can be explained by differences in the fairness of tax administration, in the perceived fiscal exchange, and in the overall attitude towards the respective governments. These experimental results are shown to be robust by replicating them for the same countries using survey response measures of “tax morale.”
    Keywords: tax compliance, tax morale, tax authorities
    Date: 2004–08–01
  2. By: Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: Vietnam is a poor country with large and increasing needs in infrastructure, education, health, and other areas of the public sector. The current policy of the Government of Vietnam (GOV) is not to increase tax effort, but actually to reduce it. Recently, the GOV has cut the rates of several taxes with the goal of making Vietnam’s exports more competitive internationally and to attract more foreign direct investment. Tax revenues will be further cut in the near future as the GOV prepares for accession to the WTO by reducing the level and dispersion of customs tariff rates.
    Keywords: Fiscal Decentralization,Vietnam, tax effort
    Date: 2004–08–01
  3. By: Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Jameson Boex (Andrew Young School of Policy Studies, Georgia State University); Gabe Ferrazzi
    Abstract: Indonesia is currently in the process of evaluating and revising the decentralization legislation and the progress made during the first stage of its “big bang” decentralization reforms. This first wave of decentralization reform was implemented without major interruptions in service delivery as had been feared by some. However, initial and partial field evidence suggests that the long-term viability of service delivery may now be threatened in some local governments and in some sectors. In particular, there is a danger that the proliferation of obligatory functions and minimum service standards that far outstrip available resources will undermine functioning and credibility of local government units (LGUs). To forestall this possibility, and address other shortcomings in the decentralization framework, the Government of Indonesia (GOI) is in the process of reviewing and refining its system of intergovernmental relations.
    Keywords: expenditure,intergovernmental grants, Indonesia
    Date: 2004–09–01
  4. By: Richard M. Bird (Director of the International Tax Program, Joseph L. Rotman School of Management, University of Toronto); Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University); Benno Torgler
    Abstract: “Will underdeveloped countries learn to tax?” asked Nicholas Kaldor (1963), forty years ago. Underlying this question is the assumption that if a country wishes to become ‘developed’ it needs to collect in taxes an amount greater than the 10-15 percent found in many developing countries. Kaldor’s answer to his question was essentially that since even the poorest country had sufficient ‘capacity’ in both economic and administrative terms to tax more, whether or not a particular country did so depended primarily on its political institutions. Would developing countries be fortunate enough to have those with political power voluntarily give up at least some of their power to block fiscal reform in exchange for social stability? Or would the ruling groups rather wait (in the spirit of après moi le deluge) for the revolutionary upheaval that he considered the only alternative?
    Keywords: Societal Institutions,Tax Effort,Developing Countries
    Date: 2004–09–01
  5. By: Richard M. Bird
    Abstract: China is the world’s most populous country. For some years, China has sustained a remarkably fast rate of economic growth. Despite the forests of construction cranes so often noted by visiting foreigners, however, China remains to a surprising extent a rural country, with only about one-third of its population living in urban areas. But China’s cities are growing rapidly, and within a decade half or more of its population will be urban. In addition to urbanizing less rapidly than would normally be expected for its growth rate, the pattern of urban growth in China during its recent rapid economic expansion has also not followed that found in other countries. In particular, contrary to experience in most of the world, its largest urban centers have on the whole grown less rapidly than the urban sector as a whole. Moreover, in some critical respects the internal pattern of growth within Chinese cities has also deviated from what economic logic would suggest is sensible – although in this respect at least its experience is not too different to what has been seen elsewhere.
    Keywords: Urban Development, China, Economic Growth
    Date: 2004–12–01
  6. By: Richard M. Bird; Eric M. Zolt
    Abstract: In developed countries, the income tax, especially the personal income tax, has long been viewed as the primary instrument for redistributing income and wealth. This article examines whether it makes sense for developing countries to rely on the income tax for redistributive purposes. We put forth three propositions. First, the personal income tax has done little to reduce inequality in many developing countries. This failure is not surprising given that in many countries personal income taxes are neither comprehensive nor very progressive—they often amount to little more than withholding taxes on labor income in the formal sector. Moreover, the personal income tax plays such a small role in the tax systems of developing countries that it would be unrealistic to believe that this tax could have a meaningful impact on distribution. Second, it is not costless to pretend to have a progressive personal income tax system. Tax systems generate real administrative, compliance, economic efficiency and political costs. The costs associated with badly designed and badly administered personal income tax systems likely exceed the costs associated with other taxes. There are opportunity costs as well. Third, given the ineffectiveness of the personal income tax, if countries want to use the fiscal system to reduce poverty or reduce inequality, alternative approaches merit consideration. Countries need to make better use of their expenditure programs in targeting resources to the poor. Given the dominance of taxes on consumption in the tax structure of developing countries, the distributional consequences of consumption taxes are of far greater importance than those of the personal income tax. Countries can also make greater use of benefit taxation and in particular fiscal decentralization may allow for better matching of those who benefit and those who pay for government activity. Finally, countries can consider alternatives to taxing income other than the current comprehensive income approach.
    Keywords: Redistribution, Taxation, Personal Income, and Developing Countries
    Date: 2005–03–01
  7. By: Jameson Boex (Andrew Young School of Policy Studies, Georgia State University); Jorge Martinez-Vazquez (Andrew Young School of Policy Studies, Georgia State University)
    Abstract: Although the presence of objective formula-based grants is an important component of a stable, equitable and efficient system of intergovernmental fiscal relations, the final incidence of grants is not always according to what is stated in the formula because there are other intervening institutional factors. Furthermore, the intergovernmental grant mechanism itself is often a function of the same interests or forces that ultimately drive the incidence of grant resources. This paper relates the horizontal allocation of intergovernmental grants directly to their potential underlying determinants, including normative policy issues, voter choice arguments and political considerations. An international comparison of empirical incidence studies reveals that besides local expenditure needs and local fiscal capacity, other factors including political influence and a jurisdiction’s size play important and consistent roles in determining the horizontal allocation of per capita intergovernmental grants.
    Keywords: Intergovernmental grants, survey of international experience, horizontal allocation of grants
    Date: 2005–03–01
  8. By: Henry Cohn (None); Harvey Gee (None)
    Abstract: In 1882, with the passage of the initial Chinese Exclusion Act, the United States committed an overt act of discrimination against its resident Chinese population. The Act, signed by then President Chester A. Arthur on May 6, 1882, had an undistinguished and mild official title, promising merely to implement treaty restrictions. However, its practical effect was devastating.
  9. By: Piet van Gennip
    Abstract: Against the background of the problem of Non Performing Loans, the lack of data causes bankingbehaviour in China being wrapped in mystery. By making use of data reported by Shenzhenlisted firms, this paper reveals some stylized facts on loan extension in China. For that purpose both static and dynamic panel data estimation techniques are applied to investigate the relationship between a firm's debt position and some potential explanatory variables. In its approach, the paper differs from the corporate leverage literature in the sense that it focuses on bank behaviour. The results, as they come forward in the paper, provide mixed evidence regarding the soundness of loan extension policy of Chinese banks. On the one hand, banks seem to pursue a restrictive policy towards firms that face poor profit performance. On the other hand, factors that are generally considered as being important conditions on loan extension by banks do not have the effect ascribed to them by both intuition and the literature.
    Keywords: Loan extension by banks; Corporate finance; Panel data estimation
    JEL: C33 D21 G21 G32
    Date: 2005–05
  10. By: Rashid, Shahidur; Cummings, Ralph Jr.; Gulati, Ashok
    Abstract: Using case studies from six Asian countries, this paper (a) assesses the relevance of underlying rationales for public intervention in foodgrain markets, (b) documents the existing policies and regulations that support operation of grain parastatals, (c) provides estimates of benefits and costs of parastatals, and (d) compares experiences of countries that liberalized (or reduced intervention) with the ones that continue to have significant presence of parastatals. Our results suggest that conditions in the region have improved significantly over the past thirty years; and none of the four commonly agreed rationales—that is, poorly integrated domestic markets, thin and volatile world market, promoting modern technology and the scarcity of foreign exchange reserves—for public intervention in foodgrain markets are now persuasive. Domestic foodgrain markets are integrated, international markets for both wheat and rice are significantly more robust than they were thirty years ago, High-Yielding Varieties (HYV) now cover practically all of the high potential area sown to wheat and rice; and foreign currency reserves have increased dramatically in all countries in recent years. However, although rationales have lost their significance, many countries continue to practice old policies and provide regulatory supports to parastatals, including monopoly control over international trade, preferential access to transportation, restrictions on movement of foodgrains, and cheap or interest-free credit. Relative to the private sector, the costs of the grain parastatals have been high and are increasing, as special interests and rent- seeking are increasingly dictating their operation. This is being manifested in various forms, such as excessive public stocks in India, vacillating import policies in Indonesia and Pakistan, questionable government foodgrain import decisions in the Philippines, and politically-determined ceiling and floor prices in India. On the other hand, the experiences of Bangladesh and Vietnam, both of which have implemented extensive reforms over the last fifteen years, suggest that reduced government intervention can promote competition in the domestic markets, reduce subsidies, and release funds for development and anti-poverty programs without jeopardizing price stability. The paper concludes that reforms are overdue and the delay in changing the old ways of doing price stabilization will be increasingly wasteful.
    Date: 2005
  11. By: Carlos Cortinhas (Universidade do Minho - NIPE)
    Abstract: Recently, a new resolve for both increased economic integration and monetary and exchange rate cooperation has started to emerge in ASEAN, especially since the 1997- 1998 Asian financial crisis. According to the optimum currency area theory, the degree of trade integration is one most important criterion for joining a currency union. The large increase in intra-ASEAN trade in recent years naturally raises the question of whether the ASEAN countries are becoming better prepared to form a currency union. This paper sets to test whether the recorded increase in intra-ASEAN trade is leading the ASEAN members to closer economic integration and thus to better satisfy the criteria for a common currency. Two separate models are estimated for that purpose. First, a variation of the model of Frankel and Rose (1997) was estimated for the ASEAN members. As the results were not very significant, a new methodology that uses the whole sample period data instead of dividing the data into sub-periods was conducted. The results with our own model were very significant and robust when four of the ASEAN5 countries were considered, and showed a clear positive correlation between intra-industry trade and business cycle synchronization in ASEAN. This result has important implications for the prospects of the creation of a common currency in the region.
    Keywords: Intra-Industry Trade; Business Cycle Harmonization; Economic Integration; Asean.
    JEL: F15 F33 E42
    Date: 2005
  12. By: Martin Melecky (School of Economics, University of New South Wales)
    Abstract: This paper investigates possible contribution of third-currency effects to exchange rate movements. It reopens the subject of currency substitution and examines whether the third-currency effects change when the third-currency is a complement as opposed to when it is a substitute for currencies appearing in a bilateral exchange rate quote. The analysis and tests are carried out within a simple macro-econometric model with one common permanent component driving the system of bilateral exchange rates for the US dollar, the Japanese yen and the euro.
    Keywords: Exchange Rate Modeling, Currency Substitution, Third-currency Effects
    JEL: F31 F36 F42
    Date: 2005–04–29
  13. By: kishore gawande (texas a&m); hui li (eastern illinois u.)
    Abstract: Whether bilateral trade barrier data conform with the Grossman-Helpman (1995) model’s predictions about “trade talks” is examined in this article. A simple form of the prediction from the model is tested. Bilateral US-Japan and US-EU data from the 1990s are employed. The results are the first in the literature.
    Keywords: Trade talks equilibrium; Nontariff barriers;
    JEL: F13 Q18 D72
    Date: 2005–05–03
  14. By: Maurizio Canavari (Alma Mater Studiorum-Università di Bologna); Domenico Regazzi (Alma Mater Studiorum-Università di Bologna); Roberta Spadoni (Alma Mater Studiorum-Università di Bologna)
    Abstract: The 'quality issue' in the agri-food sector has been gaining importance over the past few years. Firms are continually searching for techniques and tools which permit production of goods that meet as many as possible of the characteristics demanded by the market. Quality assurance methods and techniques can provide a useful tool for approaching evolving markets in the correct way. This paper focuses on a survey conducted in certain sub-sectors (fruit and vegetable, meal and pasta, wine) and is specifically restricted to the Emilia-Romagna region. The survey found that there is extensive awareness of and widespread interest in quality systems. However, the objective of initiating a pattern of renewal which incorporates quality systems has not yet been widely attained. The survey also highlighted a certain absence of the 'quality culture' necessary for correctly addressing these issues. The second part of this paper focuses on the economic analysis of the costs related to quality systems (QS). Its aim is to apply a method for collecting data on activities and resources, and to analyse the results. The importance of QS-related costs is evident if we are to consider it an investment, entailing the deployment of management effort and funds, and yielding a set of benefits in return. Case study analyses were conducted utilising an original classification scheme. From the initial results it is possible to identify the principal cost categories. The method adopted could be useful for firms wishing to monitor their QS.
    JEL: P Q Z
    Date: 2005–05–03
  15. By: Peter Wilson (Department of Economics, National University of Singapore); Gavin Peebles
    Abstract: In this paper we explore the links between Singapore’s foreign exchange rate regime since 1981 and the broader aspects of its political economy. Singapore has been remarkably successful in achieving fast growth, low and stable price inflation and a strong external position. An important part of this strategy has been its managed floating exchange rate regime, which is generally regarded as being successful, but this needs to be viewed within the broader context of the government’s ‘pragmatic socialism’ to keep inflation low and stable as the bedrock for attracting inflows of mobile foreign capital to sustain long-run export competitiveness, and an economic strategy based on high levels of centralized saving and investment, a high degree of government involvement in the economy and the relentless accumulation of foreign exchange reserves. Indeed, part of the reason why managed floating has been successful in Singapore has been because the credibility of monetary policy has been enhanced through the government’s command over resources and its ability to respond quickly and flexibly to changes in economic circumstances using, where necessary, unorthodox policies of demand management to cut business costs. Exchange rate policy, therefore, becomes an integral part of the policy to redistribute income to capital to sustain employment and prevent mobile firms from leaving Singapore. By the early 1990s the imperative became to diversify the structure of the economy away from exclusive reliance on a predominantly foreign manufacturing base and to reduce the extent of government involvement in the economy and it became harder to justify high levels of centralized saving and investment. The dilemma is that the government is finding it difficult to extricate itself from the economy without compromising policy effectiveness, and there is little evidence that dependence of the economy on foreign capital and labour has diminished.
    Keywords: Exchange Rate, People’s Action Party, Political Economy, Singapore
    JEL: F4 O10 P16
  16. By: Peter Wilson (Department of Economics, National University of Singapore); Ting Su Chern; Tu Su Ping; Edward Robinson
    Abstract: This paper uses dynamic shift-share analysis to examine the export performance of China in electronics compared to the east Asian NIEs exporting to the USA, European Union and Japan between 1988 and 2001. Our findings suggest that China has now emerged as a serious contender in the export market for electronics goods, but this position has not been a dominant one. Her main gains have been in consumer electronics and telecommunications equipment and to a lesser extent in disk-drives, printers and PCs; but in the higher-end exports of printed circuit boards and semiconductors, China has not yet gained a significant stronghold in developed country markets, at least to the extent that the growth in her overall exports and increase in market shares might suggest. Moreover, China’s success since the early 1990s has been largely underpinned by strong export growth rather than a favourable industry mix. Nonetheless, If China can sustain rapid growth in exports and is able consolidate its industrial base, China’s overall competitiveness can be expected to improve substantially in the future. Its low cost structure, an increasingly skilled workforce and an influx of technology and management skills associated with large foreign direct investment inflows, together with its recent entry into the WTO, places China in a very favourable position.
    Keywords: Trade, Competitiveness, Exports, East Asia, Shift-Share
    JEL: F10 F14

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