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on Microeconomics |
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Issue of 2007‒01‒06
four papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Mark Gersovitz |
| Abstract: | Tax laws and administrations often treat different size firms differently. There is, however, little research on the consequences. As modeled here, oligopolists with different efficiencies determine the size distribution of firms. A government that maximizes a weighted sum of consumer surplus, profits, and tax receipts can tax firms with different efficiencies differently and provides a reference point for other, more restricted differential tax systems. Taxes include a specific sales tax, an ad valorem sales tax, and a profits tax with imperfect deductibility of capital cost, and a combination of the last two. In general there is a pattern of tax rates by efficiency of firm. It is heavily dependent on the social valuation of tax receipts. Analytic and simulation results are provided. When both ad valorem taxes and the imperfect profits tax are combined, simulations suggest that the former rate is higher and the latter rate is lower for relatively inefficient firms. |
| Keywords: | Optimal tax , size distribution , imperfect competition , Taxation , Profits , Tax rates , Economic models , |
| Date: | 2006–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/271&r=mic |
| By: | Kenichi Ueda |
| Abstract: | This paper formally identifies an important role of banks: Banks competitively internalize production externalities and facilitate economic growth. I formulate a canonical growth model with externalities as a game among consumers, firms, and banks. Banks compete for deposits to seek monopoly profits, including externalities. Using loan contracts that specify price and quantity, banks control firms' investments. Each bank forms a firm group endogenously and internalizes externalities directly within a firm group and indirectly across firm groups. This unique equilibrium requires a condition that separates competition for sources and uses of funds. I present a realistic institution that satisfies this condition. |
| Keywords: | Bank-oriented financial system , bank control , firm group , economic growth , Banks , Financial systems , Economic growth , Economic models , |
| Date: | 2006–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/264&r=mic |
| By: | Rodrigo Moita; Claudio Paiva |
| Abstract: | This paper develops a model of political regulation in which politicians set the regulated price in order to maximize electoral support by signaling to voters a pro-consumer behavior. Political incentives and welfare constraints interact in the model, yielding an equilibrium in which the real price in a regulated industry may fall in periods immediately preceding an election. The paper also provides empirical support for the theoretical model. Using quarterly data from 32 industrial and developing countries over 1978-2004, we find strong statistical and econometric evidence pointing toward the existence of electoral price cycles in gasoline markets. |
| Keywords: | Political cycle , regulated prices , gasoline prices , Political economy , Price controls , Gasoline prices , |
| Date: | 2006–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/260&r=mic |
| By: | Jochen R. Andritzky; Manmohan Singh |
| Abstract: | Credit default swaps (CDS) provide the buyer with insurance against certain types of credit events by entitling him to exchange any of the bonds permitted as deliverable against their par value. Unlike bonds, whose risk spreads are assumed to be the product of default risk and loss rate, CDS are par instruments, and their spreads reflect the partial recovery of the delivered bond's face value. This paper addresses the implications of the difference between bond and CDS spreads and shows the extent to which the recovery assumption matters for determining CDS spreads. A no-arbitrage argument is applied to extract recovery rates from CDS and bond markets, using data from Brazil's distress in 2002-03. Results are related to the observation that preemptive restructurings are now more common than straight defaults in sovereign bond markets and that this leads to a decoupling of CDS and bond spreads. |
| Keywords: | Credit default swaps , Brazil , recovery value , default risk , Credit risk , Brazil , Risk premium , Bond markets , Prices , |
| Date: | 2006–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/254&r=mic |