Globalisation and Development Centre

The growth effects of corporate and personal tax rates in the OECD

Norman Gemmell et al. — Sun, 29 May 2011 17:22:09 PDT

Recent aggregate tests of the impact of taxes on long-run growth rates in the OECD countries remain vulnerable to two important criticisms. First, they typically use 'an aggregate average rate, or constructed marginal rate, that probably does not affect the rate that any particular economic decision maker is facing' (Myles, 2007, p.89). Second, despite increased testing of corporate tax effects, the models examined are essentially 'closed economy' in nature, yet corporate tax effects appear increasingly to operate via international competition for firms, profits and investment. This paper confronts both these criticisms with new data and new methods. Based on an open economy model, we propose a method for testing how far both domestic corporate tax settings, and those in competitor countries, affect individual countries' aggregate long-run growth rates. This predicts asymmetric effects between 'high tax' and 'low tax' competitor countries. We then use annual panel data on statutory tax rates (both personal and corporate), and effective average and marginal corporate tax rates, to test for these tax-growth effects in a small sample of similar OECD countries. Unlike most previous studies, these are not constructed from data on tax revenues. We find evidence that:
(i) using the best available exogenous tax rates, there is evidence of statistically robust, but economically small, GDP growth effects from changes in marginal rates of both personal and corporate income tax;
(ii) domestic and foreign corporate tax rates (statutory and/or effective) have affected OECD growth rates in the asymmetric manner predicted by theory;
(iii) 'bucking the OECD trend' towards lower corporate tax rates is likely to be growth-retarding, but joining it is likely to be approximately growth-neutral.
(iv) tax effects on growth appear to operate largely via impacts on factor productivity rather than factor accumulation.

A diagnosis of inherent problems in implementing internal marketing in Macau and Singapore casino companies

Sudhir H. Kale et al. — Sun, 29 May 2011 16:54:31 PDT

With spectacular growth in demand since opening the market to foreign competition, executives within the Macau casino industry seem to have focused their attention to enhancing capacity and opening new casino properties. Meanwhile, the Singapore casino market is expected to overshadow that of Las Vegas in the very near future. Despite such optimistic prognosis, the long-term scenario for the casino industry in both jurisdictions could spell trouble. It seems most casino operations in major Asian markets have not devoted adequate thought to their service culture and internal marketing strategy. With overall capacity in Asia slated to increase significantly in the next couple of years, the labour shortage for casino companies in Macau and Singapore will get more acute. Current impressive revenues notwithstanding, increased capacity will also put pressure on marketing to attract and retain valued customers. In light of these developments, we review five key challenges to internal marketing practices for casinos in Macau and Singapore: culture, climate, recruitment, compensation and training.

The role of culture on new product development decisions

Sudhir H. Kale — Sun, 29 May 2011 16:27:33 PDT

This study investigates the effect of culture on the evaluation of new products. We contrast decision-making outcomes between East Asians and Westerners. East Asians tend to view the future as dynamic, nonlinear, and changeable and do not emphasize immediate gain and loss. In contrast, Westerners believe that the future is static, linear, and predictable and pay more attention to the past and present. We hypothesize that given a poor performance forecast, East Asians are more likely than their Western counterparts to continue a new product whereas Westerners are more likely to halt development. However, providing future market demand information moderates the cultural biases in new product development (NPD) decisions. Participants are more likely to continue a new product when informed that the future market demand would be good and tend to stop a new product when informed that the future market demand would be bad.

Cultural differences in imagery generation: the influence of abstract versus concrete thinking

Beichen Liang et al. — Sun, 29 May 2011 16:11:41 PDT

Past research suggests that concrete ad stimuli generate more imagery than abstract stimuli. However, this finding may not be culturally universal. Our research suggests that East Asians tend to generate more imagery than Westerners when exposed to abstract advertising messages, but these differences in imagery generation tend to subside when both cultural groups are exposed to concrete stimuli. Exposure to abstract stimuli while limiting mental resources results in narrowing the differences in number of images generated by Westerners and East Asians as does providing subjects with instructions to imagine.

How an export boom affects unemployment

Noel Gaston et al. — Tue, 01 Feb 2011 20:59:23 PST

Does trade affect the equilibrium rate of unemployment? To theoretically examine this question, we incorporate firm-union bargaining considerations into a model with a booming external sector and a stagnating manufacturing sector. In the model, a sustained improvement in the terms of trade lowers unemployment. To empirically investigate the predicted determinants of the unemployment rate, we use data for Australia, a country whose prosperity has always depended on the value of its exports. Both the reduced form and the structural estimates reveal strong evidence that higher export prices, capital accumulation in tradeable goods industries and lower unemployment benefits reduce the equilibrium unemployment rate.

Trade liberalisation, economic crises and growth

Rodney Falvey et al. — Wed, 01 Dec 2010 21:53:44 PST

Many economic reforms are undertaken at a time of economic crisis. But is this a good time for a country to undertake trade reform? In this paper we investigate whether an economic crisis at the time of trade liberalisation affects a country’s subsequent growth performance. We employ threshold regression techniques on five crisis indicators commonly used in the literature, to identify the relevant “crisis values” and to estimate the differential postliberalisation growth effects in the crisis and non-crisis regimes. We find that the magnitude of the acceleration in postliberalisation growth depends on the characteristics of the crisis. Although trade liberalisation in both crisis and non-crisis periods raises subsequent growth, an internal crisis implies a lower acceleration and an external crisis a higher acceleration relative to the non-crisis regime.

The impact of political events on financial market volatility: Evidence using a Markov Switching process

Ahmed M. Khalid et al. — Tue, 23 Nov 2010 14:45:29 PST

This paper investigates the impact of political shocks (positive and negative) on financial markets. Using data from Pakistan for the period January 1999 to September 2006, we link ‘a’ political event to the financial market volatility. We use high frequency data from three indicators (currency, stock and money market) of the financial market for empirical estimation. We employ a Markov Switching process to identify the low and high volatility regimes in Pakistan’s financial market and then link these regimes to certain political events. We use data on daily observations of exchange rates, stock prices and interest rates to perform empirical test. Finally, we trace the impact of political events moving from one market to another using Granger causality tests within Markov Switching VAR model. The results confirm the changes in the market volatility as a result of some domestic and international events having impact on the domestic economy and the financial market. The results also suggest that the markets have some weak short-run linkages but do not support a long-run causal relationship.

Market development for fixed income securities: The role of socio-economic and institutional factors

Ahmed M. Khalid et al. — Sun, 26 Sep 2010 23:14:29 PDT

It is well understood that bond markets play an important role in the development of the overall financial sector. Bond markets also help to make efficient investment and financing decisions, to improve efficiency in the design and implementation of monetary policy, provide financial stability by mitigating rollover risk and interest rate risk for the borrowers, provide an alternative source of finance to firms and thus reduce the monopoly of the banking sector. Given the importance of this market, this paper aims to investigate the factors that may be important for developing a market for domestic bonds. First, we discuss the importance of macro- and microeconomic factors in the development of a government bond market. We focus on the role of socio-economic and institutional factors in a country’s bond market development. For empirical purposes, we extend the model used by Claessens, Klingebiel, and Schmukler (2003) by including a number of socio-economic and institutional variables and see if they are important in influencing the size of the domestic bond market. For empirical estimation, we use data on macroeconomic indicators and a set of social and institutional indices for a panel of developed and emerging markets. The empirical findings of this paper suggest that socio-economic and institutional factors play an important role in determining the size of the market for local currency bonds.

International migration

Noel Gaston et al. — Thu, 08 Jul 2010 16:36:10 PDT

Extract:

Like immigration itself, economic research on migration seems to come in waves. The large scale of current global migration, and the sometimes quite ugly politics associated with that migration, has produced just such a wave of research. Theoretical and empirical research on immigration, in particular, occurs across the social sciences, with particularly large bodies in economics, demography/sociology, and political science. Within Economics, the study of immigration falls between trade and labor economics, with sizable bodies of both theoretical and econometric work. To limit the field of coverage, and maintain consistency with the other chapters in the volume, we will focus on a set of questions framed by standard trade theoretic models and the empirical research that bears on those questions. To the extent possible, we will focus on graphical representations that permit easy grasping of the intuition.

Introduction

Noel Gaston et al. — Thu, 08 Jul 2010 16:36:09 PDT

Extract:

Globalization is very much part of the modern vernacular. Arguably, it was first used by McLuhan and Fiore (1968) when they introduced the concept of the ‘global village’. Globalization is characterized by the growth of the international trade of goods and services, the growth in foreign direct investment (FDI) as well as the political and social linkages that accompany growing economic integration. Outwardly, the driving forces seem to be the decline in administrative barriers to trade, sharp falls in the costs of transportation and communication, fragmentation of production processes and the development in information and communication technologies (ICT). Arguably, the perceived neo-liberal shift to greater market orientation in domestic economies has been accelerated by financial sector liberalization. Since the collapse of Lehman Brothers in September 2008, the backlash to globalization now seems to be in full swing.