Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arra...FactaMedia
The IMF conducted an ex post evaluation of Greece's 2010 Stand-By Arrangement (SBA), which provided exceptional access of €30 billion to support Greece amid its debt crisis. While the SBA achieved strong fiscal consolidation and pension reform, it failed to restore market confidence or curb high unemployment. Debt remained too high and had to be restructured. The evaluation found that rapid fiscal adjustment was necessary but the program overestimated Greece's ability to implement structural reforms. The SBA highlighted lessons for the IMF in accommodating currency unions and ensuring sufficient program ownership.
1) Total government debt levels in OECD countries have risen dramatically due to deficits incurred from responding to the financial crisis, putting pressure on government budgets.
2) At the same time, financing is still needed for goals like poverty reduction and climate change mitigation.
3) A financial transaction tax is proposed as the best policy alternative to raise revenues from the financial sector to address these issues, rather than increasing taxes on individuals or public spending cuts.
4) Unlike an insurance scheme or tax on bank balance sheets, a financial transaction tax could generate hundreds of billions annually, curb speculative trading, and regulate the financial sector in a low-cost way.
The document outlines commitments and requirements for Greece to receive additional financial assistance from the European Stability Mechanism (ESM). It requires Greece to legislate reforms to its pension system, tax code, and judicial system by specific deadlines. It also requires Greece to strengthen its proposals for reforms to labor markets, energy markets, and its privatization program. The document establishes conditions that must be met before negotiations on a new assistance program can begin, and addresses concerns around the sustainability of Greece's debt.
Exiting Austerity Without Exiting the Europkconference
This document discusses design flaws of the eurozone that have led countries into austerity traps. It argues that the eurozone failed to account for differences between countries and imposed one-size-fits-all monetary policy. This has restricted fiscal policy and prevented appropriate adjustments in trade imbalances. The document proposes that countries issue "Tax Anticipation Notes" (TANs) as a complementary currency to pay bills and stimulate their economies while in austerity, bypassing fiscal deficit limits. TANs could allow full employment policies and private sector deleveraging without deflation, breaking countries out of austerity without exiting the euro.
Adjustments in Latvia and Greece: Lessons for EuropeLatvijas Banka
Statement by Gabriele Giudice, Head of Unit, ECFIN.G3: Greece, European Commission at the Conference "Have We Learnt Anything from the Crisis?" in Riga, Latvia. 17.10.2014
Fiscally sound social inclusion: what, if any, lesson may EMU learn from the ...ADEMU_Project
The document summarizes Brazil's experience with fiscal rules and centralization over the past century, and discusses lessons that may be applicable to the European Monetary Union. Key points:
- Brazil has experimented with various degrees of fiscal centralization vs federalism over the decades, seeking the right balance of governability and representation.
- Recent fiscal rules like the 2000 Fiscal Responsibility Law helped rein in subnational debt and inflation, improving credibility. However, unexpected oil wealth and the global crisis relaxed constraints.
- The current administration expanded social spending and allowed new subnational debt, weakening fiscal discipline. Impeachment raised expectations of a return to responsible fiscal policies and stability.
The public debt crisis is not limited to Greece or to the Euro area. In fact, several developed economies face rapidly growing debt-to-GDP ratios, which raise doubts about their long-term solvency. Thus, suggesting that the Eurozone is undergoing a currency crisis or is in danger of disintegration is not the right diagnosis (or at least premature). However, if prudent fiscal policies, fiscal discipline and far-reaching structural reforms are not undertaken soon, both the EU and EMU may face serious internal tensions and obstacles to future economic growth.
Authored by: Marek Dąbrowski
Published in 2010
Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arra...FactaMedia
The IMF conducted an ex post evaluation of Greece's 2010 Stand-By Arrangement (SBA), which provided exceptional access of €30 billion to support Greece amid its debt crisis. While the SBA achieved strong fiscal consolidation and pension reform, it failed to restore market confidence or curb high unemployment. Debt remained too high and had to be restructured. The evaluation found that rapid fiscal adjustment was necessary but the program overestimated Greece's ability to implement structural reforms. The SBA highlighted lessons for the IMF in accommodating currency unions and ensuring sufficient program ownership.
1) Total government debt levels in OECD countries have risen dramatically due to deficits incurred from responding to the financial crisis, putting pressure on government budgets.
2) At the same time, financing is still needed for goals like poverty reduction and climate change mitigation.
3) A financial transaction tax is proposed as the best policy alternative to raise revenues from the financial sector to address these issues, rather than increasing taxes on individuals or public spending cuts.
4) Unlike an insurance scheme or tax on bank balance sheets, a financial transaction tax could generate hundreds of billions annually, curb speculative trading, and regulate the financial sector in a low-cost way.
The document outlines commitments and requirements for Greece to receive additional financial assistance from the European Stability Mechanism (ESM). It requires Greece to legislate reforms to its pension system, tax code, and judicial system by specific deadlines. It also requires Greece to strengthen its proposals for reforms to labor markets, energy markets, and its privatization program. The document establishes conditions that must be met before negotiations on a new assistance program can begin, and addresses concerns around the sustainability of Greece's debt.
Exiting Austerity Without Exiting the Europkconference
This document discusses design flaws of the eurozone that have led countries into austerity traps. It argues that the eurozone failed to account for differences between countries and imposed one-size-fits-all monetary policy. This has restricted fiscal policy and prevented appropriate adjustments in trade imbalances. The document proposes that countries issue "Tax Anticipation Notes" (TANs) as a complementary currency to pay bills and stimulate their economies while in austerity, bypassing fiscal deficit limits. TANs could allow full employment policies and private sector deleveraging without deflation, breaking countries out of austerity without exiting the euro.
Adjustments in Latvia and Greece: Lessons for EuropeLatvijas Banka
Statement by Gabriele Giudice, Head of Unit, ECFIN.G3: Greece, European Commission at the Conference "Have We Learnt Anything from the Crisis?" in Riga, Latvia. 17.10.2014
Fiscally sound social inclusion: what, if any, lesson may EMU learn from the ...ADEMU_Project
The document summarizes Brazil's experience with fiscal rules and centralization over the past century, and discusses lessons that may be applicable to the European Monetary Union. Key points:
- Brazil has experimented with various degrees of fiscal centralization vs federalism over the decades, seeking the right balance of governability and representation.
- Recent fiscal rules like the 2000 Fiscal Responsibility Law helped rein in subnational debt and inflation, improving credibility. However, unexpected oil wealth and the global crisis relaxed constraints.
- The current administration expanded social spending and allowed new subnational debt, weakening fiscal discipline. Impeachment raised expectations of a return to responsible fiscal policies and stability.
The public debt crisis is not limited to Greece or to the Euro area. In fact, several developed economies face rapidly growing debt-to-GDP ratios, which raise doubts about their long-term solvency. Thus, suggesting that the Eurozone is undergoing a currency crisis or is in danger of disintegration is not the right diagnosis (or at least premature). However, if prudent fiscal policies, fiscal discipline and far-reaching structural reforms are not undertaken soon, both the EU and EMU may face serious internal tensions and obstacles to future economic growth.
Authored by: Marek Dąbrowski
Published in 2010
Deloitte global powers of consumer products 2014vishalsingh660
To start a new section, hold down the apple+shift keys and click
to release this object and type the section title in the box below.
Global Powers of Consumer Products 2014
Deloitte Touche Tohmatsu Limited (DTTL) is
pleased to present the 7th annual
Global Powers of
Consumer Products
. This report identifies the 250 largest
consumer products companies around the world based
on publicly available data for the fiscal year 2012
(encompassing companies’ fiscal years ended through
June 2013).
The report also provides an outlook for the global
economy, an analysis of market capitalization in the
industry, a look at M&A activity in the consumer
products sector, and a discussion of major trends
affecting consumer products companies.
Jonathan Rodden - Representation and Redistribution in Federations: Lessons f...ADEMU_Project
Professor Jonathan Rodden, Stanford University, describes how he has applied his on work on numerous federations in the United States and extracted lessons and principles that could be theoretically applied to the European Monetary Union.
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
The document discusses the background and state of play regarding the financial transaction tax (FTT) in the European Union. It describes how the FTT could benefit participating eurozone countries by providing more fiscal flexibility. Eleven eurozone countries have proposed implementing a harmonized FTT through an enhanced cooperation procedure. The tax is estimated to generate 30-35 billion euros annually from the financial sector to contribute to public finances and address issues like youth unemployment. However, some oppose the FTT due to concerns it could reduce market liquidity and cause transactions costs to be passed on to retail investors and businesses. Supporters counter that the tax targets harmful short-term speculation rather than necessary risk hedging and liquidity.
This document summarizes a model that examines the interactions between monetary and fiscal policy in the euro area and how this contributed to the region's recent economic malaise. The model is able to reproduce key features of the euro area's weak growth, low inflation, and sovereign debt crisis when calibrated to reflect how policies are conducted. An alternative policy configuration involving coordination of monetary and fiscal policies through a centrally-operated fund issuing non-defaultable debt could have led to improved economic outcomes by making public debt crisis self-fulfilling events less likely and giving policymakers more room to respond to economic downturns in a stabilizing manner.
The document discusses the public debt crisis in the United States. It notes that there have been five major debt crises since 1790 where federal debt sharply increased. The Great Recession caused the second largest debt spike and it is unique in that primary deficits have persisted for over 6 years after the recession and are expected to continue through 2026. The document also argues against the view that more debt is desirable, noting empirical evidence that fiscal multipliers are negative at high debt levels and debt sustainability becomes an issue. It analyzes factors like demand for U.S. debt from globalization and risk of domestic default.
"Debt Sustainability and the Terms of Official Support", by Giancarlo Corsett...ADEMU_Project
This document discusses how the terms of official lending can impact assessments of whether a country can sustain its debt levels. It presents a three-period model to illustrate how official lending with certain terms, such as long-term maturities at concessional rates, can restore debt sustainability by reducing the risk of default. The model is then used to analyze Portugal's debt crisis from 2011-2015, finding that official lending through the IMF and ESM helped lower borrowing costs and change the composition of Portugal's debt in a way that matches the data. Counterfactual analyses suggest debt sustainability thresholds are more sensitive to debt maturity terms than interest rate spreads.
This document summarizes that global debt levels have increased since 2011 after falling in 2008-2011. It identifies countries that are either currently in debt crises or at high risk of future crises based on debt levels and economic indicators. While lending has fueled faster growth in some highly indebted low-income countries, it has not reduced poverty or inequality. These countries remain vulnerable to economic shocks due to commodity-dependent economies. The rise of public-private partnerships also hides true debt levels and risks of future crises.
As a result of the financial crisis and global recession public debt burdens have risen to critical levels in a number of Western European countries. Emergency loans from the EU and IMF have eased funding pressures, but have only bought the region time; painful fiscal adjustment and an improvement in competitiveness is required if the region is to enjoy a sustainable recovery.
Eastern Europe, while rebounding through exports and industrial output, will underperform its emerging-market peers in 2010. Business and consumer sentiment in the region is fragile, and its currency and bond markets are vulnerable to contagion from problems in the euro zone or a rise in risk aversion more broadly.
This presentation takes a look at the economic outlook for both Western and Eastern Europe.
The document discusses Greece's budget assumptions and projections, noting that the baseline scenario is overly optimistic. It analyzes the execution of Greece's Stability and Growth Program, finding that progress relies too heavily on reducing public investment and that debt levels will continue rising. Two scenarios project Greece's additional debt and financing needs, finding default is likely by mid-2011 unless more aid is provided. The conclusion is that any rescue package will only delay default temporarily and Greece and its creditors should prepare for negotiated debt restructuring and haircuts of around 50%.
1. The document discusses the impact of the debt crisis in European countries that use the euro. It led to higher growth initially but also rising current account imbalances.
2. Two potential solutions are discussed: further integrating policies and governments in the EU, and reducing peripheral debt through tools like Eurobonds or other mechanisms.
3. The methodology section outlines that the research will use both primary and secondary data sources to examine the issues and develop understanding of the impacts in different eurozone countries. A deductive or inductive approach may be taken.
The document discusses the impact of the USA and European debt crises on the global economy. It provides details on:
1) How the USA debt crisis began in 2001 with interest rate cuts and increased lending, leading to a housing bubble and financial crisis in 2008. This crisis spread globally and contributed to the European debt crisis.
2) How the European debt crisis involved several countries like Greece, Portugal, Ireland, Spain, and Cyprus taking on too much debt and eventually needing bailouts. The crisis threatened the stability of the Eurozone.
3) How both crises led to global economic impacts like recession, falling stock markets, reduced trade and liquidity issues. The European crisis also influenced events like the UK
James Costain: fiscal delegation in a monetary unionADEMU_Project
The document analyzes mechanisms to restrain deficit bias in a monetary union, including fiscal delegation. It compares several policy games to analyze the macroeconomic and political-economic implications of delegating fiscal instruments in a monetary union. The paper models an economy with output varying based on surprise inflation and taxes. It then analyzes scenarios including a monetary union with decentralized fiscal policy (benchmark), and fiscal delegation systems that centralize some fiscal instruments. It aims to study the dynamic implications of fiscal delegation and whether large steady state gains justify short-run costs or impacts on business cycle stabilization.
The UK Government tried to fool us into believing there were WMD to justify war in Iraq. Is it doing it again with the economic crisis to justify public sector cuts?
Peacekeeping and Conflict Prevention Power Point by Grant, Bracken and Jamessmuench
Over the past decade, violence around the world has increased and transferred into schools. Many people struggle with controlling their anger. The group proposes introducing Tai Chi in schools to help students reduce stress and release anger in a non-violent way, leading to less violence within the school and community. They have created an organization called No More School Violence to educate about the issue and teach Tai Chi as an alternative to dealing with anger or violence.
Eliminating Violence Against Women. Forms, Strategies and ToolsDaniel Dufourt
Workshop
Eliminating Violence Against Women: Forms, Strategies and Tools
On the occasion of the Seventeenth Session of the United Nations Commission On Crime Prevention and Criminal Justice
Vienna, 14 April 2008, 104 pages
Deloitte global powers of consumer products 2014vishalsingh660
To start a new section, hold down the apple+shift keys and click
to release this object and type the section title in the box below.
Global Powers of Consumer Products 2014
Deloitte Touche Tohmatsu Limited (DTTL) is
pleased to present the 7th annual
Global Powers of
Consumer Products
. This report identifies the 250 largest
consumer products companies around the world based
on publicly available data for the fiscal year 2012
(encompassing companies’ fiscal years ended through
June 2013).
The report also provides an outlook for the global
economy, an analysis of market capitalization in the
industry, a look at M&A activity in the consumer
products sector, and a discussion of major trends
affecting consumer products companies.
Jonathan Rodden - Representation and Redistribution in Federations: Lessons f...ADEMU_Project
Professor Jonathan Rodden, Stanford University, describes how he has applied his on work on numerous federations in the United States and extracted lessons and principles that could be theoretically applied to the European Monetary Union.
Greece eurozone and the euro the body is getting really rottenMarkets Beyond
Greece debt trap is inextricable: there is no way out of a default/restructing - debt "reprofiling" is just a joke since it would require 21% compound annual growth for 10 years to go back to 60% debt/GDP ratio.
The document discusses the background and state of play regarding the financial transaction tax (FTT) in the European Union. It describes how the FTT could benefit participating eurozone countries by providing more fiscal flexibility. Eleven eurozone countries have proposed implementing a harmonized FTT through an enhanced cooperation procedure. The tax is estimated to generate 30-35 billion euros annually from the financial sector to contribute to public finances and address issues like youth unemployment. However, some oppose the FTT due to concerns it could reduce market liquidity and cause transactions costs to be passed on to retail investors and businesses. Supporters counter that the tax targets harmful short-term speculation rather than necessary risk hedging and liquidity.
This document summarizes a model that examines the interactions between monetary and fiscal policy in the euro area and how this contributed to the region's recent economic malaise. The model is able to reproduce key features of the euro area's weak growth, low inflation, and sovereign debt crisis when calibrated to reflect how policies are conducted. An alternative policy configuration involving coordination of monetary and fiscal policies through a centrally-operated fund issuing non-defaultable debt could have led to improved economic outcomes by making public debt crisis self-fulfilling events less likely and giving policymakers more room to respond to economic downturns in a stabilizing manner.
The document discusses the public debt crisis in the United States. It notes that there have been five major debt crises since 1790 where federal debt sharply increased. The Great Recession caused the second largest debt spike and it is unique in that primary deficits have persisted for over 6 years after the recession and are expected to continue through 2026. The document also argues against the view that more debt is desirable, noting empirical evidence that fiscal multipliers are negative at high debt levels and debt sustainability becomes an issue. It analyzes factors like demand for U.S. debt from globalization and risk of domestic default.
"Debt Sustainability and the Terms of Official Support", by Giancarlo Corsett...ADEMU_Project
This document discusses how the terms of official lending can impact assessments of whether a country can sustain its debt levels. It presents a three-period model to illustrate how official lending with certain terms, such as long-term maturities at concessional rates, can restore debt sustainability by reducing the risk of default. The model is then used to analyze Portugal's debt crisis from 2011-2015, finding that official lending through the IMF and ESM helped lower borrowing costs and change the composition of Portugal's debt in a way that matches the data. Counterfactual analyses suggest debt sustainability thresholds are more sensitive to debt maturity terms than interest rate spreads.
This document summarizes that global debt levels have increased since 2011 after falling in 2008-2011. It identifies countries that are either currently in debt crises or at high risk of future crises based on debt levels and economic indicators. While lending has fueled faster growth in some highly indebted low-income countries, it has not reduced poverty or inequality. These countries remain vulnerable to economic shocks due to commodity-dependent economies. The rise of public-private partnerships also hides true debt levels and risks of future crises.
As a result of the financial crisis and global recession public debt burdens have risen to critical levels in a number of Western European countries. Emergency loans from the EU and IMF have eased funding pressures, but have only bought the region time; painful fiscal adjustment and an improvement in competitiveness is required if the region is to enjoy a sustainable recovery.
Eastern Europe, while rebounding through exports and industrial output, will underperform its emerging-market peers in 2010. Business and consumer sentiment in the region is fragile, and its currency and bond markets are vulnerable to contagion from problems in the euro zone or a rise in risk aversion more broadly.
This presentation takes a look at the economic outlook for both Western and Eastern Europe.
The document discusses Greece's budget assumptions and projections, noting that the baseline scenario is overly optimistic. It analyzes the execution of Greece's Stability and Growth Program, finding that progress relies too heavily on reducing public investment and that debt levels will continue rising. Two scenarios project Greece's additional debt and financing needs, finding default is likely by mid-2011 unless more aid is provided. The conclusion is that any rescue package will only delay default temporarily and Greece and its creditors should prepare for negotiated debt restructuring and haircuts of around 50%.
1. The document discusses the impact of the debt crisis in European countries that use the euro. It led to higher growth initially but also rising current account imbalances.
2. Two potential solutions are discussed: further integrating policies and governments in the EU, and reducing peripheral debt through tools like Eurobonds or other mechanisms.
3. The methodology section outlines that the research will use both primary and secondary data sources to examine the issues and develop understanding of the impacts in different eurozone countries. A deductive or inductive approach may be taken.
The document discusses the impact of the USA and European debt crises on the global economy. It provides details on:
1) How the USA debt crisis began in 2001 with interest rate cuts and increased lending, leading to a housing bubble and financial crisis in 2008. This crisis spread globally and contributed to the European debt crisis.
2) How the European debt crisis involved several countries like Greece, Portugal, Ireland, Spain, and Cyprus taking on too much debt and eventually needing bailouts. The crisis threatened the stability of the Eurozone.
3) How both crises led to global economic impacts like recession, falling stock markets, reduced trade and liquidity issues. The European crisis also influenced events like the UK
James Costain: fiscal delegation in a monetary unionADEMU_Project
The document analyzes mechanisms to restrain deficit bias in a monetary union, including fiscal delegation. It compares several policy games to analyze the macroeconomic and political-economic implications of delegating fiscal instruments in a monetary union. The paper models an economy with output varying based on surprise inflation and taxes. It then analyzes scenarios including a monetary union with decentralized fiscal policy (benchmark), and fiscal delegation systems that centralize some fiscal instruments. It aims to study the dynamic implications of fiscal delegation and whether large steady state gains justify short-run costs or impacts on business cycle stabilization.
The UK Government tried to fool us into believing there were WMD to justify war in Iraq. Is it doing it again with the economic crisis to justify public sector cuts?
Peacekeeping and Conflict Prevention Power Point by Grant, Bracken and Jamessmuench
Over the past decade, violence around the world has increased and transferred into schools. Many people struggle with controlling their anger. The group proposes introducing Tai Chi in schools to help students reduce stress and release anger in a non-violent way, leading to less violence within the school and community. They have created an organization called No More School Violence to educate about the issue and teach Tai Chi as an alternative to dealing with anger or violence.
Eliminating Violence Against Women. Forms, Strategies and ToolsDaniel Dufourt
Workshop
Eliminating Violence Against Women: Forms, Strategies and Tools
On the occasion of the Seventeenth Session of the United Nations Commission On Crime Prevention and Criminal Justice
Vienna, 14 April 2008, 104 pages
Figures de la philosophie et horizon cosmopolitique La mondialisation et les ...Daniel Dufourt
Figures de la philosophie et horizon cosmopolitique
La mondialisation et les apories d’une cosmopolitique
de la paix, de la citoyenneté et des actions
Journée de la philosophie à l’Unesco 2004
Unesco, Paris, 2006, 270 pages
Este documento resume los principales eventos de la Segunda Guerra Mundial, incluyendo cómo comenzó bajo el liderazgo de Adolf Hitler en Alemania, los sucesos clave como la invasión de Polonia y los bombardeos de Pearl Harbor, y cómo terminó con la rendición de Alemania e Italia en 1945.
This document contains the resume of R. Giri Prasath which summarizes his professional experience and qualifications. He has nearly 5 years of experience working with Cognizant Technology Solutions in roles involving software analysis, design, estimation and development using technologies like Java/J2EE. He is currently working as an Associate and has led teams of up to 5 people. He is looking for an opportunity to work outside of India and has qualifications including a B.E. in ECE from Mount Zion College of Engineering and Technology.
This document provides instructions for creating Twitter bots using Google Scripts. It explains how to generate Twitter keys, configure rules for bots to retweet, favorite or reply to tweets, and ensure bots comply with Twitter's automation policies. The bots run automatically in the background through Google servers.
This brief document contains informal greetings and questions between at least two individuals, including "What is yr name?" and statements telling another person to leave a property, with some profanity used. The high-level gist involves brief back-and-forth communication between at least two parties.
The Annexation Task Force met from June 2015 to January 2016 to recommend changes to Chapter 8 of the City's Comprehensive Plan. They adjusted boundaries to align with the school district and added information on municipal utility districts. The text was updated to discuss infrastructure, services, and recent annexation limitations. Recommendations include renewing the ETJ agreement, extending the ETJ, evaluating non-annexation agreements, using such agreements strategically, pursuing exempt annexations, and considering 3-year annexation areas. The Planning & Zoning Commission unanimously recommended approval.
La publicidad de Playboy en Alemania presenta una valla publicitaria con una mujer usando una camiseta que se vuelve transparente cuando llueve, promocionando la revista Playboy y sugiriendo que cuando llueve la ropa interior de la mujer se puede ver a través de su camiseta mojada.
Leccion 1 introducción a la sociología urbana 2016 2017SociologiaUrbana
La lección introduce los debates y corrientes teóricas de la sociología urbana. Presenta las tradiciones de la ecología urbana, la ciudad como sistema sociocultural y escenario de luchas de clases. También resume las propuestas de Ullán de la Rosa y Castells, señalando la necesidad de una nueva sociología urbana que se adapte a los cambios en las formas espaciales y la sociedad en red.
This document is the United Nations Conference on Trade and Development (UNCTAD) Trade and Development Report for 2016. It examines structural transformation, industrialization, and the role of trade in inclusive and sustained economic growth. Some key points:
- The report analyzes current trends in the world economy including slowing global growth, trade, and commodity markets. It explores the causes and implications of the recent slowdown in global trade.
- It discusses how globalization and trade openness can support convergence between developed and developing economies but have not always led to structural transformation. Industrialization, particularly in manufacturing, is important for productivity and development.
- The report examines patterns of structural change since 1970, differences between successful,
Time-Consistent Fiscal Policy in a Debt Crisis - by Neele Balke and Morten O....ADEMU_Project
This document summarizes a research paper analyzing optimal fiscal policy in a sovereign debt model that incorporates feedback from policy to the economy. The key points are:
1) The model considers a production economy with unemployment and inequality, where the government sets taxes, transfers, public goods, and debt without commitment.
2) In normal times, the government uses procyclical fiscal policies but implements austerity (higher taxes and lower transfers/spending) during debt crises to reduce default incentives and access credit markets.
3) Austerity is optimal both when debt is expensive and strategically to commit not to stimulate the economy after defaulting. Commitment to fixed policies would make austerity unnecessary during crises.
This document summarizes an economic report analyzing the relationship between economic growth and inequality in 73 countries from 1993-2013. Two regression models were used to examine the impact of various economic variables on the rate of economic growth. The first model found a positive relationship between internal direct investment and growth. The second model found positive relationships between gross capital formation and growth. Both models found negative relationships between the GINI index, government debt, and GDP per capita with economic growth. The analysis aims to better understand how inequality impacts economic growth.
Given the fact that monetary policy implemented until now does not apply to this new way of monetary policy, due to the lack of effectiveness with the ordinary instruments, then it must convince the Parliament that the reduction of the budget deficit should not be a priority within a political mandate. Trying to adjustment and deficit reduction within a mandate might be a good idea as long as the fluctuations of liquidity in the economy will not occur or will be with periphery influence.
The paper examines neoclassical measures to evaluate government policy in transition countries: 1) marginal factor prices and the return to capital, 2) growth rates and taxes, 3) inflation rates, and 4) debt/GDP ratios, related to international real business cycle and endogenous growth theory. It further postulates a way to consider the debt/equity position of the government, related to a risk-yield framework. This gives a potentially more useful indicator than the debt/GDP ratio alone. Empirically these measures are examined in an illustrative way for a set of Central European countries plus Germany and the US for comparison, for the period of 1990-1998, using an internally standardized data set from the on-line International Financial Statistics.
Authored by: Max Gillman
Published in 1999
The document discusses government debt and budget deficits. It defines government debt as the accumulation of all past annual budget deficits, where the budget deficit equals government spending minus revenue. It also discusses different ways of measuring the deficit and debt, including adjusting for inflation, subtracting assets, and including hidden liabilities. Finally, it discusses debates around the traditional and Ricardian views of how budget deficits and debt affect the economy.
The document discusses fiscal policy and government budgets. It makes three key points:
1) In the short run, fiscal deficits can raise output, but the impact on investment is ambiguous. In the long run, lower investment implies lower growth.
2) For a government to stabilize its debt levels after a tax cut, it must eventually offset the tax cut with higher taxes to cover interest payments on accumulated debt. The longer it waits, the larger the needed tax increase.
3) Very high debt levels pose dangers as expectations of default can become self-fulfilling, forcing interest rates and debt levels ever higher in a vicious cycle. Maintaining moderate debt levels is important for fiscal sustainability.
Government expenditure is used to promote economic growth, development, and social welfare. It is classified as capital/current, development/non-development, transfer/non-transfer, and planned/unplanned. Government revenue comes from tax revenue like income tax and indirect taxes, and non-tax revenue like fees and profits. A government budget can be balanced, in surplus, or deficit, impacting aggregate demand. Deficits are financed through borrowing, money printing, or grants. Large public debts are caused by expansionary policies and external shocks, and have consequences like crowding out investment. Fiscal policy uses spending and taxes to influence the economy.
The document discusses the economic functions of the government which include educating citizens, maintaining national defense, providing public goods, and ensuring economic stability. It also describes how governments use fiscal policy tools like taxation and spending to influence aggregate demand, resource allocation, and income distribution. The document outlines how governments can run budget deficits or surpluses and use debt to manage cash flows. It notes that excessive debt can reduce resources available for production and investment and frustrate unemployed workers. The document concludes by discussing moratoriums on debt payments as a last resort during economic crises to provide time to stabilize finances.
Submission to the International Monetary Fund's Consultation on Economic "Spi...Dr Lendy Spires
This document provides recommendations from ActionAid International to the IMF's consultation on international tax spillovers. Key points include:
1) International tax reforms should consider macroeconomic impacts and inter-nation equity, not just domestic revenue impacts. Broader effects on financial stability, debt management, and development policy coherence should be analyzed.
2) The IMF is well-placed to develop methodologies for quantifying tax spillovers between countries from changes to domestic tax regimes. Baseline measurements of the international distribution of the corporate tax base would aid future assessments.
3) Reforms aimed at preventing base erosion and profit shifting should explicitly protect lower-income countries' tax bases and rights. Measures permitting source-based
1) The document discusses the effects of three different types of fiscal policy shocks in eurozone countries using the MARMOTTE economic model: an increase in government expenditure, a reduction in corporate profit taxes, and a reduction in wage taxes.
2) For an increase in government expenditure, the model shows higher inflation in the short run as demand increases, which the ECB fights by raising interest rates. This leads to lower consumption, investment, employment and potential output in the long run. Prices are higher in the long run as well.
3) For a reduction in corporate profit taxes, the model shows higher investment, employment, potential output, and consumption over time. This leads to initial higher inflation followed
1) The document calls for a coordinated fiscal stimulus package across Eurozone countries to combat recession, arguing the current individual country responses have been too weak and uncoordinated. It recommends a minimum 2% of GDP stimulus that is sustained until economies recover.
2) Monetary policy actions by the ECB have not been enough on their own to sustain the Eurozone economy, and now need to be supported by strong fiscal policy actions. However, the Stability and Growth Pact prohibits automatic fiscal stabilizers from working as needed.
3) For stimulus packages to be effective, they should focus on public spending that directly increases aggregate demand and employment, such as infrastructure investment, rather than broad-based tax cuts. Co
BUDGETING AND FINANCIAL MANAGEMENTPublic budgeting and financi.docxAASTHA76
BUDGETING AND FINANCIAL MANAGEMENT
Public budgeting and financial management are concerned with allocating limited resources to problems that governments and other public organizations face. Just as you establish a personal budget to track your income and expenses and, just as businesses create budgets to aid in decisions affecting profits and losses, so do public organizations employ budgets to help in planning and management. Public organizations must carefully and responsibly manage large amounts of money and other resources—taking in taxes and other revenues, purchasing goods and services, investing surplus funds, and managing debt wisely.
From the point of view of the manager or citizen trying to influence public policy, the budget is an extremely important tool for planning and control. To manage public programs effectively, you must be able to manage resources, both practically and politically. In this chapter we focus on the budget process from the standpoint of the individual public manager, examining how budget decisions are made and how you can influence budgetary outcomes. Although much of the budget process is highly charged politically, specific technical knowledge about budgeting systems will give you a distinct advantage.
The elaborate systems that public organizations have developed to manage their fiscal affairs are relatively recent. Prior to 1900, revenues were easily sufficient to cover the expenses of government, and financial management was merely record keeping. As the scope of government grew and new demands were placed on its resources, the need for more sophisticated systems of decision making became apparent. Moreover, repeated instances of corruption and waste made more effective control over the public's resources necessary.
In establishing its executive budget process through the Budgeting and Accounting Act of 1921, the federal government followed the lead of several local and state governments that had already taken similar actions. This municipal reform movement emphasized the budget process as a means of bringing order to public spending; consequently, by the 1920s, most big cities had established a formal budget process. Similar developments were also occurring at the state level. In 1910, Ohio became the first state to require an executive budget; within the next decade, similar actions took place in most other states. At the federal level, a special Commission on Economy and Efficiency, known as the Taft Commission, recommended establishing an executive budget in 1912; the recommendation was implemented nearly a decade later.
Since the 1920s, the federal budget has grown in both size and complexity, as have budgets at the state and local levels. This growth means that budgeting and financial management have come to involve far more than keeping a record of income and expenses. Today, how government spends its money affects many other areas of the economy; consequently, the budget is an instrument of fisc ...
This paper extends the analysis of Haavelmo (1945), which derived the multiplier effect of a balanced budget expansion of public spending on aggregate demand and output. We first generalize Haavelmo's results showing that a fiscal expansion can have positive effects of demand and output even in the case of a relatively small primary surplus and establishing the general principle that what matters for fiscal policy to be expansionary is that the propensity to spend of those taxed should be lower that of the government and the recipients of government transfers. We also show that endogenizing business investment as a propensity to invest makes the traditional balanced budget multiplier to become greater than one. Moreover, if this propensity to invest changes over time and adjusts capacity to demand as in the sraffian supermultiplier demand led growth model, the net tax rate that balances the budget will tend to be lower the higher is the rate of growth of government spending, even in the presence of other private autonomous expenditures.
This document discusses five debates around macroeconomic policy: 1) whether monetary and fiscal policy should stabilize the economy, 2) whether monetary policy should be rules-based or discretionary, 3) whether the central bank should target zero inflation, 4) whether the government should balance its budget, and 5) whether tax laws should encourage more saving. For each debate, arguments on both sides are presented.
Presentation - The rleationships between Public finance and Fiscal Policy 24....petrwawrosz1
This document provides an overview of key concepts in public finance and fiscal policy. It discusses public finance in terms of goals, functions, and relationships between government and the economy. It also examines the impact of government debt on economic growth, finding most studies show high debt negatively impacts growth. Additionally, it explores the relationship between fiscal policy tools like taxes and spending and macroeconomic outcomes, as well as theories like Ricardian equivalence.
Fiscal policy uses government spending and taxation to influence economic activity. However, many economists and the CBO believe fiscal policy has little impact and that the economy is determined by private markets. The article argues that fiscal policy will need to be substantially expanded through increased government spending to avoid a prolonged recession, contradicting the current political view. It concludes that private borrowing cannot sustain the current expansion indefinitely and fiscal stimulus will be needed.
This document discusses intergovernmental fiscal relations and revenue assignment between different levels of government. It defines key terms like intergovernmental fiscal relations and fiscal decentralization. It outlines principles for assigning taxes between central and sub-national governments, including market efficiency effects, equity considerations, administrative feasibility, and matching revenues to expenditure needs. While certain taxes are better suited to different levels based on these principles, reconciling the differences is challenging to provide enough revenue for sub-national governments without distortions.
Bringing Taxation into the Post-2015 Development FrameworkDr Lendy Spires
This document discusses options for including taxation in the post-2015 development framework. It proposes: 1) Ensuring international treaties protect developing countries' taxing rights on cross-border income and capital. 2) Increasing transparency around tax havens and multinational companies. 3) Supporting regional agreements to address tax competition and incentives. It also discusses how increased tax revenues could fund development goals by potentially raising corporate tax takes by 20% and overall tax-to-GDP ratios to 25%. Making taxation a greater source of development finance globally would require action to ensure fairer international tax rules and enforcement.
Vom First-Mover zum Laggard? Entwicklung der Direktinvestitionen zwischen Ö...Daniel Dufourt
Vom First-Mover zum Laggard? Entwicklung der Direktinvestitionen zwischen Österreich und CESEE 2007–2020
Kujtim Avdiu, Julia Wörz, Michael Wuggenig
Die folgende Analyse beleuchtet die wechselseitigen Direktinvestitionen zwischen Österreich und ausgewählten Ländern in Zentral-, Ost- und Südosteuropa (CESEE – Central, Eastern and
Southeastern Europe) von der globalen Finanz- und Wirtschaftskrise des Jahres 2008 bis zum Beginn der COVID-19-Pandemie im Jahr 2020 und wertet dafür die aktuelle Jahresbefragung
der Oesterreichischen Nationalbank (OeNB) zu Direktinvestition, die fortgeschriebenen Daten der Direktinvestition aus der Zahlungsbilanz als auch die FDI-Datenbank des Wiener Instituts
für Internationale Wirtschaftsvergleiche (wiiw) aus. Der Fokus liegt auf der Bedeutung der CESEE-Region für Direktinvestitionen in Österreich einerseits und auf der Rolle Österreichs als
Herkunftsland von Auslandskapital in CESEE andererseits. Die Langzeitbetrachtung über den Zeitraum 2007–2020 stützt sich auf Direktinvestitionsbestände, die Zuordnung erfolgt nach
der Richtung der Eigenkapitalbeziehung („directional principle“). Zusätzlich zur Darstellung über
die Zeit wird auf die Profitabilität der Investitionen, die Beschäftigungsintensität und die Branchenstruktur näher eingegangen. Besonderes Augenmerk liegt auf der Rolle von sogenanntem „Durchlaufkapital“, also Kapital, welches in Form passiver Direktinvestitionen nach Österreich geflossen ist und wiederum im Ausland in Form aktiver Direktinvestitionen veranlagt wird. (...)
Les transformations géopolitiques dans la région MENA : Les dynamiques struct...Daniel Dufourt
Institut Européen de la Méditerannée
Lors de la Conférence annuelle d’EuroMeSCo « Une diversité croissante dans la région euro-méditerranéenne ? » tenue à Tarragone les 2 et 3 octobre 2014, d’éminents analystes ont présenté les résultats de leurs recherches. C'est ainsi que l'auteur de ce texte est Fouad M. Ammor, chercheur et membre du comité exécutif du Groupement d’Etudes et de Recherche sur la Méditerranée (GERM)
Audition L'accès à la justice pour les femmes victimes de violenceDaniel Dufourt
This document outlines the program for a hearing held in Paris on December 9, 2013 regarding access to justice for women victims of violence. It was organized by the Gender Equality Commission of the Council of Europe and the French Ministry of Women's Rights.
The one-day hearing included opening speeches, four sessions on topics such as barriers to equal access to justice and examples from Council of Europe member states, and a closing session with concluding remarks. Presenters included representatives from government agencies, universities, civil society organizations, and international bodies. Testimonies were also provided by witnesses from France and other countries.
Review of Learning 2.0 Practices: Study on the Impact of Web 2.0 Innovations ...Daniel Dufourt
Author : Christine Redecker
Preface
This report is part of the IPTS1 research project “Learning 2.0: Impact of web 2.0 innovations
on education and training” under the Administrative Arrangement between DG JRC-IPTS IS
Unit and DG EAC Directorate A, Unit 2. The study aims to evaluate the projected impact of
social computing on learning and to analyse its potential in supporting innovation and
inclusion within education and training. The primary aim of this review of practices,
contributing to this goal, is to collect evidence and summarize published research findings on
the ways in which social computing applications change learning patterns, give rise to new
learning opportunities and impact education and training (E&T) organisations.
The Use of ICT for the Assessment of Key CompetencesDaniel Dufourt
Christine Redecker (2013)The Use of ICT for the Assessment of Key Competences . European Commission, Joint Research Centre, Institute for Prospective Technological Studies
ISSN 1831-9424 (online)
doi:10.2791/87007
Luxembourg: Publications Office of the European Union, 2013
European Framework for the Digital Competence of EducatorsDaniel Dufourt
Redecker, C. European Framework for the Digital Competence of Educators:
DigCompEdu. Punie, Y. (ed). EUR 28775 EN. Publications Office of the European Union, Luxembourg, 2017,
ISBN 978-92-79-73494-6, doi:10.2760/159770, JRC107466
Digital Education Policies in Europe and Beyond: Key Design Principles for Mo...Daniel Dufourt
Conrads, J., Rasmussen, M., Winters, N., Geniet, A., Langer, L., (2017). Digital Education Policies in Europe and Beyond: Key Design Principles for More Effective Policies. Redecker, C., P. Kampylis, M. Bacigalupo, Y. Punie (ed.), EUR 29000 EN, Publications Office of the European Union, Luxembourg, 2017, ISBN 978-92-79-77246-7, doi:10.2760/462941, JRC109311.
Arrangements institutionnels et logiques de l'action collective 1995Daniel Dufourt
Dès lors que les individus s'engagent dans une action collective, la signification des comportements individuels ne peut plus être déduite des interactions individuelles ( analysables en termes de compréhension intersubjective) et doit donc être rapportée aux règles qui régissent l'action collective. De là de nouveaux fondements à l'économie politique des acteurs sociaux, inspirées de la philosophie
pragmatiste américaine.
Le Manuel de statistiques de la CNUCED 2016Daniel Dufourt
" Le Manuel de statistiques de la CNUCED fournit des statistiques et indicateurs essentiels à l’analyse du commerce international, de l’investissement et du développement. Une information statistique fiable est indispensable à la formulation de politiques saines et de recommandations qui engageront les pays pour de longues années dans leur processus d’intégration dans l’économie mondiale et d’amélioration des conditions de leurs peuples. Que ce soit pour la recherche, la concertation ou la coopération technique, la CNUCED a besoin de données commerciales, financières et macroéconomiques fiables, comparables au niveau international et disponibles, si possible, sur plusieurs décennies et pour un maximum de pays."
Global governance and global rules for development in the post-2015 eraDaniel Dufourt
This document discusses the need to reform global governance and global rules to better support development in the post-2015 era. It argues that the current system is not well-equipped to manage growing interdependence among countries or address inequalities. It proposes five principles to guide reform: common but differentiated responsibilities, subsidiarity, inclusiveness and transparency, coherence, and responsible sovereignty. The document examines key areas - like the environment, trade, and inequality - that need strengthened global cooperation. It recommends the UN, particularly ECOSOC, play a stronger role in coordinating reform to close the gap between commitments and implementation. Overall, the document calls for multilateral cooperation to create conditions supporting a sustainable and inclusive post-2015 development agenda
The document discusses age-based tax breaks for seniors in Australia. It notes that generous policy changes over the last 20 years have introduced tax offsets and higher tax-free thresholds for seniors, disproportionately benefiting older Australians and reducing the number of seniors paying income tax. The report argues these age-based tax breaks should be wound back as they damage the budget, exacerbate intergenerational transfers, and are unfair. It proposes recommendations to reduce the Seniors and Pensioners Tax Offset and Medicare levy thresholds for seniors to match those who receive a full Age Pension, to help improve budget balances by around $1 billion per year.
- Europe can only respond effectively to its overlapping crises of finance, refugees, and climate change by acting together through common European solutions and instruments. Individual countries are too weak to address major challenges alone.
- Examples of necessary common European action include the new European Border and Coast Guard to manage migration flows and develop an EU asylum system, as well as correcting tax avoidance through decisions like making Apple repay billions in unpaid taxes.
- For sustainable and inclusive growth, Europe needs coordinated investment in both high-tech research and quality education accessible to all children from an early age. The state has an important role in shaping markets and providing essential public services to support
NATIONAL ARTIFICIAL INTELLIGENCE RESEARCH AND DEVELOPMENT STRATEGIC PLAN Daniel Dufourt
"This AI R&D Strategic Plan defines a high-level framework that can be used to identify scientific and technological gaps in AI and track the Federal R&D investments that are designed to fill those gaps. The AI R&D Strategic Plan identifies strategic priorities for both near-term and long-term support of AI that address important technical and societal challenges. The AI R&D Strategic Plan, however, does not define specific research agendas for individual Federal agencies. Instead, it sets objectives for the Executive Branch, within which agencies may pursue priorities consistent with their missions, capabilities, authorities, and budgets, so that the overall research portfolio is consistent with the AI R&D Strategic Plan."
Asian-Arab Philosophical Dialogues on War and Peace UNESCO BangkokDaniel Dufourt
Asian-Arab Philosophical Dialogues on War and Peace
Editors: Darryl R.J. Macer and Souria Saad-Zoy
Published by UNESCO Bangkok
Regional Unit for Social and Human Sciences
in Asia and the Pacific
Bangkok, 2010, 130 pages
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
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2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
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"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
1. Elemental Economics - Introduction to mining.pdfNeal Brewster
After this first you should: Understand the nature of mining; have an awareness of the industry’s boundaries, corporate structure and size; appreciation the complex motivations and objectives of the industries’ various participants; know how mineral reserves are defined and estimated, and how they evolve over time.
BONKMILLON Unleashes Its Bonkers Potential on Solana.pdfcoingabbar
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Let's be real for a second – the world of meme coins can feel like a bit of a circus at times. Every other day, there's a new token promising to take you "to the moon" or offering some groundbreaking utility that'll change the game forever. But how many of them actually deliver on that hype?
STREETONOMICS: Exploring the Uncharted Territories of Informal Markets throug...sameer shah
Delve into the world of STREETONOMICS, where a team of 7 enthusiasts embarks on a journey to understand unorganized markets. By engaging with a coffee street vendor and crafting questionnaires, this project uncovers valuable insights into consumer behavior and market dynamics in informal settings."
2. Abstract
Large and growing levels of public debt in the United States, United Kingdom, Japan
and the Euro Area raise new interest in the cross-country e¤ects of a large open econ-
omy’s de…cits. We consider a dynamic optimising model with costly tax collection and
exogenously given public spending and initial debt. We ask whether the externalities
associated with an individual country’s de…cits are positive or negative. We characterise
the path of taxes in the Nash equilibrium where policy makers act nationalistically and
compare this outcome to the global optimal outcome.
JEL classi…cation: E62, F42, H21.
Key words: …scal policy, international policy coordination, optimal taxation.
Date: 16 August 2015
3. 1 Introduction
Net general government debt as a share of annual GDP stood at about 129 percent for
Japan, 76 percent for the United Kingdom and 86 percent for the United States in 2014,
over twice the levels that prevailed in 2000.1
This burgeoning o¢ cial indebtedness raises
new interest in a topic that has been relatively neglected in recent years: the cross-
country e¤ects of a large country’s borrowing. Does such a country’s borrowing in an
integrated global …nancial market impose externalities on other countries? If so are, are
these spillovers exclusively redistributive or do they create or mitigate ine¢ ciency? In this
paper we consider cross-border pecuniary externalities associated with the transmission
of national public debt policies through their e¤ect on the global risk-free real interest
rate.2
We provide a dynamic equilibrium model with optimising households and govern-
ments, in which public debt and the governments’intertemporal budget constraints pro-
vide a link between current and future tax decisions. Such models are analytically di¢ -
cult, especially if they do not exhibit Ricardian equivalence. Thus, our baseline frame-
work possesses the simplest possible supply side for the national economies: a perishable
endowment. Our model is inhabited by representative in…nite-lived households with log-
linear preferences and we assume a simple source of Ricardian non-equivalence, or absence
of debt neutrality: increasing and strictly convex real resource costs of administering and
collecting taxes. We require that governments follow sustainable plans and we ignore
monetary policy; hence, we focus on real interest rate cross-border spillovers that oc-
cur in the absence of sovereign default risk and without strategic interactions between a
national …scal authority and a national or supranational monetary authority.
We assume that …nancial capital is perfectly mobile across countries and that the
international transmission of national …scal policy is solely through interest rates. Taxes
1
OECD Economic Outlook, June 2015. The euro area’s net general government debt as a share of
annual GDP was 73% in 2014 and 47% in 2000.
2
Pecuniary externalities are externalities that a¤ect another party solely through the prices faced by
the other party.
1
4. are lump sum, but because of the strict convexity of the tax collection costs, the timing
of taxes matters in this model, just as it would with conventional distortionary taxes
on labour income or …nancial asset income in models with endogenous labour supply or
capital accumulation.
Without tax collection costs our model, with its representative households, would
exhibit Ricardian equivalence: for any given sequence of public purchases of goods, any
sequence of lump-sum taxes and debt that satis…es the intertemporal budget constraint
would support the same equilibrium. There would be no international spillovers. This is
true even if countries are large in the world capital market and exploit their monopoly
power. However, with our strictly convex tax collection costs we demonstrate that if
national policy makers cannot cooperate, there are pecuniary externalities that are not
merely redistributive and the outcome is ine¢ cient.
If we had instead assumed overlapping generations, then if there were no tax collection
costs and taxes were lump sum, alternative rules for …nancing public purchases of goods
would cause purely redistributive pecuniary externalities. Even with symmetric coun-
tries, there could be distributional e¤ects between generations, but as long as dynamic
ine¢ ciency does not occur, any feasible sequence of lump-sum taxes and debt supports
a Pareto e¢ cient allocation.3
In the one-country special case of our model, tax collection costs do not cause ine¢ -
ciency if one assumes that these costs would be the same in the counterfactual command
economy as they are in our market economy. Ine¢ ciency arises when there are multiple
countries and each country a¤ects other countries’choice sets through market prices in
a way that is not adequately re‡ected in the market prices.
With symmetric countries and representative, in…nite-lived households, symmetric
tax policies have no distributional e¤ects. However, because of the convex tax collection
costs, they can have welfare consequences if they change the world interest rate. If
3
See Buiter and Kletzer (1991). If there is dynamic ine¢ ciency, then …scal policy that causes redis-
tribution from the young to the old can lead to a Pareto improvement.
2
5. countries have outstanding debt and a change in policy causes the interest rate to rise,
then higher debt service means that countries must raise taxes, now or in the future,
and tax collection costs increase. National governments that maximise their own resident
household’s welfare do not internalise the cost of the higher tax collection costs to other
countries. Thus, if a national government’s …nancing decision raises the world interest
rate, then it in‡icts a negative externality on the rest of the world. This is in line with
conventional wisdom.
Where our model departs from conventional wisdom is through the mechanism by
which …nancing choices a¤ect interest rates. It is conventional –at least in static Key-
nesian models –to associate de…cit …nancing of public spending with ‘…nancial crowding
out’. That is, for a given public spending programme, larger bond-…nanced de…cits
brought about by lower taxes are assumed to raise interest rates.
In our neoclassical intertemporal model this need not be true. Lowering the tax in,
say, period zero and raising it in period one so that the government’s intertemporal budget
constraint is otherwise unchanged in periods two and later results in an increased de…cit
in period zero, a decreased de…cit in period one and a lower interest rate on borrowing
between periods zero and one. The reason is that lower taxes in period zero and higher
taxes in period one result in lower real resource costs associated with tax collection in
period zero and higher real resource costs in period one. With exogenously given output
this results in higher consumption in period zero and lower consumption in period one.
Thus, the price of consumption in period zero relative to the price of consumption in
period one falls.
We show that if a government is too small to a¤ect the global interest rate, it minimises
the costs of collecting taxes by smoothing them over time. However, if it is able to
in‡uence the world interest rate and it has strictly positive initial debt, then it sets a
lower tax in the initial period than in future periods. This lowers the interest payment
on the government’s outstanding debt and, hence, lowers future tax collection costs.
Relative to the global (cooperative) optimum, noncooperative countries tax too much
3
6. and issue too little debt in the initial period. Reducing current taxes has a positive welfare
spillover, even though it requires issuing more debt. Lowering the current interest rate by
lowering current taxes reduces the cost of servicing all countries’outstanding debt and
thus reduces all countries’need for costly tax collection. In a noncooperative equilibrium,
countries do not take into account this bene…t to other countries and they set taxes too
high in the initial period.
We demonstrate that as the number of countries goes to in…nity and individual coun-
tries lose their market power, the noncooperative outcome moves further from the opti-
mal outcome. This result is similar to those obtained by Kehoe (1987), Chang (1990),
Wildasin (2003, 2011) and Han, Pieretti, Zanaj and Zou (2014), but is in marked contrast
to those in typical beggar-thy-neighbour policy games.
Our work is related to the vast literature on other types of international …scal policy
linkages. It is also related to the less extensive literature on the political economy of the
timing of taxes and to the sizable literature on the optimal timing of multiple distortionary
taxes.
The literature on the international transmission of …scal policy has two main strands.
First, there is the work on the transmission of government-expenditure shocks with lump-
sum taxes and without tax collection costs. Examples are the theoretical or numeri-
cally calibrated models analysed by Frenkel and Razin (1985, 1987), Buiter (1987, 1989),
Turnovsky (1988, 1997), Corsetti and Müller (2007), Corsetti, Meier and Müller (2010,
2012). The papers in this vein are in contrast to ours in that we take government expendi-
ture as exogenous and ask how the …nancing matters when there are tax collection costs.
Second, there are papers on the transmission of tax shocks in models with distortionary
taxes in a balanced-budget setting. There is a sizable literature –going back to Hamada
(1966) –on the strategic taxation of capital income in a world economy. In this litera-
ture, a capital-exporting (importing) country can increase its national income by acting
as a monopolist (monopsonist) and restricting capital movements. The result is a Nash
equilibrium where nations want to tax capital ‡ows. Other papers consider issues of the
4
7. feasibility of di¤erent tax regimes in an integrated world economy, tax harmonisation and
tax competition. Examples of such papers are Sinn (1990), Bovenberg (1994), Janeba
(1997) and Keen and Konrad (2014).
In the political economy literature, excessive public de…cits and debt in a closed
economy may result from an incumbent government’s incentive to signal its competency
prior to an election (Rogo¤ and Sibert (1988)), a war-of-attrition game over the allotment
of the costs of …scal adjustment (Alesina and Drazen (1991)), a political party’s desire to
tie the hands of a possible successor (Persson and Svensson (1989), Alesina and Tabellini
(1990), Battaglini (2011) and Kirchgässner (2014))4
, and from a desire to restrain a
rent-extracting government (Yared (2010)). Tabellini (1990) extends this latter strand of
the literature to a multi-country setting and shows that international cooperation may
exacerbate the distortion that generates excessive de…cits, thus worsening the outcome. In
this paper, we abstract from political economy concerns; at least in the baseline model,
national governments are able to commit to policies that maximise national welfare.
Recent work in this area has added intergenerational con‡ict to this already complex
literature (e.g. Song, Storesletten and Zilibotti (2012)).
Chamley (1981, 1986) pioneered the study of dynamic optimal taxation in a closed
economy with optimising households when the government can borrow or lend. He focuses
on the choice between distortionary capital and labour income taxation and does not
consider tax collection costs of the kind studied here. The optimal policy is to impose
the maximum possible capital levy on the private sector’s initial, predetermined capital
and public debt and then to switch permanently to a zero capital income tax rate.5
Acemoglu, Golosov and Tsyvinski (2011) show that, when self-interested politicians that
cannot credibly commit to policies and are more impatient than the voters, the best
subgame-perfect equilibrium (from the perspective of the voters) involves long-run capital
taxation. Clearly, incorporating tax collection costs of the kind considered here would
4
Drazen (2000) provides a discussion of this literature.
5
See also Lucas (1988).
5
8. render Chamley’s highly uneven time pro…le of tax receipts suboptimal, with or without
the political economy and commitment considerations analyses by Acemoglu, Golosov
and Tsyvinsky. It is indeed the increasing and strictly convex real resource costs of
administering and collecting taxes that cause our model, even with commitment, to
produce results di¤erent from those found in Gross (2014), who reproduces Chamley’s
result of zero equilibrium capital tax rates in the long run, in a model with strategically
competing governments that are capable of commitment. We consider tax administration
and collection costs - both the public sector real resource commitment and the time and
other real resources devoted to tax compliance, avoidance and evasion in the private
sector to be a …rst-order e¢ ciency issue - not the familiar triangle-shaped welfare losses
associated with traditional tax distortions, but the trapezoid welfare losses of rent seeking
and DUPE activities.6
Recent work by Fichtner and Feldman (2013) on the US and
by Vaillancourt, Roy-César and Barros (2013) on Canada are quite sobering about the
magnitude even of just the costs that can currently be captured and measured, and which
leave out a slew of harder-to-measure administration and compliance costs.
Our paper analysing the welfare economics of international interest rate spillovers
from the tax and borrowing strategies of national governments using a dynamic optimis-
ing equilibrium model is perhaps most closely related to Chang (1990,1997) and Buiter
and Kletzer (1991). These papers, discussed in more detail in Section 3, are primarily
concerned with purely redistributive pecuniary externalities associated with changes in
the world real interest rate, however, while our focus is on e¢ ciency losses caused by
pecuniary externalities in a model in which, by construction, changes in the world rate
of interest have no redistributive impact in equilibrium.
In Section 2 we present our baseline model where the departure from Ricardian equiv-
alence is driven by tax collection costs, policy makers can commit to future taxes and
there are perishable exogenous endowments and log-linear preferences. In Section 3 we
discuss the properties of the Nash equilibrium of the game between national policy makers
6
DUPE stands for Directly Unproductive Expenditure.
6
9. and compare it to the global optimal outcome. In Section 4 we alter the baseline model
by assuming that output is endogenous and the result of the households’labour-leisure
decisions and that the departure from Ricardian equivalence is a result of distortionary
labour taxes. We demonstrate that the global optimal tax policy is qualitatively similar
to that of the baseline model. In Section 5 we consider a three-period variant of our
baseline model and …nd the global optimal outcome when it is not possible to commit to
future tax policy. We demonstrate that it features taxes that rise over time. In Section 6
we consider a production economy with capital accumulation, CES preferences and costly
tax collection. We show that if the world is at a steady state with strictly positive debt,
then a coordinated reduction in current taxes …nanced by higher future taxes improves
welfare. Section 7 is the conclusion.
2 The Model
The model comprises N 1 countries, each inhabited by a representative in…nite-lived
household and a government. Each period, each household receives an endowment of the
single tradable, non-storable consumption good and each government purchases an ex-
ogenous amount of the good. Governments …nance their purchases by issuing debt or by
taxing their resident households. We assume that the tax system is costly to administer;
governments use up real resources collecting taxes. All saving is in the form of privately
or publicly issued real bonds. We assume that the endowments and the governments’
purchases are constant over time and identical across countries. The households’prefer-
ences and initial asset holdings and the governments’initial debt are also identical across
countries. There is perfect capital mobility, and hence, a common world interest rate.
7
10. 2.1 The households
The country-i household, i 2 ZN , has preferences over its consumption path given by
ui
=
1X
t=0
t
ln ci
t; (1)
where ci
t is its period-t consumption and 2 (0; 1) is its discount factor.7
The household’s
period-t budget constraint is
ci
t + ai
t+1 = W i
t + Rtai
t; t 2 Z+; (2)
where ai
t is the household’s holdings of real bonds at the start of period t, W > 0 is its
per-period endowment of the good, i
t is its period-t tax bill and Rt is (one plus) the
interest rate between periods t 1 and t. The household’s initial assets, a0, are given.
In addition to satisfying its within-period budget constraint, the household must sat-
isfy the long-run solvency condition that the present discounted value of its assets is not
strictly negative as time goes to in…nity. The transversality condition associated with its
optimisation problem ensures that the present discounted value of its assets is not strictly
positive. Thus,
lim
t!1
ai
t+1= t = 0; (3)
where t
Qt
s=0 Rs is (one plus) the interest rate between periods 0 and t.
Equations (2) and (3) imply that the present discounted value of the household’s
consumption equals the present discounted value of its disposable endowment income
plus its initial assets:
1X
t=0
wt
i
t = t =
1X
t=0
ci
t= t; where wt
8
><
>:
W + R0a0 if t = 0
W otherwise.
(4)
The household chooses its consumption path to maximise its utility function (1) sub-
7
We use the notation ZN f1; 2; :::; Ng, Z+ f0; 1; :::g and Z++ f1; 2; :::g.
8
11. ject to its intertemporal budget constraint (4). The solution satis…es the Euler equation
ci
t+1 = Rt+1ci
t; t 2 Z+: (5)
Solving the di¤erence equation (5) yields the household’s period-t consumption as a
function of its initial consumption and the interest rate between periods 0 and t:
ci
t = t
tci
0=R0; t 2 Z+: (6)
Substituting equation (6) into equation (4) yields the household’s initial consumption as
a function of its taxes and the interest rates:
ci
0 = (1 ) 0
1X
t=0
wt
i
t = t: (7)
Substituting equation (6) into equation (1) yields the household’s indirect utility as a
function of initial consumption and the interest rates:
ui
= ln ci
0 + (1 )
1X
t=1
t
ln t: (8)
Here and throughout the paper we ignore constants that do not a¤ect the household’s
optimisation problem.
2.2 The government
The country-i, i 2 ZN , government’s period-t budget constraint is
i
t
i
t
2
=2 + bi
t+1 = G + Rtbi
t; t 2 Z+; (9)
where bi
t is the government’s outstanding debt at the start of period t and G > 0 is its
per-period purchase of the good. The tax collection cost associated with a tax is 2
=2,
9
12. > 0.8
We allow for negative taxes, or subsidies. In this case the collection cost is the
cost of administering and disbursing the surplus. We discuss the tax collection cost in
more detail in the next subsection.
The government’s initial debt, b0, is given and we restrict ourselves to the empirically
relevant case of b0 0. We restrict the model’s parameters so that satisfying equation
(9) is feasible; the restrictions are detailed later in this section.
In addition to satisfying its within-period budget constraint, the government also
satis…es
lim
t!1
bi
t+1= t = 0: (10)
As with the household, this is an implication of the long-run solvency constraint and the
transversality condition associated with the government’s optimisation problem.9
Equations (9) and (10) imply that the present discounted value of the government’s
purchases, plus its initial debt, equals the present discounted value of its tax stream, net
of collection costs:
1X
t=0
h
i
t
i
t
2
=2 gt
i
= t = 0; where gt
8
><
>:
G + R0b0 if t = 0
G otherwise.
(11)
2.3 Market clearing
Market clearing requires that the sum of the N households’asset holdings equals the sum
of the N governments’debt. Thus,
at = bt; t 2 Z+; (12)
8
Barro (1979) pioneered these strictly convex tax collection costs in a closed-economy setting. He
assumed that the government minimises the discounted sum of these costs, rather than maximises the
discounted welfare of households.
9
We ignore the important issue of the possibility of sovereign default. There is already a sizable
literature on this subject. See, for example, Eaton and Gersovitz (1981), Bulow and Rogo¤ (1989) and
Cole and Kehoe (1995).
10
13. where variables without a superscript denote global averages. By equation (12), w0,
de…ned in equation (4), is equal to W + R0b0:
Goods market clearing requires that the sum of average household consumption, aver-
age government purchases and average tax collection costs equals the average endowment.
Thus,
ct = W G
1
N
NX
j=1
j
t
2
2
; t 2 Z+: (13)
Equation (13) is, of course, also implied by equations (2), (9) and (12).
Averaging both sides of the Euler equation (6) over the N countries yields
t = 0ct= t
c0 ; t 2 Z+: (14)
Equations (13) and (14) imply that in equilibrium, the interest rate between periods 0
and t is solely a function of period-0 and period-t taxes.
Lower period-0 taxes …nanced by higher period-t taxes lower the interest rate between
periods 0 and t. Before continuing, it is interesting to ask whether the timing of taxes
a¤ects the global risk-free interest rate in the manner that this model predicts. There is
a large body of empirical work attempting to quantify the relationship between govern-
ment budget de…cits and interest rates. However, the results are mixed, the literature is
problematic and the results are hard to interpret for several reasons.10
First, both taxes and interest rates are endogenous and an apparent relationship
between them may be due to the in‡uence of other variables. For example, automatic
stabilisers cause tax revenue to be lower and de…cits to be higher during recessions. At
the same time, an expansionary monetary policy (not considered in this paper) may
temporarily lower real interest rates. Thus, the role of monetary policy over the business
cycle may cause de…cits and real interest rates to be negatively correlated. Second, while
lowering taxes may lower the global risk-free interest rate, it may also increase sovereign-
default risk premia. This is ruled out in our model because each government is assumed
10
See Baldacci and Kumar (2010) for a discussion of the results and problems.
11
14. to satisfy its solvency constraint. If the e¤ect on the national sovereign risk premium is
larger than the e¤ect on the global risk-free interest rate, it will cause tax decreases to
be associated with higher measured market interest rates. Third, if tax cuts in a country
include lower capital taxes, then the country’s marginal product of capital may fall to
equate after-tax returns across countries. This causes lower taxes to be associated with
lower (before-tax) interest rates.
Finally, the model here predicts that lowering taxes in the current period and raising
them next period increases the current de…cit and lowers the interest rate. However, it
also predicts that lowering current and future taxes by the same amount increases the
current de…cit and has no e¤ect on the interest rate; lowering the current tax by less than
next period’s tax is lowered increases both the current de…cit and the interest rate. In
empirical studies, it is di¢ cult to control for the public’s expectation of future tax policy.
Substituting equation (14) into equations (7) and (8) yields
ci
0 = (1 ) c0
1X
t=0
t
wi
t
i
t =ct: (15)
ui
= ln ci
0 ln c0 + (1 )
1X
t=1
t
ln ct: (16)
Substituting equation (15) into equation (16) yields
ui
= ln
1X
t=0
t
wt
i
t =ct
!
+ (1 )
1X
t=0
t
ln ct: (17)
Substituting equation (14) into equation (11) yields
Bi
1X
t=0
t
si
t = 0; where si
t
h
i
t
i
t
2
=2 gt
i
=ct: (18)
Substituting equation (13) into equations (17) and (18) would allow both the household’s
indirect utility and the government’s budget constraint to be expressed solely as functions
of the paths of the taxes in the N countries.
12
15. For t > 0, si
t in equation (18) is the government’s period-t primary budget surplus
(or minus one times the de…cit, if negative), divided by ct. For t = 0, si
0 is the primary
surplus less principal and interest on the outstanding debt divided by c0. As a convenient,
if somewhat inelegant shorthand, we will refer to si
t as country i’s period-t discounted
surplus and we will refer to i
t ( i
t)
2
=2 gt as country i’s period-t surplus, t 2 Z+.
2.4 Taxes and Revenues
In this subsection we describe some of the properties of the surplus function. We de…ne
the set of feasible taxes and impose some restrictions on the parameter space. We derive
some results about the discounted surplus functions. Finally, we discuss some of the
empirical results relating to real world tax collection costs.
The surplus curve t ( =2) 2
t gt looks like a La¤er curve, although its shape is the
result of tax collection costs rather than the distortions associated with non-lump-sum
taxes. It attains a maximum of 1= (2 ) at = 1= : Temporarily supposing that they
exist, denote the two taxes that yield a surplus of zero by t and +
t , where 0 < t <
1= < +
t .11
There is a strictly positive surplus in period-t in country i if and only if
i
t 2 t ; +
t .
A set of period-t taxes f i
tgi2ZN
is said to be feasible if they leave consumption in each
country strictly positive. Let be the least upper bound on the set of feasible taxes in a
symmetric outcome.12
We assume that the surplus maximising tax is feasible, but that
a tax equal to the entire endowment is not. To ensure the existence of an equilibrium
where the solution to the policy maker’s problem is interior it is simple and su¢ cient –
but not necessary –to impose conditions that imply that the government can always run
a surplus and that the government can satisfy its intertemporal budget constraint even
11
Clearly t = (1= ) 1
p
1 2 gt and +
t (1= ) 1 +
p
1 2 gt , t 2 Z+.
12
By equation (13),
p
(2= ) (W G).
13
16. if its period-0 tax is zero. Thus,13
1= < < W; 1= (2 ) > g0; 1= (1 + ) ; (19)
where
1= (2 ) G
g0
2
2 1
.
In the following proposition we show that, given the taxes of other countries, each
country’s discounted surplus as a function of its own tax has a similar appearance to
its surplus function. However, the tax that maximises the discounted surplus is greater
than the tax that maximises the surplus. Moreover, in a multi-country world, if taxes
are identical across countries and if each country’s tax maximises its discounted surplus,
then each country’s tax is less than the tax that maximises the discounted surplus when
there is only one country.
Proposition 1 Let t 2 Z+, i 2 ZN and suppose that j
t < ; j 6= i. Then, si
t has a
unique maximum i
Nt 2 1= ; +
t and is strictly increasing in i
t on [0; i
Nt) and strictly
decreasing on i
Nt; +
t . Furthermore, if taxes are identical across countries then Nt <
1t if N > 1:
Proof. All proofs are in the Appendix.
The intuition for why a country can increase its discounted surplus by increasing
taxes above the tax that maximises its surplus is as follows. Suppose that a country is
maximising its surplus. Then a marginal increase in its tax has no e¤ect on the surplus,
which is insensitive to taxes at that level, but it lowers average consumption and thus
increases the discounted surplus. If there is only one country, then the impact of this
tax increase on average consumption is greater than the impact of an increase in a single
country’s tax in a multi-country world. Thus, the discounted surplus maximising tax
is higher when there is just one country than when there are multiple countries and
countries act symmetrically.
13
Proposition 1 and 1= (2 ) > g0 will ensure that > 0 and, hence, it is always possible to …nd such
a 2 (0; 1) :
14
17. We have modelled the cost of collecting taxes as an administrative tax; we could have
modelled it as a compliance cost. These interpretations are equivalent as in either case
the tax is ultimately borne by the households. Before proceeding to the policy makers’
optimisation problem it is reasonable to discuss the empirical evidence on the importance
of such costs.
The OECD (2009) estimates that administrative costs as a percentage of resulting
net tax revenue were 1.53 for Japan, 1.10 for the United Kingdom and .45 for the United
States in 2007. Estimating compliance costs is more di¢ cult and most studies have
focused on a particular component. Sanford et al (1989) estimates the compliance cost as
a share of revenue for UK corporate taxes to be 2.22 percent. Allers (1995) estimates the
compliance cost as a share of revenue for Netherlands corporate taxes to be about four
percent. Slemrod and Venkatesh (2002) estimate the compliance cost as a share of revenue
for medium-size US …rms to be 28.0 - 29.6 percent. Pitt and Slemrod (1989) estimate
that in 1982 it cost the average itemising US tax payer $43 dollars to itemise deductions;
Guyton et al (2003) estimate that in 2003 the overall compliance cost of the average US
tax payer was 25.5 hours and $149. Slemrod (1996) estimates overall compliance costs to
be about ten percent of resulting revenue. Slemrod and Sorum (1984) estimate the total
resource cost associated with administration and compliance in the United States to be
seven percen of the resulting revenue: about twice as high as the e¢ ciency cost associated
with tax distortions. Fichtner and Feldman (2013) estimate what they call the ’hidden
costs’of Federal individual and corporate income taxation in 2012 to be between $215bn
and $987bn, or between 1.3% and 6.1% of annual GDP. This excludes such private costs
as lobbying costs. Federal tax revenues lost as a result of this were estimates at $452bn
for 2012, or about 18.4% of Federal revenues. Vaillancourt, Roy-César and Barros (2013)
estimate total compliance and administration cost in Canada to be between 1.5% and
1.8% of GDP in 2011.14
14
One might add to this tax litigation costs, psychological costs resulting from anger, dissatisfaction
and frustration at the tax system, as well as real resource costs arising from disruptive protests and
economic unrest.
15
18. While there appears to be substantial evidence that tax collection costs are both
absolutely large and large relative to the costs arising from tax distortions, there is little
empirical evidence about the shape of the tax collection function. Nevertheless it seems
reasonable that the cost increases at an increasing rate as attempts to collect increasing
amounts of tax lead to increasing e¤orts to evade or avoid such revenue collection. The
assumption that these costs are strictly convex is common in the public …nance literature.
See, for example, Wilson (1989), Kaplow (1990) and Aragón (2010).
3 Dynamic Optimal Taxation
We assume that in period 0 the government in country i can commit to a tax plan
f i
tg
1
t=0 : It takes the tax plans of the other governments as given and chooses feasible
taxes to maximise the indirect utility of its household (equation (17)) subject to its
budget constraint (equation (18)), where average global consumption is given by (13).
We consider Nash outcomes where countries act symmetrically.
We …rst show that subsidies cannot be part of a symmetric Nash equilibrium and that
taxes must be no greater than the ones that maximise the discounted surpluses.
Proposition 2 A symmetric Nash equilibrium must have t 2 [0; Nt] ; t 2 Z+:
The intuition is straightforward. If a country were to choose a tax that is greater than
the one that maximises the discounted surplus, then by Proposition 1, this tax is on the
"wrong" side of the country’s discounted surplus La¤er curve. Thus, there is a tax on the
"right" side of this La¤er curve that yields the same discounted surplus and produces a
smaller distortion. If a country were to provide a subsidy in some period, then it must
impose a tax in some other period. If the country were to lower the subsidy it would
both increase consumption in that period and improve the …scal situation, allowing taxes
to be lowered in other periods.
We next show that a unique equilibrium exists and we describe the time path of
equilibrium taxes.
16
19. Proposition 3 There exists a unique symmetric Nash equilibrium and it has constant
taxes from period 1 on. Furthermore, if initial government debt is strictly positive, equi-
librium taxes are lower in period 0 than in period 1. If there is no initial government
debt, taxes are constant over time.
The intuition behind the result is that the government trades o¤ two objectives. First,
it wants to smooth consumption by smoothing tax collection costs over time. If this were
its sole objective, optimality would require constant taxes. Second, however, it wants to
lower the discounted value of the tax collection costs through its in‡uence on the global
interest rate. It does this by lowering initial taxes and raising future taxes. Through
the goods market clearing condition (equation (13)) this raises initial consumption and
lowers future consumption. By the Euler equation (14) this lowers the interest rate
between periods 0 and 1. Thus its required tax revenue falls and so do its tax collection
costs.
Proposition 4 If countries have no market power (N ! 1) then taxes are constant
across periods.
When countries have no market power, we have Barro’s (1979) result. If these costs
are convex, then an optimising government smooths them over time.
We now compare the equilibrium and optimal outcomes and show how the number
of countries a¤ects the deviation of the equilibrium outcome from the global optimal
outcome. We note that the outcome when N = 1 is the global optimal outcome.
Proposition 5 Suppose that N > 1. If there is strictly positive initial government debt,
then the period 0 tax is too high relative to the global optimal tax and subsequent taxes are
too low. Furthermore, increasing the number of countries increases the di¤erence between
equilibrium taxes and global optimal taxes.
The intuition for the …rst part of the proposition is that with strictly positive initial
debt, lowering the period-0 tax below subsequent taxes causes a positive externality by
decreasing all countries’borrowing costs. Countries do not take into account this social
bene…t and they do not lower period-0 taxes enough. The intuition for the second part
17
20. of the proposition is that as the number of countries increases and the e¤ect of any one
country on global variables declines, the failure of countries to take into account the e¤ect
of their actions on the world economy becomes more severe.
Our paper can be contrasted to those of Chang (1990,1997), who also models gov-
ernment debt as a dynamic game between national governments. In his overlapping-
generations framework two-period-lived households produce output when young and con-
sume when old. As no household consumes in more than one period, the Euler equation
of our paper – which results in the real interest rate playing the role of the price of
consumption today relative to consumption tomorrow –is replaced by a static e¢ ciency
condition that output, and equivalently saving, is increasing in the real interest rate.
Thus an increase in the de…cit requires an increase in the real interest rate to increase
saving and restore equilibrium.
Unlike in our model, a higher real interest rate (brought about by lower taxes, rather
than by higher taxes as in our model), does not in‡ict a real resource cost on the rest
of the world. Because taxes are lump sum and there are no tax collection costs, the
pecuniary externality in Chang’s model associated with the e¤ect of a country’s tax
policy on the global real interest rate is purely redistributive. Even though all feasible
national tax policies in Chang’s model support equilibria that are both dynamically and
Pareto e¢ cient, they are welfare ranked by the nationalistic governments who maximise
a discounted sum of the welfares of current and future generations of residents. The
non-cooperative equilibria have larger government de…cits and higher interest rates than
the cooperative equilibria.
Our result that the equilibrium outcome is furthest from the global optimal outcome
when the number of countries goes to in…nity and countries lose their market power is
similar to Chang’s (1990) result that the non-cooperative solution is furthest from the
cooperative solution when the number of countries go to in…nity and is in stark contrast to
the result in “beggar-thy-neighbour”policy games where nations attempt to exploit their
market power to gain at the expense of other countries. In such papers, as the number
18
21. of countries goes to in…nity and nations lose their market power, the noncooperative
outcome converges to the cooperative outcome.15
4 Conventional Tax Distortions
In the previous section we considered a scenario where the departure from Ricardian
equivalence is due to tax collection costs. We chose this framework as our baseline both
for its relative tractability and because we believe that tax collection costs are empirically
more important than the e¢ ciency and welfare costs associated with conventional tax
distortions. However, as it is more conventional in the economics literature to focus on
the latter friction, in this section we consider a one-country model where the departure
from Ricardian equivalence is caused by distortionary taxes rather than by tax collection
costs.
4.1 The model with tax distortions
We assume that the household is endowed with one unit of time which it allocates between
labour and leisure. It can produce output one-for-one from labour and it pays a propor-
tional labour-income tax t on its output. Its saving is in the form of real interest-bearing
bonds.
In each period t 2 Z+ the household receives utility from its consumption of the good
and of leisure, 1 lt:
u =
1X
t=0
t
[ ln ct + (1 ) ln (1 lt)] ; 2 (0; 1) : (20)
It maximises equation (20) subject to the within-period budget constraints
ct + at+1 = (1 t) lt + Rtat; t 2 Z+ (21)
15
This would occur for, for example, in Hamada (1966).
19
22. and the terminal condition (3), taking a0 as given.
Necessary and su¢ cient conditions for optimality are equations (3) and (21), the static
optimality condition
1 lt =
(1 ) ct
(1 t)
(22)
and the (one-country) Euler equation (14).
The government satis…es the within-period budget constraint
tlt + bt+1 = G + Rtbt; t 2 Z+ (23)
and the terminal condition (10), taking b0 as given. Solving equation (23) forward and
substituting (10) into the result yields the government’s intertemporal budget constraint
1X
t=0
( tlt gt) = t = 0: (24)
Substituting equation (22) into equation (24) and equation (14) into the result yields
1X
t=0
t gt
t
(1 ) c0
R0
1X
t=0
t
t
1 t
= 0: (25)
Market clearing requires that the bond markets clear (equation (12)) and that goods
markets clear
ct + G = lt; t 2 Z+: (26)
Substituting equation (22) into equation (26) and equation (14) into the result yields
c0 t =
R0 (1 G)
t
ht
; t 2 Z+; where ht
1 t
1 t
: (27)
This implies
t =
R0h0
t
ht
; t 2 Z+: (28)
As in the previous section, a decrease in the period-0 tax …nanced by an increase in the
20
23. period-t tax lowers the interest rate between periods 0 and t.
4.2 Optimal Taxes
Substituting equation (22) into equation (20) and using equations (14) and (27) yields
u =
1X
t=0
t
[ ln (1 t) ln (1 t)] : (29)
Substituting equations (27) into equation (25) yields
B (1 )
1X
t=0
t
t G (1 ) R0h0b0 = 0: (30)
As in Section 3, the policy maker chooses the path of taxes to maximise indirect utility
(29) subject to the budget constraint (30). As in Section 2, we need to make assumptions
that ensure an interior optimum exists. We assume that
G < ; R0b0 min f (1 ) = (1 ) ; G; ( G) = g : (31)
These inequalities are convenient and su¢ cient to ensure that it is possible to satisfy the
government’s intertemporal budget constraint with both a constant tax and 0 = 0.
We demonstrate that there is a unique solution to the policy maker’s problem and we
describe the time path of the optimal taxes.
Proposition 6 There exists a unique optimum and it has the property that t = 1 > 0;
t 2 Z++:
As in the previous section, global optimality has lower taxes initially and higher taxes
later on.
It appears to be impossible (at least to us) to analyse the Nash equilibrium for the
case of N > 1 analytically. However, it is easy to show that if N ! 1, then the Nash
equilibrium has constant taxes. With no market power, the sole goal of policy makers is
21
24. to smooth distortions over time. Hence, countries without market power set the period-0
tax too high and the subsequent taxes too low, relative to the global optimum.
5 Time Consistent Taxes
The results in Sections 3 and 4 depend on the assumption that the government can
commit to a path of planned taxes. Proposition 3 says that the period-0 tax is lower
than subsequent taxes. This implies that the government enters period 1 with strictly
positive debt. Thus, if the government could re-optimise in period 1, Proposition 3 would
imply that it would set a lower tax in period 1 than in later periods. This implies that the
equilibrium, which features constant taxes from period 1 on, is not time consistent unless
there is no initial debt or countries have no market power. In this section we consider a
three-period variant of the baseline model and …nd the time-consistent taxes for the case
of a single country.
The household’s lifetime utility is given by ln c0 + ln c1 + 2
ln c2: The household’s
budget constraint is given by equation (2) for t = 0; 1; 2, where a3 = 0 and a0 is given.
Optimality for the household requires that the Euler equation (5) hold for t = 0; 1. The
government budget constraints are given by (9) for t = 0; 1; 2, where b3 = 0 and b0 is
given. Market clearing requires that equation (12) holds for t = 0; 1; 2: Consumption is
given by the goods market clearing condition (13) for t = 0; 1; 2:
To …nd the time-consistent solution we work backwards, …rst maximising utility start-
ing in period 1 and taking R1b1 as given. This gives 1 and 2, as well as maximised
utility from period 1 on as functions of R1b1. In period 1, the government takes R0b0 and
the functional forms of 1, 2 and maximised utility from period 1 on as given. Using
the Euler equation between period 0 and period 1, we can …nd R1b1 as a function of 0
and b1. Thus, maximised utility from period 1 on can be expressed as a function solely
of the 0 and b1. The policy maker then chooses 0 and b1 to maximise lifetime utility
subject to the period-0 budget constraint. Leaving the technical details for the appendix,
22
25. we have the following result.
Proposition 7 If there is strictly positive initial debt, then time-consistent taxes are
strictly increasing over time.
This section demonstrates that the result from the baseline model that global optimal
taxes are constant from period 1 on depends on the policymaker’s ability to commit
to planned future taxes. However, the base-line model’s result that global optimal taxes
should be relatively low in period-1 and higher thereafter does not depend upon an ability
to commit.
6 Production and Capital Accumulation
An important simplifying feature of the baseline model is that varying the timing of taxes,
and thus tax collection costs, over time is the only way to transfer real resources across
periods. In equilibrium, net global private and public saving is always zero because the
good is perishable. Reducing taxes in any given period increases the resources available
that period and increases private consumption. In this section, we allow for production
using capital as an input. Thus, real resources can be transferred across periods not only
by changing the path of taxes, but also by capital formation.
In this section we assume that there are N countries. We assume that the household
in country i 2 ZN has CES preferences
ui
=
1
1
1X
t=0
t
h
ci
t
1
1
i
; 0 < < 1; 0 < 6= 1; (32)
where is the reciprocal of the elasticity of intertemporal substitution. As ! 1, the
above preferences become the logarithmic speci…cation of Section 2.
The single good in the model is both a capital and a consumption good. The rep-
resentative households each supply one unit of labour inelastically each period and save
both bonds and the output of the current good in the form of capital. The saved capital
23
26. is loaned to the …rms to be used in the next-period’s production process. The …rms
transform capital and labour into output via a Cobb-Douglas production function where
output per unit of labour is f(k) = Ak , where k is the capital-labour ratio, A > 0
and 2 (0; 1). We suppose that labour is immobile across countries, capital is perfectly
mobile and capital depreciates completely. Then perfect mobility of capital and perfect
competition imply that capital-labour ratios and wages are equalised across countries and
kt = k (Rt) = [A (1 ) =Rt]1=
.
The Euler equation of the household’s optimisation problem becomes
ci
t+1 = ( Rt+1)1=
ci
t; t 2 Z+: (33)
Solving the di¤erence equation (33) and averaging across countries yields
t = 1= t
(ct=c0) ; t 2 Z++: (34)
The government’s budget constraint is given by equation (11). Substituting equation
(34) into equation (11) yields
1X
t=0
t
c1
t si
t = 0: (35)
Market clearing requires (12) and
f (k (Rt)) G ( =2)
NX
i=1
i
t
2
ct kt+1 = 0: (36)
The model with capital is far more di¢ cult to analyse than the one without. To
obtain an analytical result, we restrict ourselves to a simple experiment.
Proposition 8 Suppose countries are at a symmetric steady state with constant taxes
and strictly positive public debt. Then it is possible to increase welfare with a coordinated
marginal tax cut in the current period.
24
27. The proof demonstrates that welfare can be improved with a current tax cut (and
associated current consumption increase) …nanced by a constant permanent future tax
rise that reduces future consumption by a constant amount.
Lowering the current tax and raising future taxes raises current consumption and
lowers future consumption, thus lowering the current interest rate as in the previous
sections. This lowers the cost of servicing the debt and reduces future tax collection
costs. To see that the interest rate must fall, suppose that it did not. Then next period’s
marginal product of capital rises and current capital accumulation falls. With lower tax
collection costs and …xed current output, this implies current consumption rises. This
is inconsistent with the interest rate falling in the current period unless next period’s,
and hence every future period’s, consumption rises by more than current consumption.
However, with lower current capital accumulation and higher future tax collection costs
this is impossible.
7 Conclusion
We have demonstrated that, in our baseline model with costly tax collection, optimising
governments will perfectly smooth taxes if they have no market power or no initial debt.
If countries are large enough to a¤ect the world interest rate and they have strictly
positive initial debt, then optimising national governments will set lower taxes in the
current period than in the future. We show that, relative to the global optimal outcome,
non-cooperative national governments set current taxes too high and future taxes too
low. Thus, relative to the optimum, initial budget de…cits are too low and future de…cits
are too high.
We extend our baseline model to consider a departure from Ricardian equivalence
caused by distortionary labour taxes and show that the optimal outcome is similar to
that in the baseline model: the period-0 tax is lower than the taxes from period 1 on.
We consider a three-period model where commitment to future taxes is not possible and
25
28. demonstrate that the cooperative time-consistent taxes are rising over time. Finally, we
consider a model with CES preferences and capital accumulation. We demonstrate that
if the world is in a steady state with strictly positive government debt, then welfare can
be increased with a current tax cut …nanced by higher future taxes.
8 Appendix
Proof of Proposition 1. By (13) and the de…nition of si
t in (18)
@si
t=@ i
t = 1 i
t + i
tsi
t=N =ct: (37)
We have that @si
t=@ i
t is continuous in i
t on 0; +
t with @si
t=@ i
t = 1 +
t =ct < 0
at i
t = +
t and@si
t=@ i
t = si
t= (Nct) > 0 at i
t = 1= . Thus, si
t has a critical point i
Nt in
1= ; +
t . If i
t 2 0; +
t then @si
t=@ i
t = 0 ) @2
si
t=@ i2
t = (1 si
t=N) =ct = (ct
i
t)
1
< 0. Thus, i
Nt is the unique maximiser of si
t in 0; +
t and @si
t=@ i
t > 0 if i
t 2 [0; i
Nt)
and @si
t=@ i
t < 0 if i
t 2 i
Nt; +
t . As si
t < 0 if i
t =2 0; +
t , i
Nt is the unique maximiser
on ( ; ).
By (13), (37), the de…nition of si
t and the de…nitions of , wt and gt (from (4) (with
a0 = b0), (11) and footnote 11), @si
t=@ i
t = 0 when i
t = t; i 2 ZN ; implies 2
2wt t +
2
t = 2 tstct (N 1) =N. The left-hand side of this equation is strictly decreasing on
1= ; +
t . When N = 1 the right-hand side is zero and when N > 1 the right-hand side
is strictly positive for t 2 1= ; +
t . Hence, Nt < 1t:
Note that Nt = N1, t 2 Z++ and 1t = wt
p
w2
t
2:
Proof of Proposition 2. We …rst show that no symmetric optimum can have taxes
greater than Nt: Suppose to the contrary that there exists a symmetric equilibrium
where 9t such that t = W
> Nt. The continuity of si
t in i
t on the set of feasible
taxes ensures that there exists a feasible R
< Nt such that si
t at R
equals si
t at W
:
Thus, by (18), a switch from i
t = W
to i
t = R
does not require a change in any other
tax. The government prefers i
t = R
to i
t = W
if its indirect utility (17) is greater at
26
29. i
t = R
than at i
t = W
. Let ct evaluated at i
t = K
be denoted by cK
t ; K = W; R:
Then this is the case if cR
t > cW
t and wt
R
=cR
t > wt
W
=cW
t : The …rst inequality
is clearly true: By the de…nitions of wt and gt and si
t, the second inequality is true i¤
h
W G ( =2) R 2
cR
t st
i
=cR
t >
h
W G ( =2) W 2
cW
t st
i
=cW
t . By (13) and
the de…nition of this is follows from (N 1) 2
>
P
j6=i ( j
)
2
.
We now show that taxes cannot be negative. Suppose to the contrary that 9u such
that u < 0. Then, to satisfy (18), 9v such that v > 0 and sv > 0. We demonstrate
that a marginal decrease in v accompanied by a marginal increase in u so that (18) is
satis…ed increases indirect utility (17). By i
v 2 [0; Nv] and Proposition 1, @si
v=@ i
v > 0;
hence, by (17) and (18) it is su¢ cient to show that
v
@si
v=@ i
v @ui
=@ i
u > u
@si
u=@ i
u @ui
=@ i
v : (38)
Di¤erentiating (17), using (13), yields
@ui
=@ i
t = @Hi
=@ i
t =Hi t
(1 ) t=Nct; t 2 Z+; (39)
where Hi
P1
t=0
t
(wt
i
t) =ct. By (13), we have
@Hi
=@ i
t = t
Nct t wt
i
t = Nc2
t ; t 2 Z+: (40)
By (13) and the de…nition of si
t, at a symmetric outcome (wt t) =ct = (ct ctst) =ct =
1 st. Thus, H = 1= (1 ) and at a symmetric outcome
@ui
=@ i
t = t
(1 ) (N + tst) = (Nct) ; t 2 Z+: (41)
Using (37) (at a symmetric outcome) and (41), we have that (38) is true if (N + usu) = u
< (N + vsv) = v. As the left-hand side of this inequality is strictly negative and the
right-hand side is strictly positive, it must be true.
27
30. Proof of Proposition 3. We …rst …nd the remaining relevant derivatives for the opti-
misation problem. By (40), at a symmetric outcome
@2
Hi
@ ( i
t)
2 =
t
N2
Nct (1 st) 2 tAt
c2
t
;
@2
Hi
@ i
t
i
s
= 0; s 6= t; s; t 2 Z+; (42)
where At N + tst t: Hence, by (39), at a symmetric outcome
@2
ui
@ i2
t
=
t
(1 )
N2c2
t
Dt + t
(1 ) A2
t ;
@2
ui
@ i
t
i
s
=
(1 )2 t+s
AtAs
N2ctcs
; s 6= t; t 2 Z+;
(43)
where Dt (Nctst + 2 tAt + 2
t ). By (18) and (37), at a symmetric outcome
@Bi
@ i
t
=
t
Ct
Nct
;
@2
Bi
@ ( i
t)
2 = t Nct (st N) + 2 tCt
N2c2
t
;
@2
Bi
@ i
t@ i
s
= 0; s 6= t; t 2 Z+; (44)
where Ct N + tst N t:
The Lagrangian for the government’s optimisation problem is Li
= ui
+ i
Bi
; where
i
is the multiplier. The …rst-order conditions @ui
=@ i
t + i
@Bi
=@ i
t = 0 imply
@ui
@ i
t
@Bi
@ i
0
=
@Bi
@ i
t
@ui
@ i
0
; t 2 Z++: (45)
Subtituting in the …rst derivatives from (41) and (44) into (45) and evaluating at a
symmetric outcome yields
N + tst
t
=
N + 0s0
0
; t 2 Z++: (46)
By (13) and the de…nitions of wt, gt and si
t we can write ct = ct ( ) = wt gt
2
=2
and st = st ( ) = ( 2
=2 gt) =c ( ) ; t 2 Z+:
Lemma 1. The function t ( ) [N + st ( )] = is strictly decreasing on (0; Nt) :
Proof of Lemma 1. Di¤erentiating yields that this is true i¤ t ( ) 2
[1 +
st ( )] - Nct ( ) < 0. As t is decreasing in N it is su¢ cient to show this for N = 1.
28
31. By the de…nition of , this is the case if t ( ) 4
4wt
3
+ 4 2 2 4
< 0: We have
t (0) < 0 and ( 1t) < 0; hence, to show < 0 on [0; Nt] [0; 1t], it is su¢ cient
to show that t has no interior maximum on [0; 1t] : Solving @ t=@ = 0 and requiring
@2
t=@ 2
< 0 yields = 3wt
p
9w2
t 8 2 =2 > 1t; hence no interior maximum
exists.
By Lemma 1, given 0, a t that solves (46) is unique; hence, t = 1; t 2 Z++:
Second-order conditions require the quadratic form
P1
t=0
P1
s=0 (@2
Li
=@ i
t@ i
s) d i
td i
s
to be negative where
P1
t=0 (@Bi
=@ i
t) d i
t = 0, evaluated at a symmetric solution to the
…rst-order conditions, except at d i
t = 0; t 2 Z+: Using (43), (44) and i
= (@ui
=@ i
t) =
(@Bi
=@ i
t), this is true if
1X
t=0
0
@
t
(1 ) Dt
N2c2
t
+
@ui
@ i
t
@Bi
@ i
t
@2
Bi
@ ( i
t)
2
1
A d i
t
2
+
1
N
1X
t=0
t
At
ct
d i
t
!2
> 0: (47)
Using @Bi
=@ i
t > 0, by Proposition 1, this is true if t
(1 ) Dt@Bi
=@ i
t + N2
c2
t (@ui
=@ i
t)
@2
Bi
=@ ( i
t)
2
0: Using (41) and (44) we have that this is true if N3
ct N 2
t
2 3
t st +
N 2 3
t > 0. This is true because the left-hand side of this inequality is strictly increasing
for N > 1 and, by ( t) < 0 (in the proof of Lemma 1), it is positive at N = 1.
Finally, we demonstrate that a unique interior equilibrium ( 0; 1) exists and has
0 < 1. By (18) and (46) such an equilibrium satis…es
(1 ) s0 ( 0) + s1 ( 1) = 0 (48)
1 ( 1) = 0 ( 0) (49)
By assumption (19) and Proposition 1, 9!^ such that (^; ^) and satis…es (48). For any
0 2 (0; ^) ; assumption (19) and Proposition 1 ensure that 9! 1 2 (^; 0
) such that
( 0; 1) satis…es (48). The conditions of the implicit function theorem are satis…ed on
(0; ^) (0; 0
); hence, there exists a unique continuous function A
( 0) on (0; ^) such that
0; A
( 0) satis…es (48). Proposition 1 ensures that @ A
=@ 0 < 0. The function A
is
29
32. depicted in Figure 1 by the curve labelled A. Note that 0 ( ) = 1 ( ) R0b0=c ( ) <
1 ( ) if 2 (0; 0
). By Lemma 1, if 1 2 (0; 0
) then 1 ( 1) 2 ( 1 ( 0
) ; 1). Also by
Lemma 1, @ 0=@ 0 < 0 on (0; 0
) with 0 ! 1 as 0 & 0 and 0 ! 0 ( 0
) < 1 ( 0
)
as 0 % 0
. Thus, for any 1 2 (0; 0
) ; 9! 0 2 (0; 1) such that ( 0; 1) satis…es (49).
By the implicit function theorem, there exists a unique continuous function B
( 1) on
(0; 0
) such that B
( 1) ; 1 satis…es (49). Clearly B
(0) = 0 and Lemma 1 ensures that
@ B
=@ 1 > 0. The function B
is depicted in Figure 1 by the curve labelled B. From
Figure 1, it clear that A and B have a unique intersection and that at the intersection
0 < 1: As st is strictly increasing and t is strictly decreasing on [0; 1t], t = 0; 1, (and
thus any "continuation" of curve A would slope down and any "continuation" of curve
B would slope up) there can be no other equilibria. This completes the proof.
Proof of Proposition 4. This follows trivially from (46).
Proof of Proposition 5. By (49), 1 > 0 and Lemma 1 of Proposition 3, an increase
in N rotates curve B in Figure 1 clockwise. This yields the result.
Proof of Proposition 6. Let t 2 [0; 1), t 2 Z+: Di¤erentiating (29) and (30) yields
@u
@ t
=
t
(1 ) t
(1 t) (1 t)
< 0; t 2 Z+
@B
@ 0
= (1 ) 1
(1 0)2 ;
@B
@ t
= t
(1 ) ; t 2 Z++
@2
u
@ 2
t
=
t
(1 2
t )
(1 t)2
(1 t)2 < 0;
@2
u
@ t@ s
= 0; s 6= t; s; t 2 Z+ (50)
@2
B
@ 2
0
=
2 (1 )
(1 0)3 < 0;
@2
B
@ 2
t
=
@2
B
@ t@ s
= 0; s 6= t; t 2 Z++; s 2 Z+;
where (1 ) R0b0= :
As all of the cross-partial derivatives are zero, the second-order conditions are satis…ed
if (@B=@ t) (@2
u=@ 2
t ) - (@u=@ t) (@2
B=@ 2
t ) < 0, t 2 Z+. By (50) and @B=@ t > 0, which
follows from an argument similar to that in Proposition 2, this is clearly true.
The …rst-order conditions are (30) and t ( t) = 0 ( 0) ; t 2 Z++; where t ( t)
(@u=@ t) = (@B=@ t) ; t 2 Z+: As t is strictly decreasing and t ( t) = 1 ( 1), t 2 Z++;
30
33. it must be that t = 1, t 2 Z++ and
1 ( 1) = 0 ( 0) ; t 2 Z++: (51)
As in Proposition 3, (31) and (50) ensure that there exists a unique continuous strictly
decreasing function A
( 0) on (0; ^) such that 0; A
( 0) satis…es (30) (when t = 1;
t 2 Z++), where ^ is the unique constant tax that satis…es (30). By (50) 0 ( ) < 1 ( )
when R0b0 > 0 if 2 (0; 0
). By (50), if 1 2 (0; 0
) then 1 ( 1) 2 ( 1 ( 0
) ; 0). Also
by (50), @ 0=@ 0 < 0 on (0; 0
) with 0 ! 0 as 0 & 0 and 0 ! 0 ( 0
) < 1 ( 0
)
as 0 % 0
. Thus, for any 1 2 (0; 0
) ; 9! 0 2 (0; 1) such that ( 0; 1) satis…es (51).
By the implicit function theorem, there exists a unique continuous function B
( 1) on
(0; 0
) such that B
( 1) ; 1 satis…es (51). Clearly B
(0) = 0 and (50) ensures that
@ =@ 1 > 0. The geometric argument of Proposition 3, using Figure 1 holds and there
exists a unique solution to the optimisation problem and it has 1 > 0:
Proof of Proposition 7. Working backward, in period 1 the government’s Lagrangian
is u1 + (sc
1 + s2) ; where u1 ln c1 + ln c2; consumption is given by (13), saving is as
de…ned in (18) and sc
1 s1 R1b1=c1:
The Euler equation is given by (5) for t = 1. Optimality requires
1 + 1sc
1
1
1 + 2s2
2
= 0 (52)
sc
1 + s2 = 0 (53)
L11 L12
@sc
1
@ 1
L12 L22
@s2
@ 2
@sc
1
@ 1
@s2
@ 2
0
> 0: (54)
Solving (54) implies
(1 + )
@sc
1
@ 1
@s2
@ 2
2
1
@s2
@ 2
1
2
2
@sc
1
@ 1
< 0: (55)
31
34. Di¤erentiating (52) and (53) yields
d 1
d (R1b1)
=
1
c1
(1 + )
@s2
@ 2
1
2
2
;
d 2
d (R1b1)
=
1
c1
2
1
: (56)
Di¤erentiating the indirect utility function u1 = u1 (R1b1), using (56) yields
du1
d (R1b1)
=
1
c2
1
@sc
1
@ 1
1
: (57)
Di¤erentiating (5) at t = 0 yields
@ (R1b1)
@ 0
=
b1c1
c0
0
1
d 1
d(R1b1)
b1 + c0
;
@ (R1b1)
@b1
=
c1
1
d 1
d(R1b1)
b1 + c0
: (58)
In period 0 the policy maker maximises ln c0 + u1 (R1b1) subject to (13) and (18) at
t = 0. Optimality requires
0
c0
=
du1
d (R1b1)
@ (R1b1)
@ 0
(1 0)
@ (R1b1)
@b1
: (59)
Substituting in (57) and (58) into (59) yields
1 s0
2
1
@s2
@ 2
=
1 + 0s0
0
1 + 1s1
1
: (60)
This implies that (1 + 0s0) = 0 > (1 + 1s1) = 1 ) 0 < 1:
Proof of Proposition 10. Let the initial period be denoted by t = 0. We have 0 < 1= :
If this were not true, then with constant taxes welfare could be improved by moving to
the lower tax (on the other side of the La¤er curve) that produces the same surplus.
Suppose that the coordinated marginal fall in the initial tax d 0 < 0 is …nanced by a
sequence of future tax changes fd tg1
t=1 such that dct = dc, t 2 Z++. Di¤erentiating (32)
and evaluating at the initial steady state yields that a strict increase in utility requires
dc0 + dc= (1 ) > 0: (61)
32
35. Di¤erentiating (35) and evaluating at a steady state yields
1
1X
t=0
t
d t s
R0b0
c
dc0
sdc
1
= 0: (62)
At a steady state, Rt = 1= . Thus evaluating (35) at the steady state yields s =
(1 ) b0= ( c). Substituting this into (62) yields
(1 )
1X
t=0
t
d t + b0dc0=c b0dc=c = 0: (63)
Di¤erentiating (34) and evaluating at the steady state yields
dR1 = (dc dc0) = ( c) ; dRt = 0; t = 2; 3; ::: : (64)
Di¤erentiating (36), employing @ft=kt = Rt and dkt=dRt = kt= ( Rt), substituting
in (64) and evaluating at a steady state yields
d 0 = (dc dc0) k1= ( c) dc0
d 1 = (dc dc0) k1= ( c) dc (65)
d t = dc; t = 2; 3; ::: :
Substituting (65) into (63) and using b0 > 0 yields that utility rises if and only if
1
1
+
b0
c
> 0: (66)
This follows from < 1= .
References
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