Recent NBER papers

The Collection Efficiency of the Value Added Tax: Theory and
International Evidence
by Joshua Aizenman, Yothin Jinjarak  –  #11539 (ITI PE)


This paper evaluates the political economy and structural factors
explaining the collection efficiency of the Value Added Tax [VAT]. We
consider the case where the collection efficiency is determined by
the probability of audit and by the penalty on underpaying.
Implementation lags imply that the present policy maker determines
the efficiency of the tax system next period. Theory suggests that
the collection efficiency is impacted by political economy
considerations greater polarization and political instability would
reduce the efficiency of the tax collection. In addition, collection
is impacted by structural factors affecting the ease of tax evasion,
like the urbanization level, the share of agriculture, and trade
openness. Defining the collection efficiency of the VAT as the ratio
of the VAT revenue to aggregate consumption divided by the standard
VAT rate, we evaluate the evidence on VAT collection efficiency in a
panel of 44 countries over 1970-99. The results are consistent with
the theory – a one standard deviation increase in durability of
political regime, and in the ease and fluidity of political
participation, increase the VAT collection efficiency by 3.1% and
3.6%, respectively. A one standard deviation increase in
urbanization, trade openness, and the share of agriculture changes
the VAT collection efficiency by 12.7%, 3.9%, and – 4.8%,
respectively. In addition, a one standard deviation increase in
GDP/Capita increases the tax efficiency by 8.1%. Qualitatively
identical results apply for an alternative measure of VAT collection
efficiency, defined by the ratio of VAT revenue to GDP divided by the
standard VAT.

Do Macro Variables, Asset Markets or Surveys Forecast Inflation
by Andrew Ang, Geert Bekaert, Min Wei  –  #11538 (AP EFG)


Surveys do! We examine the forecasting power of four alternative
methods of forecasting U.S. inflation out-of-sample: time series
ARIMA models; regressions using real activity measures motivated from
the Phillips curve; term structure models that include linear,
non-linear, and arbitrage-free specifications; and survey-based
measures. We also investigate several optimal methods of combining
forecasts. Our results show that surveys outperform the other
forecasting methods and that the term structure specifications
perform relatively poorly. We find little evidence that combining
forecasts using means or medians, or using optimal weights with prior
information produces superior forecasts to survey information alone.
When combining forecasts, the data consistently places the highest
weights on survey information.

Social Value of Public Information: Morris and Shin (2002) Is
Actually Pro Transparency, Not Con
by Lars E.O. Svensson  –  #11537 (ME)


The main result of Morris and Shin (2002) (restated in papers by
Amato, Morris, and Shin (2002) and Amato and Shin (2003) and
commented upon by Economist (2004)) has been presented and
interpreted as an anti-transparency result: more public information
can be bad. However, some scrutiny of the result shows that it is
actually pro transparency: except in very special circumstances, more
public information is good. Furthermore, for a conservative benchmark
of equal precision in public and private information, social welfare
is higher than in a situation without public information.

Economic Analysis of Corporate and Personal Bankruptcy and Law
by Michelle J. White  –  #11536 (LE)


This paper surveys research on the economics of corporate and
personal bankruptcy law. Since the literatures on the two types of
bankruptcy have developed in isolation of each other, a goal of the
survey is to draw out parallels between them. Both theoretical and
empirical research are discussed.

Incentives and Prosocial Behavior
by Roland Benabou, Jean Tirole  –  #11535 (PE)


We develop a theory of prosocial behavior that combines heterogeneity
in individual altruism and greed with concerns for social reputation
or self-respect. Rewards or punishments (whether material or
image-related) create doubt about the true motive for which good
deeds are performed and this “overjustification effect” can induce a
partial or even net crowding out of prosocial behavior by extrinsic
incentives. We also identify settings that are conducive to multiple
social norms and those where disclosing one’s generosity may
backfire. Finally, we analyze the choice by public and private
sponsors of incentive levels, their degree of confidentiality and the
publicity given to agents’ behavior. Sponsor competition is shown to
potentially reduce social welfare.