nep-tra New Economics Papers
on Transition Economics
Issue of 2016‒05‒08
eighteen papers chosen by
J. David Brown
United States Census Bureau

  1. "Flattening" the Tax Evasion: Evidence from the Post-Communist Natural Experiment By Filer, Randall K.; Hanousek, Jan; Lichard, Tomáš; Torosyan, Karine
  2. The Fiscal Risk of Local Government Revenue in the People’s Republic of China By Fan, Ziying; Wan, Guanghua
  3. Strengthening the role of local currencies in EU candidate and potential candidate countries By Windischbauer, Ulrich
  4. Forest Management Systems in the Mekong River Delta, Vietnam By Mai Van Nam; Nguyen Tan Nhan; Bui Van Trinh; Pham Le Thong
  5. The Impact of Piped Water on Household Welfare: Evidence from Vietnam By Nguyen Viet Cuong; Vu Thieu; Pham Minh Thu; Nguyen Xuan Truong
  6. Crisis, contagion and international policy spillovers under foreign ownership of banks By Michal Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
  7. The Role of Oil Prices, Real Effective Exchange Rate and Inflation in Economic Activity of Russia: An Empirical Investigation By Izatov, Asset
  8. Montenegro; 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Montenegro By International Monetary Fund. European Dept.
  9. Environmental Taxes and Rural-Urban Migration - A Study from China By Jing Cao
  10. Commodity Price Bubbles and Macroeconomics: Evidence from Chinese Agricultural Markets By Li, Jian; Chavas, Jean-Paul; Etienne, Xiaoli; Li, Chongguang
  11. Productivity Gap and Vertical Spillover: Evidence from Vietnam By Bin Ni
  12. What would be the Corn and Sorghum Price Gap Allowing China to Continue Importing Sorghum? By Wang, Haiyan; Malaga, Jaime
  13. Rural-Urban Migrants in Vietnam: Should we Stay in the Cities or Return Home? By Nguyen, Duc Loc; Grote, Ulrike
  14. Modelling the Vietnamese Economy By FitzGerald, John; Chi, Pho Thi Kim; Lam, Do Van; Ha, Hoang; Huong, Luong; Dung, Tran
  15. The Impact of Fiscal Subsidy on China’s New Rural Pension System: A Natural Experiment By Lin, Benxi; Zhang, Yu Yvette; Lin, Zongjian; Wang, Yongli; Liu, Weiping
  16. Regional Differences of Rural Financial Exclusion ——in Gansu and Jiangsu Province By Zhao, Yuying
  17. Does the Yuan’s Overseas Expansion Increase the Currency Exposure of Chinese Financial Firms? By Cuestas, Juan Carlos; Huang, Ying; Tang, Bo
  18. Residential Water Demand in China: Applications of Double-Log Model and EDM System By Zhou, Mo

  1. By: Filer, Randall K.; Hanousek, Jan; Lichard, Tomáš; Torosyan, Karine
    Abstract: We analyze the response of tax evasion to the introduction of a flat tax in several transition economies. Using a novel estimator based on household level data, we show that in most of the studied countries there was no discernible effect on the measured size of unreported income following flat tax reform. This may imply that decreases in marginal tax rate may frequently have been accompanied by parallel deterioration in attitudes towards public services and these countries' government in general as the only countries that show a response to the flat tax reform appear to be those where satisfaction with government services increased. Additionally, our results show a pro-cyclicality of the size of the shadow economy that is in line with previous research.
    Keywords: consumption-income gap; Flat tax; tax evasion; tax reform; underreporting
    JEL: C34 H26
    Date: 2016–04
  2. By: Fan, Ziying (Asian Development Bank Institute); Wan, Guanghua (Asian Development Bank Institute)
    Abstract: Since the Tax Sharing Reform in 1994, the local government revenue of the People’s Republic of China (PRC) has faced downward risk problems. This paper reviews the fiscal and taxation reforms in the central and local governments of the PRC and focuses on evaluating the effectiveness of fiscal transfers. We find that, to a certain extent, fiscal transfers significantly promote the construction of local infrastructure. Earmarked transfers had an effect, but lump-sum transfers did not. Results showed every 1% increase in earmarked transfers to be associated with a 5% increase in local spending on infrastructure. These fiscal transfers also increased the size of local government spending such that a 1% increase of fiscal transfer would increase the ratio of local fiscal spending to gross domestic product by 1%. The risk of the local fiscal revenue sources was also assessed, and results showed that land finance, local government bonds, and fiscal transfers from the central government are not sustainable in the long term. The local fiscal system in the PRC needs to focus on improving local taxes in the future, such as the property tax.
    Keywords: PRC fiscal risk; fiscal transfers; fiscal and tax reforms
    JEL: H54 H68 H71
    Date: 2016–04–22
  3. By: Windischbauer, Ulrich
    Abstract: This paper deals with the phenomenon of high levels of unofficial euroisation in countries preparing for EU membership (Albania, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Serbia and Turkey). The challenges stemming from unofficial euroisation are particularly relevant for central banks as high degrees of euroisation reduce the effectiveness of monetary policy and create risks to financial stability. Unofficial euroisation in these countries is fuelled by legacies of inflation and macroeconomic imbalances, close economic and financial linkages with the euro area, as well as the perspective of EU membership. While euroisation (or, more generally, dollarisation) is typically a sticky phenomenon that is difficult to reverse, entrenched as it is in the behaviour and mind-set of economic agents, the paper finds - based also on the experience of countries outside the region - that there is a set of policies under the competence of domestic authorities which are conducive to strengthening the use of domestic currencies, even though efforts to bring down dollarisation or euroisation rates typically take a long time to show results. In this context, macroeconomic stabilisation is a necessary but not sufficient condition. It needs to be flanked by targeted prudential and regulatory measures, as well as efforts to develop local currency capital markets. Authorities in EU candidate and potential candidate countries have already engaged in such endeavours and euroisation rates have gone down to some extent in recent years, though at different levels and at an uneven pace. Nevertheless, further efforts are needed, while acknowledging that some specific factors like the strong presence of euro area headquartered banks in these countries as well as their EU accession perspective are conducive to euroisation. JEL Classification: E42, E52, E58, F31, F41, G28
    Keywords: bank regulation, capital markets, currency, dollarisation, euroisation, financial stability, monetary policy, prudential policy, South-East Europe
    Date: 2016–04
  4. By: Mai Van Nam (School of Economics and Business Administration, Can Tho University); Nguyen Tan Nhan (Can Tho University); Bui Van Trinh (Can Tho University); Pham Le Thong (Can Tho University)
    Abstract: The management systems evaluated consists of buffer zone management system, strict protection, joint venture, and family/household commercial management system in the Melaluaca Forests of Mekong River Delta. Household survey in the four study sites consisting of Song Trem (contract household and joint venture-JV), Tram Chim (buffer Zone), Vo Doi (strict protection) and Giong Rieng (family/household commercial farms) was undertaken. The results of the study showed that forest products do not contribute much to the household income, especially in the light of the existing logging ban policy. The farmers had to rely mainly on rice farming, that is characterized by low yields, and on non-and off-farm activities such as hired labor that are highly seasonal and unstable. JV households are given very large land areas but earn less income from their forestlands. Harvesting of the forest is not allowed, which is potentially a big source of income for the JV households. Similarly, Buffer zone-contract households and those in the strict protection zone have not been able to benefit from their investment in forest management. There is therefore very little incentive to continue forest management activities for these households. The same cannot be 2 said for family/household commercial farms in forestland with about 50 years contract—where virtually “private ownership” exists. Income levels for this group are much higher, coming mostly from forestlands, with agriculture as the major land use system.
    Keywords: Forest Management Systems,Mekong River Delta, Vietnam
    Date: 2016–04
  5. By: Nguyen Viet Cuong (Institute of Public Policy and Management, National Economics University); Vu Thieu (Vietnam); Pham Minh Thu (Vietnam); Nguyen Xuan Truong (Ministry of Health of Vietnam)
    Abstract: Clean water is essential for human survival, yet many people do not have access to clean water in Vietnam. Only around 23 percent of the population had access to piped water in 2006. Other households have to use water from wells, rivers, and ponds without any purification. This study measured the effect of piped water on household welfare using difference-in-differences estimators on panel data from the Vietnam Household Living Standard Surveys. Results showed a positive effect of piped water on household income and labor supply, but these were not statistically significant. Piped water showed a negative effect on sickness of household members, but this was also not statistically significant.
    Keywords: piped water, welfare, Vietnam
    Date: 2016–04
  6. By: Michal Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
    Abstract: This paper checks how international spillovers of shocks and policies are modified when banks are foreign owned. To this end we build a two-country macroeconomic model with banking sectors that are owned by residents of one (big and foreign) country. Consistently with empirical findings, in our model foreign ownership of banks amplifies spillovers from foreign shocks. It also strenghtens the international transmission of monetary and macroprudential policies. We next use the model to replicate the financial crisis in the euro area and show how, by preventing bank capital out ow in 2009, the Polish regulatory authorities managed to reduce its contagion to Poland. We also find that under foreign bank ownership such policy is strongly prefered to a recapitalization of domestic banks.
    Keywords: foreign-owned banks, monetary and macroprudential policy, international spillovers, DSGE models with banking
    JEL: E32 E44 E58
    Date: 2016–03
  7. By: Izatov, Asset
    Abstract: In this study we employ an empirical analysis to observe the impact of changes in inflation rate, real exchange rate instability and oil price fluctuations on the level of real economic activity of Russia. Vector Autoregressive Model (VAR) was represented and estimated along with Vector Error Correction Model (VECM). There was revealed the existence of long-run cointegration between the economic activity, the real effective exchange rate and oil prices over the 01/1995-03/2015 period. In addition, the effect of these factors on the economic output is positive. However, the cointegration with the inflation was not present in the long-run over the sample period. While, in the short-run only real effective exchange rate had an effect on the economy of Russia. The important feature of this research is that there was revealed an automatic adjustment mechanism in the model, which helps the economy of Russia to reach its equilibrium after the shock. The paper insists on implementation of the relevant reforms to the fiscal policy to diversify and strengthen the economy.
    Keywords: macroeconomics empirical oil exchange inflation economy Russia monetary fiscal policy
    JEL: B22 C01 F62
    Date: 2015–11–25
  8. By: International Monetary Fund. European Dept.
    Abstract: Strong growth this year looks set to continue into the medium term. The authorities are seeking to accelerate growth and development, mainly through new infrastructure projects, but also with fiscal incentives. Although this growth strategy can bring substantial gains, it also poses sizeable risks, notably to public finances, and also in terms of the allocation of capital and financial stability. Gross debt has increased substantially over the past year and looks likely to increase significantly, to 80 percent of GDP. Staff recommends immediate and durable fiscal consolidation measures to limit risks to the public finances and to ensure favorable conditions for funding, particularly to the extent that further infrastructure projects would require additional public debt. Fiscal consolidation is also important for improving external balance, especially as the economy lacks independent monetary policy. A credible strategy to safeguard the health of the public finances would address longstanding problems with public expenditures, such as the very high level of spending on pensions and public sector wages. Measures should be supported by strengthening the fiscal framework and public financial management.
    Keywords: Europe;Montenegro;debt, monetary fund, financial stability, lending, public finances
    Date: 2016–03–08
  9. By: Jing Cao (Harvard China Project, Harvard University Center for the Environment and School of Economics and Management Tsinghua University, Beijing)
    Abstract: This study investigates the potential impact of two environmental tax regimes on the movement of rural people to China's cities. The study models the impact of a fuel tax and an output tax on the country's economy to get a full picture of how they would affect people's livelihoods and welfare, and how this would, in turn, affect rural-urban migration. The study sheds light on the implications of future environmental taxes and how they would affect urbanization and "rural-urban" migration in China. The study finds that both proposed taxes would discourage the flow of migrants from China's countryside to its cities. This would therefore exacerbate the current distortions in the country's labour market, where there is a surplus of rural labour. A comparison of the impact of the two taxes shows the fuel tax to be more efficient in terms of reducing pollution emissions and their associated environmental and health impacts. It also produces less distortion in the rural-urban migration process than the output tax. The study therefore recommends that this would be the preferable policy.
    Keywords: environmental taxation, rural-urban, China
    Date: 2016–04
  10. By: Li, Jian; Chavas, Jean-Paul; Etienne, Xiaoli; Li, Chongguang
    Abstract: This paper investigates the linkages between commodity price bubbles and macroeconomic factors, with an application to agricultural commodity markets in China from 2006 to 2014. Price bubbles are identified using a newly-developed recursive right-tailed unit root test. A Zero-inflated Poisson Model is used to analyze the factors contributing to bubbles. Results show that a) there were speculative bubbles in most of the Chinese agricultural commodities during the sample period, though their presences are rather infrequent; b) economic growth, money supply and inflation have positive effects on bubble occurrences, while interest rate has a negative effect; c) among all macroeconomic factors considered, economic growth and money supply have the greatest effects on bubble occurrences. Our findings shed new light on the nature and formation of bubble behavior in the Chinese agricultural commodity markets.
    Keywords: price bubbles, macroeconomic factors, agricultural commodity, right-tailed unit root test, Zero-inflated Poisson model, China, Demand and Price Analysis, Risk and Uncertainty, G12, G13, Q13,
    Date: 2016
  11. By: Bin Ni (Graduate School of Economics, Osaka University)
    Abstract: Technology spillover induced by foreign direct investment has been proved to be an important channel to boost the productivity growth of local firms in the host country, especially in the context of developing economies. However, the empirical evidence remains inconsistent as to what extent the scale of spillover is affected by the productivity gap between foreign investors and local firms. This paper attempts to make clear such mechanism by applying Vietnamese firm-level data. Focusing on Asian investors, we show that the relationship between the productivity gap and vertical spillover takes an inverted-U shape. To be specific, we use stepwise chow test to decide on the cutoff value of total factor productivity (TFP) as the grouping criteria, and divide investors into low, middle and high-TFP groups. The results reveal that local suppliers in Vietnam can benefit the most from the Asian investors with middle-level TFP, whereas the benefits from the other two groups fade away. The finding is strongly robust even after we control the other spillover-influential factors such as firms' own effort to innovate, foreign firms' ownership, country and industry heterogeneity, and no matter whether we use stochastic frontier or Levinsohn & Petrin measurement of TFP. It thus provides novel evidence that investors with advanced technology do not necessarily diffuse their know-how to local partners. This implies it is important that both Vietnamese local firms and investors with superior technology work in the same direction to stimulate more corporations with each other.
    Keywords: technology spillover, productivity gap, firm-level data, Vietnam
    JEL: D22 F21 Q56
    Date: 2016–03
  12. By: Wang, Haiyan; Malaga, Jaime
    Abstract: The large volume of sorghum imports for feed use since 2013 has rapidly made China the largest export destination for sorghum, especially sorghum from the U.S., which has sent about 90% of its sorghum exports to China by MY 2014/2015. The main reason for China’s increasing imports of sorghum may be related to its corn domestic and trade policies, which pushed up domestic corn prices. Because sorghum is a cheap close substitute for corn, the large price gap between these two grains attracted livestock industries to shift part of their feed grain use from corn to sorghum as the price of corn continued to rise. In order to estimate and forecast the prices of sorghum and corn in China, this study developed a price determination model by using a stocks-to-use ratio formulation to capture market supply and demand factors. The government policy effect has also been included in the model. A baseline projection and three simulation scenarios were performed to forecast the Chinese corn and sorghum prices from 2015 to 2019. Results of the study indicated that prices for Chinese corn and sorghum may be declining in the next five years and the price of sorghum would be lower than the price of corn. In addition, the three simulation scenarios suggested that price differences between these two grains would be smaller if the Chinese government would eliminate its temporary corn reserve program.
    Keywords: Sorghum, Corn, China, Price, Stocks-to-use ratio, Demand and Price Analysis, International Relations/Trade, F17, Q18,
    Date: 2016
  13. By: Nguyen, Duc Loc; Grote, Ulrike
    Abstract: This paper investigates the factors determining the length of migration and return plans of rural migrants within Vietnam. The findings shows that migrants coming from rural households that faced a higher number of idiosyncratic shocks increase their stays in the cities, while those from original households that experienced transient shocks shorten the length of their stays in the cities. An increased length of migration is also observed among migrants and households with higher human capital. A decreased income gap between destination and original provinces due to the higher economic growth of original places also increases the duration of migration. The results of the analysis on the migration intensity imply that the plans of migrants to return not only increase in case they face shocks in the cities, but also with the improvement of the living conditions at their original places.
    Keywords: Migration Intensity, Length of Migration, Random-Effect Tobit Regression, Vietnam, Community/Rural/Urban Development, Labor and Human Capital, D13, J28, J61, O15, O18, Z13,
    Date: 2015–12
  14. By: FitzGerald, John; Chi, Pho Thi Kim; Lam, Do Van; Ha, Hoang; Huong, Luong; Dung, Tran
    Abstract: This paper considers the factors determining the long-run behaviour of the Vietnamese economy. Using a macro-economic model of the Vietnamese economy it considers some of the factors that have contributed to growth over the last decade and also some of the policy options for the rest of the decade.
    Date: 2016–03
  15. By: Lin, Benxi; Zhang, Yu Yvette; Lin, Zongjian; Wang, Yongli; Liu, Weiping
    Abstract: This paper studied the impact of fiscal subsidies on the participation rate and contributions of the rural residents in the China’s New Rural Pension Scheme (NRPS) program using a natural experiment, where the fiscal subsidies includes the incentive pension and the matching subsidy. The results showed that incentive pension can significantly improve the rural residents' participation rates, but participation rate of young residents are less than the older residents. We also showed that matching subsidy does not affect the rural residents' participation rates and contributions significantly. Our results suggest that the current fiscal subsidies play an important role in the establishment and expansion of the NRPS program, but have not increased the participation rate of younger people, which was one of the initial goal of NRPS.
    Keywords: Chinese Pension System, New Rural Pension Scheme (NPRS), Incentive Pension, Matching Subsidy, Participation Rate in Pension System, Pension Contributions, Community/Rural/Urban Development, Consumer/Household Economics,
    Date: 2015–12
  16. By: Zhao, Yuying
    Abstract: At present, China is facing a serious problem of financial exclusion in rural areas, which restricts the development of rural economy and even the comprehensive, balanced and sustainable development of the overall real economy. From the perspective of regional differences in Gansu and Jiangsu provinces and between these two provinces, this paper establishes the Index of Rural Financial Exclusion, and explores the relationship between the refined indicators. Combining the economic theory, this paper uses double logarithmic models to analyze empirically on the relationship between the balance of loans per person and two factors: the density of branches with respect to population and GDP per capita and then compares these two models. We use this model to discuss the driving factor that can help to alleviate rural financial exclusion in different regions. In this paper, comparative analysis, theoretical analysis, empirical analysis, qualitative analysis and quantitative analysis are methods used to analyze the statistical data issued by the China Banking Regulatory Commission. This paper integrates the analyses of rural financial exclusion in provinces and between provinces, and comes to these conclusions about the rural financial exclusion problem of Gansu Province and Jiangsu Province in micro and macro level: (1) the forms of rural financial difference between areas are diverse. The degree of financial exclusion in Gansu are higher than that in Jiangsu, (2) the policy-related loans issued in Gansu are effective, (3) deposits absorbed in areas that are highly financial excluded flow to the regions facing relatively slighter exclusion. The capital allocation function of rural financial markets in Gansu should be improved, (4) two indicators, balance of loans per capita and the number of financial institution branches per 10,000 populations, are positively related. If the number of financial institutions branches in Gansu Province is increased, the balance of credit per capita will be increased, further, it will alleviate rural financial exclusion effectively.
    Keywords: Rural finance, Financial exclusion, Regional differences, Double logarithmic model, Agribusiness, Agricultural Finance,
    Date: 2016
  17. By: Cuestas, Juan Carlos; Huang, Ying; Tang, Bo
    Abstract: This study investigates both the symmetric and asymmetric exchange rate exposures of Chinese financial firms in the context of an accelerated pace of RMB internationalisation. We find that an increasing number of Chinese financial firms are exposed to negative symmetric effects from the change in the trade weighted effective exchange rate. The evidence concerning asymmetries shows that after 2009 negative exchange rate shocks have a stronger effect on exposures than positive shocks. Changes in the bilateral exchange rate also have a significant impact on firm returns, given the importance of the USD in the effective exchange rate. Further, the empirical analysis reveals that exchange rate exposures are associated with firm level characteristics including total assets, earnings per share, net cash flows, investment incomes, total liabilities and firm size. Finally, we suggest that domestic and foreign stakeholders need to pay close attention to the movement of the Yuan’s exchange rate before it becomes completely convertible.
    Keywords: exchange rate exposure, RMB internationalisation, Chinese financial firms.
    JEL: C58 F3 F31 G1 G15
    Date: 2016–04–18
  18. By: Zhou, Mo
    Abstract: This study undertook the residential water demand analysis based on a panel data covered 31 provinces of China during the sample period from 2004 to 2013. Two models are employed in this study: Double-Log model and EDM model. The estimates of double-log model show that the different levels of income cannot impact the water price elasticities significantly but the fixed effects estimator gives a more appropriate estimate for the water demand system. In addition, both the water price and the income are inelastic. However, with the EDM model estimations, the results reveal that the water price is elastic for the residential water demand in the short run, and the partial price-supply elasticity is negative due to estimates of total elasticities. Both two models gave the result that the residential water is an inferior good in China.
    Keywords: Residential Water Demand, Total Elasticity, Water Price, EDM, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy, C13 C23 Q25,
    Date: 2016

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