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Abstract:
The Brazilian pharmaceutical industry has always been targeted by the society, due to the ethical drugs' high weight in the families' consumption budgets (especially within the poorer ones) and price raises traditionally above inflation (when the government does not run a price control). The present article aims to organize the debate on regulation for this industry. We review the literature on market failures and regulation solutions adopted for this industry worldwide and try to relate empirically drug prices to some explaining variables, based on original microdata. We find that, similarly to previous U.S. estimations, Brazilian leading brand name drugs - before a 1999 law, which created officially the generic drug defined by its bioequivalence to the reference drug, and a massive advertisement campaign for spreading use of generic drugs, run by the Ministry of Health - accommodated entry and share growth of the followers by raising their prices and retreating to a more inelastic market segment. On the other hand, followers reduce relative prices when they lose market. Therefore, a fall of the concentration index in a particular segment has ambiguous effects: if it is due to reduced leader power, followers raise their relative prices; if it is due to a tougher competition within the fringe, relative prices tend to go down.

Brazilian pharmaceutical industry; generic drugs; product differentiation

Abstract:
This work is a pioneer effort to estimate supply and demand of automobiles in Brazil with a Discrete Choice model in a differentiated product oligopolistic market. We apply a Nested Logit model to the demand side and assume differentiated product price-setting firms on the supply side to evaluate the severe transformations undergone by the Brazilian automobile industry in the 1990s, especially policy events such as the tax rebates created for the so-called popular models (introduced in 1993) and the trade liberalization (initiated in 1991 and partially reversed in 1995 under the so-called Automotive Regime). We find that, although domestic cars still enjoyed considerably higher price-marginal cost markup rates than their imported counterparts (net of VATs and duties) in all market segments at the end of our sample (1997), these rates had dropped drastically and permanently during the 1995 import boom, not only because of import, but also from fiercer domestic competition. A perhaps striking finding is that, as opposed to what was verified in studies for other countries, popular and compacts enjoy the highest price-marginal cost markup rates, as they are significantly less threatened by imported competitors than the larger and luxurious models. These rates do not translate into higher price-cost margins in money units, but due to their high sales volumes these models account for great shares of the firms' profits.

Brazilian automobile industry, Nested Logit, Trade Liberalization, taxation, product differentiation, oligopoly, markup, import quota

Abstract:
In this study we estimate the Brazilian consumer demand system through family expenditure data, which cover all consumption categories. The model is estimated from family-level expenditures on seven consumption categories, and a new set of regional cost-of-living indexes. The sources for expenditures are the national expenditure surveys conducted in 1986/87 and 1995/96, which collected data from 11 metropolitan areas. Corresponding price indexes were constructed from detailed commodity prices, also from each metropolitan area. The salient features of our study are: a) price variations come from both time and regional differences, which allows us to estimate price elasticities with high precision; b) we have large variations in income (total expenditures) which is rarely available in aggregated data; and c) we can control for time specific factors by exploiting the panel structure of the data set.

Contrary to the rule of thumb in empirical studies of demand systems, the estimation results display consistency with demand theory, and elasticity estimates are close to economic common sense. The estimated system will serve as a micro-economic basis for evaluating various policy-related issues.

Consumer demand system, Almost ideal demand system, Brazilian family expenditures

Abstract:
Pollution emissions from vehicles have increased considerably in recent years in many Brazilian cities, causing significant health problems. As a response, environmental standards for automobile pollution were implemented in 1988, and considerable reductions in emissions were attained. Nevertheless, in 1997 substantial differences in emissions between car models still remained, suggesting the need for further regulation. This paper simulates the effects of a new environmental standard on the automobile market. Using a discrete-choice model of demand and disaggregated data on the Brazilian car market from 1993 to 1997, we estimate own- and cross-price elasticities for each car model. This estimation is undertaken using a nested-logit model taking into consideration the choice between car classes and nationality. An oligopoly framework with differentiated products is used in the supply side in order to estimate unobserved marginal costs. In addition a hedonic-cost function relating marginal cost to characteristics and emissions is estimated. Based on the results obtained and the 1997 emissions data, a counterfactual simulation of a new pollution standard for hydrocarbon vehicle emissions is undertaken. The results indicate that, given the existing technology, imposing a new standard of 0.15 grammes per kilometre for all automobiles would lead to an average price increase of 12% and a reduction in total sales of 31%. This would generate a 39% reduction in total HC emissions per kilometre driven, with a tax revenue loss of 16%. The paper concludes that, although substantial emissions reductions could be induced by a tighter standard, the welfare effects of such a policy requires further analysis.

Vehicle emissions, automobile pollution, oligopolistic markets, differentiated products, hedonic cost, regulation

Abstract:
In this study we calculate the optimal commodity tax structure for Brazil. The micro-simulations are based on a complete demand system estimated with a flexible functional form [Almost Ideal Demand System, by Deaton and Muellbauer (1980)]. The data source is a 1995/96 national household budget survey. Preference parameters' estimates are consistent with microeconomic demand theory and allow for a highly accurate optimal commodity tax simulation. The model features the maximization of a social welfare function, subject to a balanced government budget requirement. It is assumed that the only tax policy instrument available to the government is consumption goods' and services' taxation. The trade-off between equity and efficiency is taken into account by introducing the government's aversion to inequality into the social welfare function. We also extend our analysis by allowing for a uniform per capita lump-sum payment to be made by the government to all households. Our results show that the commodity tax structure is characterized by selective tax rates. More specifically, we found that the commodities in which the lower household's expenditure classes spend most, such as food and housing, should be subsidized. As expected, the degree of selectivity is more significant for higher inequality aversion parameters. Moreover, as the tax revenue goal increases, so do all commodity tax rates. By introducing a uniform lump-sum transfer, however, this result is reversed when the central planner's degree of aversion to inequality is high enough. On the other hand, poll transfer levels are unreasonably high; when we cap them with a binding ceiling, the former pattern is restored. We believe that our empirical findings provide a valuable contribution for the current tax policy debate in Brazil, where distributive goals have a great importance in the agenda.

optimal commodity taxation, social welfare function, efficiency, equity, almost ideal demand system

Abstract:
Commodity taxes play an important role in Brazil and raise around 60% of the total tax revenue. This heavy reliance renders commodity taxation one of the main tools available to the government for collecting revenue and securing redistribution. In fact, Brazilian income inequity is one of the highest in the world: the wealthiest 1% of population, equivalent to 1.6 million people, earn together as much as the 50% poorest, around 80 million. The purpose of this paper is a partial equilibrium numerical micro-simulation of the distributional effects of optimal commodity taxation combined with minimum income transfers made by the government to households. The approach used to measure households welfare is a money metric indirect utility or equivalent income [King (1983)], obtained from an Almost Ideal Demand System set of parameter estimates. We plug it into the equivalent variation formula to evaluate the equity effects specified in terms of the equivalent income. The data source is a 1995-1996 national household expenditure survey, though estimated parameters come from a sample comprising a 1987-1988 wave as well. We find that our proposed minimum income programs combined with selectiveness in commodity tax structure would be useful as redistribution income instrument among households in Brazil. These results can provide some valuable contribution in the context of the increasing discussion about minimum income programs in Brazil associated with demographic characteristics such as education and family size.

Almost Ideal Demand System, Equivalent Income, Optimal Commodity Taxation, Social Welfare Function, Lump Sum Subsidy

Abstract:
Pollution emissions from mobile sources have increased considerably over the past years in many Brazilian cities generating substantial health problems. As a response, automobile pollution environmental standards were implemented in 1988 and considerable emission reductions were attained. Nevertheless, substantial differences in emission still remained among car models in 1997, suggesting the need for further regulation. This paper simulated the effects of a new environmental standard on the automobile market. Using a discrete-choice model of demand and disaggregate data on the Brazilian car market from 1993 to 1997, we estimate own and cross-price elasticities for each car model. This estimation is undertaken using a nested-logit model considering the choice between car classes and nationality. An oligopoly framework with differentiated products is used in the supply side in order to estimate unobserved marginal costs. Further, a hedonic-cost function relating marginal cost to characteristics and emissions is estimated. Based on the results obtained and the 1997 emission data, we undertake a counterfactual simulation of a new pollution standard for hydrocarbons vehicle emissions. The results indicate that imposing a new standard of 0.15 gram per kilometer for all automobiles, given the existent technology, would generate an average increase in prices of 13% and a reduction in total sales of 31%. This would generate a reduction in total HC emissions, by kilometer driven, of 39% with a tax revenue loss of a 16%. The paper concludes that although substantial emission reductions could be induced by a tighter standard, incentives for innovations on low-cost emission control devices and the welfare effects of such a policy deserve further analysis.

Automobile market, pollution control, taxation