CESifo Economic Studies - Advance Access

The Role of International Public Goods in Tax Cooperation

Kammas, P., Philippopoulos, A. — Mon, 09 Nov 2009 05:26:11 PST

We provide a quantitative assessment of the welfare cost of tax competition or, equivalently, the welfare benefit of international tax policy cooperation. We use a simple multi-country general equilibrium model of a world economy, in which there are two types of cross-country spillovers: the first one generated by the international capital mobility and, the second one, by the presence of international public goods. In the absence of international public goods, although welfare in the non-cooperative case is typically lower than in the cooperative case, the welfare difference is negligible quantitatively. Things change drastically, both quantitatively and qualitatively, once we introduce international public goods. Now, there can be big benefits from cooperation and welfare effects cease to be monotonic. (JEL classification codes: F02, H2, H4)

Bank Regulation in the United States

Barth, J. R., Li, T., Lu, W. — Thu, 05 Nov 2009 21:41:13 PST

There have been major changes in the banking system structure and several new banking laws over time that have had major impact on banks in the USA. In response to the 1980s and early 1990s crisis, and the more recent mortgage market meltdown that began in the summer of 2007, the banking industry and regulations governing banks changed profoundly and rapidly with even more changes likely to take place. It is therefore important to delineate the nature of these changes, particularly in comparison to the pre-crisis character of the US banking system and regulatory environment. In particular, this article discusses the regulatory changes that have emerged in response to the decline in the role of banks in firms’ external financing, and the rise in noninterest-generating activities; the blurring of distinctions between banks and other depository institutions, and between banking companies and other financial intermediaries; the growing complexity of banking organizations, both in a corporate hierarchy sense, and with respect to the range of activities in which they can engage; the more intense globalization of banking; and the subprime mortgage market meltdown that triggered a credit crunch and liquidity freeze that led to the worst recession in the USA since the Great Depression. (JEL codes: G21, G28 and G01)

How to Avoid a Pension Crisis: A Question of Intelligent System Design

Cigno, A. — Mon, 05 Oct 2009 23:25:22 PDT

Conventional pension systems suffer from a design defect, which makes them financially unsustainable, and a source of inefficiency for the economy as a whole. The article outlines a second-best policy which includes a public pension system made up of two parallel schemes, a Bismarckian one allowing individuals to qualify for a pension by working and paying contributions in the usual way, and an unconventional one allowing them to qualify for a pension by having children, and investing time and money in their upbringing. (JEL codes: D13, D64, H55, J13, J14 and J26)

In the Quest of Systemic Externalities: A Review of the Literature

Wagner, W. — Mon, 31 Aug 2009 05:09:48 PDT

We review the banking literature with the view of identifying systemic externalities arising from bank failures. We are particularly interested in how such externalities may depend on the characteristics of the financial system at the time of failure, and on the characteristics of the failing bank itself. We conclude that the majority of the mechanisms in the literature suggest that externalities are higher at times when other banks are failing as well or are close to failure. We discuss the implications for optimal capital requirements. (JEL codes: G01, G21, G28)

Freedom of Choice in Macroeconomic Forecasting

Robinzonov, N., Wohlrabe, K. — Wed, 12 Aug 2009 07:11:37 PDT

Different studies provide a surprisingly large variety of controversial conclusions about the forecasting power of an indicator, even when it is supposed to forecast the same time series. In this study, we aim to provide a thorough overview of linear forecasting techniques and draw conclusions useful for the identification of the predictive relationship between leading indicators and time series. In a case study for Germany, we forecast two possible representations of industrial production. Further on we consider a large variety of time-varying specifications. In a horse race with nine leading indicators plus an AR benchmark model, we demonstrate the variance of assessment across target variables and forecasting settings (50 per horizon). We show that it is nearly always possible to find situations in which one indicator proved to have better predicting power compared with another. Nevertheless, the freedom of choice can be useful to identify robust leading indicators. (JEL codes: C52, C53, E37)

Addressing the Net Balances Problem as a Prerequisite for EU Budget Reform: A Proposal

de la Fuente, A., Domenech, R., Rant, V. — Mon, 01 Jun 2009 09:47:06 PDT

Conflict among member states regarding the distribution of net financial burdens has been allowed to contaminate the entire design of the EU budget with very negative consequences in terms of equity, efficiency and transparency. To get around this problem and pave the way for a substantive budget reform, we propose to decouple distributional negotiations from the rest of the budget process by linking member state net balances in a rigid manner to relative prosperity. This would be achieved through the introduction of a system of compensating horizontal transfers that would take to its logical conclusion the Commission's proposal for a generalized compensation mechanism. We discuss the impact of the proposed scheme on member states’ incentives and illustrate its financial implications using revenue and expenditure projections for 2013 that are based on the current financial perspectives and own resources decision. (JEL code: H87)

Liquidity Stress-Tester: A Model for Stress-testing Banks' Liquidity Risk

van den End, J. W. — Mon, 06 Apr 2009 10:09:47 PDT

This article presents a stress-testing model for liquidity risks of banks. It takes into account the first- and second-round (feedback) effects of shocks, induced by reactions of heterogeneous banks, and reputation effects. The impact on liquidity buffers and the probability of a liquidity shortfall is simulated by a Monte Carlo approach. An application to Dutch banks illustrates that the second-round effects in specific scenarios could have more impact than the first-round effects and hit all types of banks, indicative of systemic risk. This lends support policy initiatives to enhance banks’ liquidity buffers and liquidity risk management, which could also contribute to prevent financial stability risks. (JEL Codes: C15, E44, G21, G32)