Tax Distortions in a Neoclassical Monetary Economy in the Presence of Administration Costs

This paper uses the neoclassical growth model to evaluate the size of distortions associated with different monetary and fiscal policies designed to finance government expenditures in the presence of administration costs. The model is calibrated to match important features of U.S. data, and used to evaluate welfare costs of monetary and fiscal policies. We find that the presence of administration costs increases the welfare costs of government policies involving different combinations of taxes on capital and labour income, consumption and money holdings. In addition, the welfare implications of tax reforms designed to replace the taxes on labor or capital income with less distorting forms of taxation are altered. Another implication of the results is that in economies with larger costs of administration, revenue replacement through seigniorage would be a more attractive option than other feasible forms of taxation.

Tax distortions in a neoclassical monetary economy

In this paper we use the common perspective provided by the neoclassical growth model to evaluate the size of the distortions associated with different monetary and fiscal policies designed to finance a given sequence of government expenditures. We construct an artificial monetary economy incorporating the cash-in-advance framework of Lucas and Stokey (1983), calibrate it to match important features of the U.S. economy, and simulate it to provide a quantitative assessment of the welfare costs associated with government policies involving different combinations of taxes on capital and labor income, consumption, and holdings of money. In particular, we evaluate the welfare gains from tax reforms that are designed to replace taxes on capital or labor income with other forms of taxation. Our results suggest that the welfare costs of financing a given sequence of government expenditures are slightly lower in economies that substitute inflation or consumption taxes for the tax on labor income, but dramatically lower for economies that substitute any of these taxes for the tax on capital income. Replacing the capital tax with a consumption tax, for example, eliminates 81 percent of the welfare cost arising from distorting taxation. In addition, we show that these welfare costs can be reduced further by eliminating the capital tax with a nonstationary policy that involves a transition to a temporary policy followed by a new steady state policy rather than an immediate change to a new steady state policy.Fiscal policy ; Monetary policy

Tax structure, welfare, and the stability of equilibrium in a model of dynamic optimal fiscal policy

A demonstration that the assumed structure of taxation can have dramatic effects on economic welfare and on the stability of the steady state in a dynamic general-equilibrium model of optimal fiscal policy. The authors find that household welfare is highest under a structure that includes separate tax rates on labor and capital incomes, double taxation of dividends, and tax-deductible depreciation.Taxation ; Fiscal policy

Cooperation v/s Non-cooperation in R&D Competition with Spillovers

This paper seeks to analyse a case in which firms choose to divide their R&D expenditures into two components: competitive R&D and Joint-Venture R&D. The analysis is motivated by the fact that R&D outputs can have different degrees of non-excludability. It is therefore reasonable to expect that a firm will allocate a part of its funds to competitive R&D; this is the case in areas in which research is non-excludable to a smaller degree, and part of it to Joint-Venture R&D, in cases where R&D output is highly non-excludable. This issue is addressed in a three-stage model of a duopoly, in which joint-venture R&D and competitive R&D are chosen in the first and second stages while the quantity of the product is chosen in the third stage. The results confirm that allocation of expenditure to the joint-venture component increases as the spillover rate on the competitive component increases. Furthermore, if firms are able to coordinate their joint-venture R&D levels, there is greater incentive to increase this allocation. However, for these results to obtain, it is crucial that the two types of R&D are chosen sequentially; a simultaneous choice would lead to a corner solution in which only competitive R&D is chosen.

What Role Does Knowledge of Wildlife Play in Providing Support for Species\' Conservation?

Conservation of biodiversity is a complex issue. Apart from the creation of nature reserves, there is a plethora of other factors that are part of this complex web. One such factor is the public knowledge of species. Since public funding is imperative for the conservation of species and creation of reserves for them, it is important to determine the public’s awareness of species and their knowledge about them. In the absence of such awareness and knowledge, it is possible that the public will misallocate their support. In other words, resources may be provided for species that do not need support urgently. We show how availability of balanced information about species helps the public to make rational decisions and to allocate support (e.g. monetary) to species that need it most. Other implications of a ‘wildlife knowledgeable’ public are also discussed.Biodiversity, conservation, Australia’s tropical wildlife, public knowledge, balanced information.

The relationship between the adoption of Internet banking and electronic connectivity: - An international comparison

This paper is concerned with the relationship between the adoption rate of Internet banking and electronic connectivity. Electronic connectivity is measured using three components: personal computer connectivity, Internet connectivity and mobile phone connectivity. Regression is used to analyse these relationships for a sample of developed and developing economies. The results indicate that changes in electronic connectivity, however defined, have a significant impact on the adoption rate of Internet banking. The most significant influence on the adoption rate of Internet banking would appear to be the increase in the percentage of the population owning personal computers.Internet banking; Electronic connectivity; Information technology

Significance of Employing a Multilateral Index Formula for Interstate Comparisons: A Case Study of the Australian Farm Sector

The paper demonstrates the drawbacks on using official data and binary indices when attempting an interstate comparison of output and productivity growth. The use of official data in one’s national currency still requires a numerary currency due to price variations across states. Even with the use of index number formulas, some indices have shown to fail the transitivity property when more than 2 states are concerned. Hence the paper aims to demonstrate the significance of using a multilateral index formula like the Geary-Khamis (GK) method, EKS method and CCD method for derivation of appropriate currency converters or purchasing power parities (PPPs) to enable proper quantification of real output at the multilateral level. Subsequently, the paper demonstrates the variations in results between official aggregates and multilateral aggregates based on the GK method.

Hedging versus not hedging: strategies for managing foreign exchange transaction exposure

This paper compares a number of strategies for managing foreign exchange exposures. The strategies are never hedging, hedging every exposure using a forward exchange contract, and hedging on selective occasions using a forward exchange contract. With regard to the selective hedging, the decision as to whether to hedge or not depends on the future spot exchange rate as determined by a number of forecasting techniques. The techniques include the random walk, the large premia model and a volatility model. The paper considers the USD vis a vis the AUD, SGD and JPY. The results are mixed and show that for the period 1992 to 2003 the Australian exporter is better off always hedging while the Singapore and Japanese exporters are better off never hedging. The various management strategies are compared using Sharpe’s model and the minimum variance model though it seems the results are not sensitive to use of either.Selective foreign exchange currency hedging; random walk; large premia model;

Pricing of Equities in China: Evidence from the Shanghai Stock Exchange

In this paper we compare the performance of the traditional CAPM with the multifactor model of Fama and French (1996) for equities listed in the Shanghai Stock Exchange. We also investigate the explanatory power of idiosyncratic volatility and respond to the claim that multifactor model findings can be explained by the turn of the year effect. Our results show that firm size, book to market equity and idiosyncratic volatility are priced risk factors in addition to the theoretically well specified market factor. As far as the turn of the year effect is concerned we reject the claim that the findings are driven by seasonal factors. Our findings have implications for both academic researchers and practitioners. This is because we demonstrate that by following the investment strategies investigated in this paper superior returns could be generated – returns in addition to those offered by the market. Of course this is only applicable to those investors who are willing to take additional risks in order to generate additional returns. In summary, our results show that a broader asset pricing model such as the one investigated in this paper does a much better job than the single index CAPM.Asset Pricing, CAPM, China, Small Firm Effect, Turn of the Year Effect.