Steven D. Levitt and Stephen J. Dubner. Superfreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance. London: Penguin Books Ltd. 2009. 270 pages. Paperback. £ 14.99.

Behavioural economics is an emerging field and superfreakonomics provides useful insights into human behaviour observed with respect to issues that have economic implications. The underlying theme of the book is that human beings respond to incentives. The authors have set up a number of interesting examples to convey how different incentives work. The case studies discussed in the book are based on the authors’ recent academic research; motivated by fellow economists as well as engineers and astrophysicists, psychotic killers and emergency room doctors, amateur historians and transgender neuroscientists. Most of the stories fall into one of the two categories: things you always thought you knew but in fact did not; and things you never knew you wanted to know, but do know. The authors, with the help of data, show that drunk walking is eight times more dangerous than drunk driving. The message is that the misaligned incentives (penalties) are responsible for this—only drunk driving is penalised. To show the influence of positive incentives the authors demonstrate how cable TV might have improved the status of women in India. A baby Indian girl, who does grow into adulthood, faces discrimination in provision of education, health care and remuneration in job market. In a national health survey, 51 per cent of Indian men said that wife-beating is defensible under certain situations and more surprisingly, 54 per cent of the women agreed. But things are changing, albeit at a slow pace. The authors find that cable TV has empowered Indian rural women—families with cable TV are more likely to have a lower birth rate and more schooling

Impact of Remittances on Economic Growth and Poverty: Evidence from Pakistan

The study focused on the importance of remittances inflow and its implication for economic growth and poverty reduction in Pakistan. By using ARDL approach we analyze the impact of remittances inflow on economic growth and poverty in Pakistan for the period 1973-2007. The district wise analysis of poverty suggest that overseas migration contributes to poverty alleviation in the districts of Punjab, Sindh and Balochistan however NWFP is not portraying a clear picture. The empirical evidence shows that remittances effect economic growth positively and significantly. Furthermore the study also finds that remittances have a strong and statistically significant impact on poverty reduction thus suggesting that there are substantial potential benefits associated with international migration for poor people in developing countries like Pakistan. So the importance of remittance inflows can not be denied in terms of growth enhancement and poverty reduction that consequently improves the social and economic conditions of the recipient country.Remittances; Growth; Poverty; Pakistan

Testing the Fiscal Theory of Price Level in Case of Pakistan

The study tests the fiscal theory of price determination for Pakistan’s economy for the period 1970 to 2007. The evidence is less clear cut to infer that authorities are following a certain type of regime fiscal dominant or monetary dominant during the sample period. The liabilities responses negatively to the innovation in surpluses, that is in the subsequent period the liabilities decreases in face of increase in surplus. This characterises monetary dominant regime, the events that give rise to surplus innovation are likely to persist causing the rise in the future surpluses and surpluses pay-off some of the debt causing the fall in the liabilities. By analysing the behaviour of nominal GDP, an innovation in surplus reduces nominal income and decreases the level of debt in the subsequent periods, this analysis also confirms the Ricardian analysis. On the other hand, the study finds that, as predicted by the fiscal theory of price determination, the occurrence of wealth effects of changes in nominal public debt may pass through to prices by increasing inflation variability in case of Pakistan. The implication that comes out of this study is that nominal public liabilities, as reflected either in money growth or in nominal public debt, matter for price stability in case of Pakistan. The authorities may be following different regimes for different time periods during the 1970-2007.Fiscal Theory of Price Level, VAR, Fiscal Policy, Monetary Policy

Economic, Political and Institutional Determinants of Budget Deficits Volatility in Selected Asian Countries.

In the present study the economic, political and institutional sources of budgets deficits are analysed for two regions South Asia and ASEAN countries for the period 1984 to 2010. The results reveal that high income, rising inflation and large budget to GDP ratio are associated with budget instability, where as a strong inertia in budget deficit volatility exists. The exposure of more external shocks make the budget deficit more volatile, however, countries with high population growth have less volatile budget deficits. The results indicate that high level of political stability and democracy and improvement in social and economic condition reduces the budget deficit volatility. High corruption and low institutional quality lead to more fluctuations in the budget deficit. The results suggest that political and institutional factors have a direct impact on fiscal instability beyond the economic reasons to effect fluctuations. The results of the current study leads to important implication that by improving the quality of institutions, creating situations for economic stability and moving towards democratic regimes would ensure more stable fiscal deficits and resultantly positive effect on the long term economic growth. JEL classification: H61, D70, E60 Keywords: Budget Deficits Volatility, Per Capita GDP, Openness, Inflation, Political Stability, Institutional Quality, Democracy and Corruptio

Dynamic Effects of Changes in Government Spending in Pakistan’s Economy.

This study analyses the effects of changes in government spending on aggregate economic activity and the way these effects are transmitted in case of Pakistan for the period 1971-2008. To analyse the transmission mechanism of government spending innovations, the Vector Autoregressive Model is estimated for following five variables: government spending per capita, GDP per capita, consumption per capita, debt to GDP ratio, long term interest rate and real exchange rate. The consumption and output respond negatively to the innovation in government spending which is consistent with the standard neoclassical model. The interest rates increase in the face of expansionary fiscal spending. As government debt builds up with fiscal expansion, the rising risk of default or increasing inflation risk reinforce crowding out through interest rates. The real exchange rate tends to appreciate in response to rise in government spending. This finding is according to the open economy literature and also with the conventional literature. JEL classification: E21, E62, E63 Keywords: Government Spending, Vector Autoregressive Model, Impulse Response Function, Neoclassical Mode

Fiscal Policy and Current Account Dynamics in Case of Pakistan

The study empirically investigates the effects of fiscal policy or government budget deficit shocks on the current account and the other macroeconomic variable: real output, real interest rate and exchange rate for Pakistan over the period 1960-2009. The structural Vector Autoregressive model is employed; the exogenous fiscal policy shocks are identified after controlling the business cycle effects on fiscal balances. The results suggest that an expansionary fiscal policy shock improves the current account and depreciates the exchange rate. The rise in private saving and the fall in investment contribute to the current account improvement while the exchange rate depreciation. The twin divergence of fiscal deficit and current account deficit is also explained by the output shock which seems to drive the current account movements and its comovements with the fiscal balance.Restricted Vector Autoregressive model, current account, government budget deficit, fiscal policy, exchange rate

Analysis of Revenue Potential and Revenue Effort in Developing Asian Countries

Countries around the world are increasingly recognising that the effective revenue system is the most important factor for economic development. Factors effecting revenue potential measured as the revenue to GDP has been one of the most important issues that concerns to policy-makers from last three decades. Many developing countries face difficulties in generating sufficient revenues for public expenditure. In some countries budget deficits and the unproductive use of public expenditures have narrow the vital investments in both human resources and basic infrastructure that are necessary for providing base for sustainable economic growth and development. Too much dependence on foreign financing may cause problems of debt sustainability; therefore developing countries will need to depend substantially on domestic revenue generation. There is a large body of literature on tax revenue potential in developing countries [Bahl (1971); Tanzi (1987); Leuthold (1991); and Stotsky and Mariam (1997); Gupta (2007)]. However, there is few studies that examine institutional and governance quality as a factor influencing tax collection and tax revenue potential. According to Tanzi and Davoodi (1997) and Gupta (2007) these factors are responsible for low tax collection in developing countries by allowing citizens inappropriate tax exemptions and enabling tax evasion due to bad tax administration. Therefore, a precondition for ensuring adequate revenue collection is a legitimate and responsive institutions following the rule of law with control on corruption and having high quality bureaucracy to administer. Studies also confirm that a strong political will to reform is required for successful reform process [Bird (2004)]. Alm, et al. (2003) suggest that tax records of countries are reflection of their political or societal institutions

Testing the Fiscal Theory of Price Level in Case of Pakistan

There are two competing views of the interaction between monetary and fiscal policy and their effects on price stability for policy-maker’s point of view. In the classical view, in Ricardian regimes it is the demand for liquidity and its evolution over time that determines prices. In such a regime fiscal policy is passive, which implies that government bonds are not net wealth [Barro (1974)], and monetary policy works through the interest rate or another instrument to determine prices. In the opposite view which is more recent, a non-Ricardian regime will prevail whenever fiscal policy becomes active1 and does not accommodate or adjust primary surpluses to guarantee fiscal solvency. As a result, the Ricardian equivalence do not hold, and the increase in nominal public debt to finance persistent budget deficits is perceived by private agents as an increase in nominal wealth. In fiscal dominant regime the government’s fiscal policy becomes sustainable through debt deflation that is an increase in prices that wash away the real value of public debt and in turn the real value of financial wealth until demand equals supply and a new equilibrium is reached. In this regime prices are determined by fiscal policy, and inflation becomes a fiscal phenomenon. If, on the other hand, primary surpluses follow an arbitrary process, then the equilibrium path of prices is determined by the requirement known as fiscal solvency; that is, the price level has to jump to satisfy a present value budget constraint called non-Ricardian regime. The basic distinction between the two regimes is that in non-Ricardian regime fiscal policy plays the role where as in Ricardian regime monetary policy provides stability in prices. In FTPL, the results of fiscal and monetary policies depend on which policy has dominant characteristics. The consequences of policies differ depending on the active and passive characteristics of the policy and depending on the characteristics of the following policy. If the policy mix is such that monetary policy is active and fiscal policy is passive, fiscal policy accommodates monetary policies; these policies are called dominant monetary policy by Sargent and Wallace (1981) and Ricardian regime by Woodford (1994, 1995)

Impact of Remittances on Economic Growth and Poverty: Evidence from Pakistan

The study focused on the importance of remittances inflow and its implication for economic growth and poverty reduction in Pakistan. By using ARDL approach we analyze the impact of remittances inflow on economic growth and poverty in Pakistan for the period 1973-2007. The district wise analysis of poverty suggest that overseas migration contributes to poverty alleviation in the districts of Punjab, Sindh and Balochistan however NWFP is not portraying a clear picture. The empirical evidence shows that remittances effect economic growth positively and significantly. Furthermore the study also finds that remittances have a strong and statistically significant impact on poverty reduction thus suggesting that there are substantial potential benefits associated with international migration for poor people in developing countries like Pakistan. So the importance of remittance inflows can not be denied in terms of growth enhancement and poverty reduction that consequently improves the social and economic conditions of the recipient country

Fiscal Policy and Current Account Dynamics in Case of Pakistan

The study empirically investigates the effects of fiscal policy or government budget deficit shocks on the current account and the other macroeconomic variable: real output, real interest rate and exchange rate for Pakistan over the period 1960-2009. The structural Vector Autoregressive model is employed; the exogenous fiscal policy shocks are identified after controlling the business cycle effects on fiscal balances. The results suggest that an expansionary fiscal policy shock improves the current account and depreciates the exchange rate. The rise in private saving and the fall in investment contribute to the current account improvement while the exchange rate depreciation. The twin divergence of fiscal deficit and current account deficit is also explained by the output shock which seems to drive the current account movements and its comovements with the fiscal balance