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Abstract:
This paper develops a dynamic computable general equilibrium model in which optimizing agents evade taxes by operating in the underground economy. The cost to firms of evading taxes is that they find themselves subject to credit rationing from banks. Our model simulations show that in the absence of budgetary flexibility to adjust expenditures, raising tax rates too high drives firms into the underground economy, thereby reducing the tax base. Aggregate investment in the economy is lowered because of credit rationing. Taxes that are too low eliminate the underground economy, but result in unsustainable budget and trade deficits. Thus, the optimal rate of taxation, from a macroeconomic point of view, may lead to some underground activity.

Underground economy, credit rationing

Abstract:
This paper examines alternative ways to prevent losses from bank insolvencies. It is widely viewed that transparency in reporting bank balance sheets is a key element in reducing such losses. It is, however, unclear just how such transparency would be achieved. Current approaches to avoiding insolvencies generally involve international enforcement mechanisms. Among these are the sovereign debt restructuring mechanism (SDRM), and, more generally, an international bankruptcy court.

We develop a model that compares two alternative institutions for bank auditing. Neither of these institutions would require as much enforcement capability as an international bankruptcy court, hence they would be easier to introduce. The first of these is a system of central bank auditing of national banks. The second type of auditing is carried out by an international agency that collects risk information on banks in all countries and then provides it to depositors. Using a game-theoretic approach, we compare the informativeness of the disclosure rule in the symmetric Perfect Bayesian equilibrium in each of the two different auditing institutions. We show that the international auditor generally performs at least as well, and sometimes better than, auditing by either central banks, which, in turn, perform better than voluntary disclosure by the banks themselves. The results do not assume any informational advantages of the international auditor, nor is the international auditor somehow less corrupt than the central banks. Rather, the international auditor`s credibility comes from the simple fact that its incentives are not distorted by a sovereignty bias that plagues the central banks.

Bank Insolvency, Auditing, International Auditing

Abstract:
This paper examines alternative ways to prevent losses from bank insolvencies. We develop a model that compares two alternative institutions for bank auditing. The first is a system of central bank auditing of national banks. The second is carried out by an international agency that collects and disseminates risk information on banks in all countries. The international auditor is shown to perform at least as well, and sometimes better than, auditing by either central banks or voluntary disclosure by the banks themselves in preventing losses. The international auditor's credibility comes from the fact that its incentives are not distorted by a sovereignty bias.

Bank insolvency, Auditing, International auditing

Abstract:
In this paper, we study the impact of labor market restructuring and foreign direct investment on the banking sector, using a dynamic general equilibrium model with a financial sector. Numerical simulations are performed using stylized Chinese data, and banks failures are generated through increases in the growth rate of the labor force, a revaluation of the exchange rate or an increase in debt issue to finance the government deficit, as compared to a benchmark scenario in which banks remain solvent. Thus bank failures can result from what might seem to be either beneficial economic trends, or correct monetary and fiscal policies. We introduce fiscal policies that modify relative factor prices by lowering the capital tax rate and increasing the tax rate on labor. Such policies can prevent banking failures by raising the return to capital. It is shown that such fiscal policies are, in the short run, welfare reducing.

Banking, China, Fiscal policy, Tax rates, Labor markets, Foreign investment, Economic models

Abstract:
This paper analyzes certain policies that are typical of a number of rapidly growing East Asian countries in which a fixed exchange rate, combined with a surplus labor market, has made domestic assets relatively inexpensive, generating high rates of FDI as well as domestic capital formation. This investment hunger can lead to unanticipated declines in the returns to investment, and resulting financial insolvencies. Private consumption remains low and there are concerns that high savings rates cannot be sustained. We construct a dynamic general equilibrium model and apply it to a stylized Asian economy, loosely based upon China. We calibrate a benchmark equilibrium, and carry out various counter-factual simulations to analyze alternative policies, in particular tax cuts and exchange rate revaluations, as instruments in increasing private consumption while avoiding bank failures.

Economic growth, China, People's Republic of, Consumption, Financial crisis, Exchange rates, Labor markets

Abstract:
This paper examines possible ways for a developing country to finance budget deficits from domestic resources. It does so by analyzing Pakistan`s National Savings Scheme (NSS). The NSS has a number of unusual attributes, and its impact upon the economy of Pakistan is not clear, but given Pakistan`s chronic fiscal difficulties, the NSS is of great importance in financing the public sector deficit. We use an econometric model to analyze the relationship between the demands for NSS deposits and various other financial instruments, in particular, bank deposits, and foreign-currency deposits. We conclude that NSS and bank deposits are net substitutes, as are NSS and foreign-currency deposits. Bank deposits and foreign-currency deposits, however, seem to be neither substitutes nor complements. Also, the estimated income elasticity of the demand for bank deposits is negative, while that of foreign-currency deposits is positive, and that of NSS is not significantly different from zero. Finally, there is evidence that foreign-currency deposits are a net substitute for NSS deposits. Thus, there is some empirical evidence that foreign currency deposits have absorbed part of the demand for NSS deposits. Accordingly, the availability of foreign-currency deposits may have reduced the ability of the government to finance itself.

Pakistan, Savings, Interest Rates

Abstract:
This paper examines possible ways for a developing country to finance budget deficits by drawing on domestic resources. We do so by analyzing Pakistan's National Savings Scheme (NSS). The NSS has a number of unusual attributes, and its impact upon the economy of Pakistan is not clear. Given Pakistan's chronic difficulties with the public sector deficit, the NSS, which is a key instrument in financing that deficit, is of great importance. We use an econometric model to analyze the relationship between the demands for NSS deposits and various other financial instruments in Pakistan. In particular, we look at the relationship between deposits in the National Savings Scheme, bank deposits, and foreign currency deposits.

We conclude that bank deposits and NSS deposits appear to be net substitutes, as do NSS and foreign currency deposits. Bank deposits and foreign currency deposits, however, seem to be neither substitutes nor complements. Also, the estimated income derivative of the demand for bank deposits is negative, while that of foreign currency deposits is positive. For the NSS it is not significantly different from zero. Finally, is evidence that foreign currency deposits are a net substitute for NSS deposits. Thus, there is some empirical support for the belief that foreign currency deposits have absorbed a part of the demand for NSS deposits. Accordingly, the availability of these foreign currency deposits may have reduced the ability of the government to finance itself.

Domestic resources, NSS, foreign currency

Abstract:
In a model where all banks are initially solvent, an exogenous shock affects confidence, causing a flight from deposits into domestic and foreign currency. Real interest rates increase unexpectedly, affecting firms and raising the share of the banks` nonperforming assets. This increase causes genuine solvency problems and accelerates the bank run. Policy simulations show that compensatory monetary policy (increasing currency supply when deposits fall) mitigates the bank run but causes inflation and external imbalances. Combining compensatory monetary policy with tight fiscal policies also slows the bank run and mitigates insolvency, but at a lower macroeconomic cost. A devaluation is shown to have little positive impact.

Abstract:
In a model where all banks are initially solvent, an exogenous shock affects confidence, causing a flight from deposits into domestic and foreign currency. Real interest rates increase unexpectedly affecting firms and raising the share of the banks' nonperforming assets. This increase causes genuine solvency problems and accelerates the bank run.

Abstract:
This paper reviews briefly the controversy in the literature concerning the speed of adjustment and sequencing of reforms, and presents a model parameterized with Chinese data. The model is used to generate different policy simulations to illustrate some of the key issues in the debate on the speed and sequencing of reforms, and not to provide a basis for policy recommendations for China. The simulations highlight the importance of the criteria being used for determining speed and sequencing. The paper also underscores the limitations involved in attempting to derive conclusions from the model, given the complexity of the issues.

Transition, sequencing of reforms, speed of adjustment

Abstract:
This paper analyzes certain issues concerning the speed of adjustment and sequencing of reforms in a transition economy. It presents a dynamic general equilibrium model parameterized with Chinese data. The model is used to generate different policy simulations that highlight the importance of the policy instruments used during the transition period. The simulations consider privatization, tariff reform, and devaluation, as well as alternative speeds of introducing these policies. They show that different speeds of adjustment, as well as sequencing of reforms, will have very different implications for macro-economic aggregates.

Transition, sequencing of reform

Abstract:
One objective of government investment is to develop public infrastructure which may reduce private sector costs. In a developing economy, the scope for payoffs to investments of this sort may be particularly large. A major concern related to the recent fiscal adjustment in Mexico is that it has been carried out, in part, by depleting public infrastructure stocks.

We estimate the effects of public infrastructure on private sector costs in Mexico and calculate the implied optimal infrastructure stocks. Our estimates indicate that previous results suggesting a large productive role of public infrastructure capital are not robust. There is little evidence that public infrastructure plays a large role in reducing private sector costs.

Mexico public infrastructure

Abstract:
An intertemporal general equilibrium model is used to examine infrastructure effects on the Mexican national income. Production functions are estimated for the major sectors of the economy in which sectoral output depends on inputs of capital and labor, as well as the stocks of the public infrastructure. The analysis indicates that despite high estimated output elasticities with respect to public infrastructure, increased expenditure on infrastructure has rapidly decreasing benefits. Some benefits could be achieved by modest increases in capital expenditures, although at the cost of significantly higher inflation and real interest rates. The increase in real interest rates causes these benefits to be greatly reduced.

Abstract:
We construct a intertemporal general equilibrium model and use it to examine infrastructure effects on Mexican national income. We consider three types of infrastructure, electricity, transportation, and communications. We then estimate production functions for the 16 major sectors of the economy in which sectoral output depends upon inputs of capital and labor, as well as the stocks of the three types of nfrastructure. We then use these estimates to analyze the optimal level of government spending on the different types of infrastructure. Despite the fact that the estimated output elasticities with respect to public infrastructure are relatively high, increased expenditure on infrastructure has rapidly decreasing benefits. Some benefits could be achieved by modest increases in capital expenditures, although at the cost of significantly higher inflation and real interest rates.

Indeed, the increase in real interest rates causes the benefits of enhance infrastructure to be greatly reduced.

Optimal provision, public infrastructure, Mexico

Abstract:
This work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies. The model is applied to stylized data from several South Asian countries. It derives conclusions about policy instruments designed to alleviate the impact of insolvencies. Firms are subject to intertemporal solvency conditions, and the public withdraws deposits when borrowers default. If banks optimize by restricting credit to risky borrowers, these failures can be partially avoided. Numerical simulations conclude that the combination of compensating monetary policy and restrictive fiscal policy offers the best way of responding to a bank crisis caused by exogenous shocks.

bank failures, general equilibrium

Abstract:
This work employs a dynamic general equilibrium model to evaluate the causes and implications of bank insolvencies.We apply the model to stylized data from Bangladesh, a country whose banking system is currently suffering from large stocks of non-performing assets. The model is used to derive positive conclusions about alternative policy instruments designed to alleviate the impact of these insolvencies. A benchmark case is simulated using historical exogenous parameters. We then generate a bank failure by assuming that firms cannot service their debt if their interest obligations rise above their anticipated return on capital. The public withdraws deposits from the banking system in reaction to worries about defaulting bank assets. If banks optimize by restricting credit to risky borrowers, these failures can be partially avoided. Such bank behavior is often prohibited in developing countries, so we investigate an active monetary policy that compensates banks for withdrawn deposits. The resulting outcome indicates that such a policy can slow the pace of bank failures, although at the cost of certain macro imbalances. Our final simulation imposes a reduction in public spending in order to tighten fiscal policy and thereby reduce budgetary pressure. The resulting decline in interest rates eliminates all investor defaults and bank failures.We conclude that the combination of compensating monetary policy and restrictive fiscal policy may offer the best way of responding to a bank crisis.

Bank failures, Fiscal austerity, Developing countries

Abstract:
This paper constructs an intertemporal general equilibrium model designed to examine an economy in transition from central planning to being market oriented. A numerical algorithm is developed to obtain a solution for the model. Simulations using stylized country-specific data examine the effects of price controls during the transition period, as well as of imposing taxes on returns to investment, and on interest earned on private savings. The paper concludes that, under certain circumstances, the taxation of investment as well as of private savings may have positive effects upon consumer welfare, if price distortions are sufficiently severe.

Abstract:
We analyse trade reform among the ASEAN countries, which recently began removing all mutual trade barriers. The standard method to avoid complete specialisation in traded goods is to distinguish goods both by physical type and place of origin (the so-called Armington assumption). This methodology is not suitable for the sort of intermediate goods produced by the ASEAN countries. We develop a computational approach in the context of a non-Armington dynamic general equilibrium model. Analysing the results of a calibrated version of the model, we find that trade liberalisation is generally welfare improving for the ASEAN countries.

Abstract:
We analyse trade reform among the ASEAN countries, which recently began removing all mutual trade barriers. The standard method to avoid complete specialization in traded goods is to distinguish goods both by physical type and place of origin (the so called Armington assumption). This methodology is not suitable for the sort of intermediate goods produced by the ASEAN countries. We develop a computational approach in the context of a non-Armington dynamic general equilibrium model. Analyzing the results of a calibrated version of the model, we find that trade liberalization is generally welfare improving for the ASEAN countries.

Non-Armington, Trade Reform, ASEAN

Abstract:
This paper presents a small simulation model that can be used to estimate the medium-run effects of exchange rate changes on the trade balance of a primary producing country. The model is applied to four copper producing countries, Chile, Peru, Zaire, and Zambia. The model can estimate the effect of several simlutaneous exchange rate changes. It uses a commodity by commodity approach, and allows for a high rate of inflation in the primary producer. The model is simulated numerically, based on estimated parameters.

Exchange rates, primary producing country, copper

Abstract:
We construct a general equilibrium model of an open economy and develop a computational technique for deriving a market-clearing solution to the model. The model allows for disaggregated commodities, taxes, and tariffs. It includes a government that is an active participant in the economy as a producer of public goods. The main innovation of the paper is to incorporate financial assets. Current general equilibrium models that do permit the inclusion of non-neutral financial assets are unable to cope with large numbers of commodities and differentiated taxes.

General equilibrium, open economy, monetary policy

Abstract:
This paper presents an abstract, static model of a traditional Soviet-type economy, in which there are three kinds of agents (planners, firms, and consumers). A quantity-oriented incentive system for managers is described, as is a planners' allocation mechanism. There are technology-determined prices for producer goods and market prices for labor and consumer goods, which are sold by retail stores from which the planners collect a turnover tax. There are also profit and income taxes. A consumer-market equilibrium is shown to exist for each plan, and the results of simulations using fixed-point computation techniques are discussed.

General equilibrium, Soviet-type economy

Abstract:
We construct a one period model of an economy based upon a Soviet-type system, and examine a modified notion of equilibrium in it. Producers are not profit maximizers, but have quantitity oriented incentive functions. Taxes are part of the planning process without which there would not be an equilibrium for a given central plan. We prove the existence of a consumer market equilibrium and illustrate the model with numerical examples based upon a fixed point algorithm. The algorithm allows us to compare welfare and efficiency resulting from different plans.

Planned economy, Soviet, Equilibrium

Abstract:
A simple planning model is constructed that is designed to deliver more of certain badly needed goods to poor consumers than they would receive under a competitive system. The model increases the supply of the badly needed goods, while minimizing the cost, in terms of welfare losses, of the increased production to those consumers for whom the goods are relatively unimportant. Simulation examples are used to demonstrate the methodology, which is sufficiently general to be used to represent many different central-planning systems.

Central planning, Redistributive taxation

Abstract:
A general equilibrium model of an open economy in which there are ad valorem texes on domestic production and export activities, and import activities are subject to both tariffs and quotas is constructed. A domestic monetary asset, foreign exchange, and a corresponding nominal exchange rate are introduced and a numerical example of the model is constructed. The example is solved via the Scarf fixed point algorithm, first with taut quotas and then after having relaxed quotas. Various price indices are then used to guide programs designed to stabilize the trade balance against the quota liberalization. An empirical example, using Argentine data, is carried out to find the quota equivalent of a particular tariff.

General equilibrium, Trade restrictions, Argentina

Abstract:
We construct a macroeconomic model of a planned economy and derive a currency basket that will stabilize the current account. The exchange rate is incorporated in a monetary system so as to derive consistent money and price targets. If the planners have access to foreign loans, they may target a negative current account. The model is estimated for Ethiopia. Having derived weights for the currency basket corresponding to 1980, a simulation is carried out in which macroeconomic targets for 1980 are derived, based on past information.

Balance of Payments, Ethiopia, Planned Economy

Abstract:
This paper constructs a two-period, perfect foresight general equilibrium model that analyzes crowding out. Private investment is debt financed, while government deficits are financed by money and debt. The existence of equilibrium is demonstrated and the model is applied to Australia for 1981-1982, the last years for which Australia had a fixed exchange rate. A benchmark solution is derived and two counterfactual simulations are carried out. Small increases in real government spending are found not to lead to crowding out, while an increase in the debt financed portion of the government's budget deficit does lead to crowding out.

Australia, Crowding out, General equilibrium

Abstract:
A key task of government policy makers is to determine suitable targets for the macroeconomic variables under their control. In this paper we demonstrate how, in the case of China, the use of official price indices can, with standard estimation procedures, cause these targets to be seriously misspecified. In developing a technique for correctly determining the price level and money supply in a planned economy of this type, we shall also obtain an estimate of the degree to which repressed inflation has exsted in China during the time period of our study, 1954-83.

China, price level, repressed inflation

Abstract:
This paper develops a methodology for evaluating the short-run welfare implications of different exchange rate regimes. Heterogeneous, optimizing domestic consumers live for two periods, consume goods and leisure, supply labor, save home and foreign bonds, and demand currency. Firms maximize profits. The home government levies taxes, issues money and bonds and supplies public goods. The foreign country demands imports, supplies exports, and lends to the home country. The theoretical model is estimated for Australia. Counter-factual simulations are carried out. The results suggest that floating was, or would have been, the superior regime for the 1981-1984 period.

Exchange Rates, Welfare, Australia

Abstract:
We explain the rapid increase in personal savings in China since the economic liberalization which began in 1979. We use an intertemporal disequilibrium framework based upon a virtual price technique. The virtual price is defined as the price level that would induce the observed level of consumption in the absence of price controls. We find that normalizing savings by virtual prices explains savings behavior better than does normalizing by official price series. We then provide a test which suggests that rationing was perceived to be termporary. Using virtual prices, we find a negative and significant real interest rate effct on consumption. Finally, we find that the nominal interest rate has been important in influencing savings behavior in China.

China, rationing, repressed inflation, interest rates

Abstract:
We construct a perfect foresight intertemporal general equilibrium model designed to analyze the impact of reductions in piblic spending. The model incorporates public infrastructure that enters private productions and a reserve-based government exchange rate policy. The model is estimated for Mexico and a three-year benchmark equilibrium is computed. Counterfactual simulations are carried out, with one of the conclusions being that a reduction in government spending can be inflationary. The results are sensitive to the elasticity of private output with respect to government infrastructure.

Fiscal stabilization, Mexico, exchange rates

Abstract:
We estimate a measure of the repression of the Chinese price level by developing a simple analytical model which derives a 'true' rate of inflation on the basis of the different rates of change of the stock of money in circulation and the nominal value of retail sales. This true rate of inflation is then used to explain changes in quasi-money balances. We estimate this model for the period 1979-1988 using quarterly data. The results strongly support the hypothesis of repressed inflation. The annual rate of inflation of the 'true' price index is approximately 12.4 percent higher than that of the official price index over the 10-year period.

China, Repressed inflation, Price controls

Abstract:
We construct a two-period general equilibrium model to evaluate policies affecting agricultural migration and exports. The model is applied to Mexico for the period 1986-1987 to obtain certain qualitative policy conclusions related to the 'Dutch disease' brought about by oil price increases. Dutch disease phenomena can be brought about both as the result of real exchange rate changes as well as price changes caused by migration out of agriculture. In the short run it may be possible to use fiscal policy, such as value-added subsidies to agriculture, to at least partially negate the effects of an oil price increase on agricultural exports.

Dutch Disease, Mexico, General Equilibrium

Abstract:
We construct a two-part model of the Chinese economy. The first part consists of a money-supply equation, a real money-demand equation, and a savings equation. The second part comprises a set of sectoral equations. The estimated model is then used to generate a dynamic simulation of the paths of real national income, aggregate price level, sectoral output, and sectoral prices. The model tracks quite well within sample, thus indicating that it may be used to analyze the future effects of policy changes. We therefore carry out counterfactual policy simulations based on monetary changes.

Macro-adjustment, China

Abstract:
We construct a two-part model of the Chinese economy. The first part consists of a money supply equation, a real money demand equation, and a savings equation. The second part comprises a set of sectoral equations. The model estimated is then used to generate a dynamic simulation of the paths of real national income, the aggregate price level, sectoral output, and sectoral prices. The model tracks quite well within sample, thus indicating that it may be used to analyze the future effects of policy changes. We therefore carry out counterfactual policy simulations based on monetary changes.

China, Macro-adjustment, simulation

Abstract:
We construct a simple two period model of an economy in transition from being centrally planned to being market oriented. Using this model, we draw certain positive conclusions about economic policies that reduce distortions during the transition period. In particular, we focus on the role of interest rates, a market parameter that has previously been almost entirely ignored in planned economies. Using stylized data derived from Czechoslovakia, we show that increase in nominal interest rates can actually be welfare-improving by partially compensating for the distortions induced by the transition process.

The model is sufficiently general to be applied to a number of transition economies, and we use the cases of Czechoslovakia, the USSR, and China as examples of some of the phenomena that we are trying to explain. We show that the model generates a constrained, suboptimal equilibrium. In particular, we see that raising interest rates during the transition period reduces repressed savings, brought about by shortages in the controlled market. An improvement in consumer utility can therefore be brought about.

Transition, interest rates

Abstract:
In this paper we specify a dynamic general equilibrium framework to evaluate the cost effectiveness of incentives for industrial and technological development offered through the tax code in Pakistan. The model enables us to estimate adjustment effects on factor use and output arising from a tax incentive policy change. Detailed calculations are presented showing change in output, use of capital by sector, changes in tax revenue paid by each sector and impacts on macroeconomic aggregates. Welfare gains and losses of urban and rural consumers associated with proposed policy changes are also estimated.

Taxation, Investment, Pakistan

Abstract:
Mexico has experimented with a number of tax instruments designed to promote private capital formation. Among such initiatives are general and industry specific tax credits, employment tax credits, and corporate tax reductions. This paper examines the relative efficacy of such instruments using a dynamic computable general equilibrium model. Model simulations with Mexican data are carried out using three equal yield investment incentive scenarios. We find that a corporate tax reduction has the most stimulative impact on investment. The results emphasize the importance of using an open economy model. Unlike, for example, investment tax credits, tax rate reductions increase the demand for all capital rather than new capital alone. Hence the public increases its holdings of domestic debt, causing the price of domestic bonds to rise, real interest rates to fall, and domestic investment to increase.

Mexico, Investment incentives, General equilibrium

Abstract:
We construct a model of a reform economy in transition from central planning to free markets. The eventual success of the reform is uncertain. A numerical implementation of the model examines the implications of two alternative paths, instantaneous or gradual price reform. If the controlled-price sector has sharply decreasing returns to scale in production, then gradualism may lead to welfare higher than that of instantaneous reform. Given the inefficiencies in production in many transition economies, this may help to explain why countries that have used gradualism have sometimes fared better than those that have followed a path of rapid price liberalization.

Reform, transition, gradualism

Abstract:
This paper develops a computational general equilibrium model for analyzing some chronic economic problems facing developing countries. We build a multiperiod model with multiple types of capital and three different financial assets. Moreover, capital is sector specific to capture the idea that many developing countries focus on a few specific industry groups. We model both rural and urban consumers with the possibility of ruralurban migration. One further modeling feature is a partially interdependent banking sector where the performance of, say, the agricultural bank can affect the functioning of the industrial bank. The model is used to examine problems of budgetary liquidity and alternative ways of alleviating these problems. Our analysis is applied to Uganda, a country that after years of economic decline is undergoing a phase of recovery and reform. Accordingly, we develop a model that captures some of the predominant institutional features of the Ugandan economy and evaluate two realistic reform scenarios. After calibrating the model with a base case scenario we test the implications of a simultaneous tariff reduction and increase in value added taxes. We then look at the implication of debt reduction.

Uganda, macro stablization

Abstract:
We construct a simple model that tests for repressed inflation by estimating a "true" rate of inflation that explains behavior of observed money demand. We estimate the model using quarterly data for Czechoslovakia and Poland. Although our results should be viewed as preliminary, given the imperfect nature of our data, we do have strong evidence that, prior to 1991, there was considerable repressed inflation in Poland, while there was essentially no repressed inflation in Czechoslovakia.

Transition, repressed inflation

Abstract:
This article estimates the relationship between the provision of public infrastructure and private output in sixteen sectors in Mexico. The sector-specific cost functions depend on wages, the cost of capital, and the nominal values of the stocks of three types of infrastructure: electricity, transport, and communications. The article concludes that infrastructure in electricity and communications generally reduces the cost of sectoral production, but transportation infrastructure tends to increase costs of sectoral production. It appears that Mexican public expenditure on electricity and communications has enhanced the productivity of private production, but expenditure on transport may actually have had a detrimental effect on private output. In addition, although in general labor and infrastructure are substitutes, in the case of electricity and communications infrastructure, capital and infrastructure are complements. In the case of transport infrastructure these conclusions are reversed.

Infrastructure, Mexican economic reform

Abstract:
We analyze a variety of macroeconomic policy issues confronting Bangladesh. We develop an intertemporal general equilibrium model and simulate it using Bangladesh parameters. Our estimated model generates reasonably accurate replicas of historical reality. We impose a reduction in current government expenditure. The simulated changes indicate a small improvement for the economy; caused by the expenditure reduction. Our next experiment analyzes the impact of a reduction in capital inflows. Our final exercise implements a devaluation. We conclude that there are positive benefits from fiscal austerity, and a moderate devaluation. Also, reduced capital inflows would have a severe impact on Bangladesh.

Bangladesh, fiscal austerity, capital flows

Abstract:
We construct a dynamic model of the Australian economy that has a regional sub-section representing Western Australia. Within the West Australia sub-economy, there is a separate technology for the gold mining industry. We implement the model, and simulate a 2.5 percent tax on gold exports. The outcome shows no fiscal improvement at the national level, although the West Australian budget improves slightly. Real income falls both nationally and in West Australia as the trade balance deteriorates, and an increased real interest rate causes investment to fall. We conclude that the taxation of gold exports leads to few measurable benefits.

Australia, gold mining, tax policies

Abstract:
This study develops a dynamic general equilibrium model in which optimizing agents evade taxes by operating in the underground economy. The cost to firms of evading taxes is that they find themselves subject to credit rationing from banks. Our model simulations show that in the absence of budgetary flexibility to adjust expenditures, raising tax rates too high drives firms into the underground economy, thereby reducing the tax base. Aggregate investment in the economy is lowered because of credit rationing. Taxes that are too low eliminate the underground economy, but result in unsustainable budget and trade deficits. Thus, the optimal rate of taxation, from a macroeconomic point of view, may lead to some underground activity.

Underground economy, macroeconomic performance, credit rationing

Abstract:
We develop a model for the analysis of macroeconomic management that are caused by failures in the private banking system. Our analysis is applied to Tanzania, a country that faces significant difficulties from a banking system that holds large quantities of non-performing assets. We have constructed a dynamic general equilibrium model that is solved numerically.

As initial examples, we have first simulated the model, using historical exogenous parameters, and have compared endogenous macro outputs with corresponding historical outcomes. Assuming all exogenous parameters remain constant for 8 years of the simulation, the banking system begins to become insolvent by the final year. We then impose a program that attempts to increase the productivity, and hence solvency, of the private sector by increasing government expenditures on infrastructure, which are, in turn, financed by foreign capital flows. This experiment leads to a small improvement in real income, but does nothing to enhance the solvency of the banking system. Finally, we impose an improvement in the efficiency of public utilities. This change appears to offer an avenue for improving the solvency of the banking system, the goal of our study.

Macroeconomic stabilization; Economic growth, Reform policies

Abstract:
In a model where all banks are initially solvent, an exogenous shock affects confidence, causing a flight from deposits into domestic and foreign currency. Real interest rates increase unexpectedly, affecting firms and raising the share of the banks nonperforming assets. This contagion causes a bank run. Simulations show that compensatory monetary policy mitigates the bank run but causes macroeconomic imbalances. Combining compensatory monetary policy with tight fiscal policies slows the bank run and mitigates insolvency. A devaluation, combined with compensatory monetary policy, reduces insolvencies and increases the growth of real income, but at the cost of increased inflation.

Bank solvency, Contagion

Abstract:
We give an empirical examination of the impact of fiscal and economic decentralization in China on the country's economic growth and inflation, using a vector autoregressive (VAR) model with latent variables. Our econometric investigation offers strong evidence that there is a connection between decentralization and macroeconomic performance in China. Economic decentralization appears to be positively related to growth in real output for the entire postwar period in China. Fiscal decentralization seems to have adverse implications for the rate of inflation, especially after the late 1970s. Decentralization would therefore seem to be good for growth and bad for price stability.

Fiscal, decentralization, stability, China

Abstract:
We construct an intertemporal general equilibrium model designed to examine an economy in transition from central planning to being market oriented. The model considers one sector facing an output price control in the transition period, while the other sector has free output pricing. Interest rates are also controlled during the transition. In the period after the transition all prices are fully liberalized. Excess demand for the controlled price good in period 1 spills over into increased demand for the free price good as well as into increased savings, represented by real money holdings. We develop a numerical algorithm that solves for a fixed point of the model. We carry out simulations that examine the effects of price controls during the transition period, as well as of imposing taxes on returns to investment and on interest earned on private savings. We conclude that taxation of investment as well as of private savings may have positive effects upon consumer welfare.