Mathews: Public Finance and Tax Equity in the Arabian Gulf Monarchies

Abstract:

his study examines notions of public finance equity in the six Arabian Gulf monarchies of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Because of unique characteristics of government expenditures  and revenues in these monarchies, many of the standard concepts of public finance (such as the Benefits Principle, Ability-to-Pay Principle, Vertical Equity, and Horizontal Equity) do not provide relevant insights. Consequently, four innovative notions of equity are reviewed and discussed: Within Group Horizontal Equity; Within Group Vertical Equity; Favored Group Horizontal Equity; and Favored Group Vertical Equity. Finally, these four conceptions of equity are applied to a discussion of potential future changes to the existing public financing systems within the countries in this region.

Available for download here.

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Dang: Similarities Attract – Political Regimes and Foreign Direct Investments

Abstract:

According to a well-established and substantively significant finding in the international political economy literature, democratic host countries are better able to attract foreign direct investment (FDI). However, I show that the supposed association be-tween democracy and FDI disappears once I control for a selection bias in which FDI tends to originate from democratic home countries. I then provide empirical evidence to support a novel claim that it is not democracy by itself but political similarity be-tween the home and host countries that attracts FDI. Additionally, I suggest a causal explanation for why FDI tends to flow between politically similar countries.

Available for download here.

Jacobs: Policymaking for the Long Term in Advanced Democracies

Abstract”

A range of policy problems – from climate change to pension sustainability to skill shortages – confront governments with intertemporal dilemmas: tradeoffs between maximizing social welfare in the present and taking care of the future. There is, moreover, substantial variation in the degree to which democratic governments are willing to invest in long-term social goods. Surprisingly, the literature on the politics of public policy has paid little explicit attention to timing as a dimension of policy choice, focusing almost exclusively on matters of cross-sectional distribution. This essay develops a framework for explaining intertemporal policy choices in advanced democracies by adapting findings from the literatures on distributive politics, political economy, and political behavior. The article makes a case for analyzing the politics of the long term in two dimensions: as a struggle, at once, over how welfare should be allocated across groups and over how policy effects should be distributed through time.

Available for download here.

Strünck: Public pushing for pension reform? The short-term impact of media coverage on long-term policy making in Germany, Britain and the United States

From the chapter:

Pension reform has been on the agenda in Western welfare states for two decades now. However, the mass media rarely scoop with these issues. This is because pension politics is mostly confined to policy networks that deal with technically complex questions and have established enduring relationships. Pension politics means long-term policy making that affects present and future generations, too. This is why in most democracies party competition is low and consensus building high when it comes to tinkering with pension schemes. But new ideas have emerged that can help to bypass the complexity of pension systems. Privatization of public pension stands at the forefront of these ideas which are evenly spread across different countries and welfare states. In Germany, Britain, and the United States, governments have tried to enact laws that boost private savings.

This chapter does not aim to trace the ideological heritage of privatization in pension politics. It raises questions on the role of mass media and public opinion in shaping pension reforms. How do media coverage and public opinion shape a policy which is often deeply rooted in secretive, consensus-oriented institutions? Is long-term policy making substituted by rather short-term activities of governments? Do certain actors gain more influence when pension reform turns into a high key issue in the mass media?

Available for download here.

Han: Study on Correlation between CSR Performance and Financial Performance

Abstract:

With the development of economic globalization, corporate social responsibility (CSR) is getting more and more attention. However, there are still some differences on the relationship between CSR performance and corporate financial performance. To explore this problem, we construct the multiple regression model containing CSR indicators and financial performance indicators, and collect 120 categories of data from 60 sample companies in 2013, to carry out descriptive statistical analysis. The empirical results show that, CSR and financial performance are positively correlated.

Available for download here.

Santiso, Capapé and Guerrero: Sovereign Wealth Funds – A Growing Financial Firepower

From the chapter:

In his 2011 book How to Run the World, global strategist Parag Khanna looks at the state of the global economy and international relations, describing the “Next Renaissance” as “a future of mixed economies, and the blurring of the line between all things public and private.” Whereas Adam Smith’s The Wealth of Nations revolutionized economic thought and introduced notions on limited government intervention in the economy, context and interest have since proven to be better determinants of government intervention than theory. While working for State Street, Andrew Rozanov was the first to coin in
his 2005 article “Who Holds the Wealth of Nations”) the term “sovereign wealth fund” (hereinafter, SWF), seeking to differentiate and delineate a new breed of state-owned funds from traditional central bank reserves in foreign currency. The state is back in the economic arena – and stronger than ever.

Swiss central banker Philipp Hildebrand argues that the French Caisse des Dépots et Consignations (founded in 1816), an independent investment vehicle designed to manage government savings and pensions, was the first actual sovereign wealth fund. General consensus, however, places the Kuwait Investment Authority (founded in 1953) as the first of the more modern and active kind of SWFs. What, then, is a sovereign wealth fund? Research interest in the field is less than a decade old, and due to their pragmatic or even customized nature, no two sovereign wealth funds are the same. Nevertheless, a list of common characteristics can be observed.

Available for download here.

Roldan & Rahman: The Importance of Political Risk for European Business

From the chapter:

Countries in turmoil fill the front pages of newspapers one day after another: Russia, Yemen, Venezuela, Syria, Nigeria, and Greece. Companies, meanwhile, fear unpredictable change, even as they seek to profit from the opportunities that change  creates – a freshly privatized industry in Tunisia, a new government in Nigeria, or new licenses for solar infrastructure in Brazil. The examples are plentiful. To help weigh these risks and make investment decisions, corporations routinely consult economic risk analysts. However, making global investment decisions based only on economic data can be, to say the least, misleading.

Political risk is concerned with the impact of politics on markets. It focuses on understanding the drivers of policy decisions – such as the passage of laws, the behavior of political leaders, and the rise of popular movements – in order to anticipate how these can affect the business environment – in short, all the factors that might politically stabilize, or indeed destabilize, a country. Political risk focuses on the incentives and constraints behind political action rather than on the action itself. While economics will tell you whether an indebted government can pay its debts, political risk will focus the attention on whether it will be willing to do so.

Political risk analysis is nothing new for large global investors. However, the significance of any given risk varies depending on the investor. The concerns  of a hedge fund manager are very different from those of a long-term corporate investor. While the former is focused on immediate political developments that will impact tomorrow’s markets – for instance, whether Greece will decide to default on one of its debt repayments – the latter wants to understand deeper political trends such as regulatory dynamics, consumer attitudes, corruption risks, or the integrity of a country’s constitution.

Available here.

Chilton, Milner & Tingley: Public Opposition to Foreign Acquisitions of Domestic Companies – Evidence from the United States and China

Abstract:

The flow of capital across borders is one of the core subjects of International Political Economy research, but there has been little research into the determinants of support for and opposition to inward foreign direct investment (FDI) flows. This is an important oversight because cross border investments are a growing area of international economic activity, and increasingly the subject of important international negotiations. In order to study this topic, we embedded a conjoint experiment in a survey that we fielded in the United States and China. Our experiment asked respondents to evaluate hypothetical acquisitions of domestic companies by foreign firms, and produced several important results. First, Chinese respondents were less opposed to foreign acquisitions of domestic firms than American respondents. Second, reciprocity matters; respondents were consistently more likely to oppose foreign acquisitions when the foreign firm’s home country does not provide reciprocal market access. Third, in both countries, economic factors had a smaller influence on the levels of opposition to foreign acquisitions than non-economic factors.

Available for download here.

McGee (Manhattan Institute): Defined-Contribution Pensions Are Cost-Effective

Executive Summary:

In recent decades, U.S. private-sector employers have increasingly offered retirement benefits through defined-contribution retirement (DC) plans. The share of workers who are offered a retirement plan through their employer and who participate only in a DC plan has increased—from 16 percent in 1979 to 69 percent in 2011. Yet the vast majority of American public-sector workers (75 percent) still earn retirement benefits under a defined-benefit retirement (DB) plan. The relative merits of DC plans and DB plans have long been debated. Many public-sector employers have recently considered placing new employees in a DC plan; but only two states, Michigan and Alaska, as well as a handful of cities, currently use a DC plan as the primary retirement savings vehicle for new employees. When state and local governments have considered adopting a DC plan for new employees, they have encountered significant opposition from organized labor, managers of current public-retirement systems, and the cottage industry of consultants that supports public DB plans. Critics of DC plans argue that DB plans are more cost-effective because the latter deliver higher investment returns and convert retirement savings into annuities. This paper investigates whether such assertions hold up to empirical scrutiny.

Key findings include:

1. DB plans are not structurally more cost-effective than DC plans. Claims of the superior efficiency of DB plans—underpinned by false assumptions and a neglect of pension debt as a significant cost driver—are not supported by empirical evidence.

2. DC plans achieve similar investment returns. Between 1995 and 2012, average estimated ten-year performance differences between DB and DC plans—at the mean, median, 25th, and 75th percentiles—were less than half a percentage point and were generally not statistically significant. Bottom-performing DB plans outperformed bottom-performing DC plans; top-performing DC plans outperformed top-performing DB plans. Since 2000, performance differences have further narrowed.

3. DC plans can—and do—offer annuities. The limited availability of annuities among private-sector DC plans is largely the result of misguided federal regulation discouraging their provision. Nevertheless, a number of private-sector firms provide annuities under their DC plans. And most public-sector employers—which do not face regulation hostile to annuities—provide annuities at favorable prices under their DC plans.

4. Pension debt is a significant cost driver for DB plans. DC plan critics generally ignore the cost of carrying pension debt—one of DB plans’ largest cost drivers—in their DC-DB plan comparisons. For example, carrying a pension debt equal to 10 percent of liabilities would increase annual cost as a percentage of payroll by around 70 percent; carrying a debt equal to 20 percent of liabilities would increase annual cost by around 140 percent.

5. DC plans are a good option for providing retirement security. Most current DC plans include a number of plan features—including well-designed, diversified, professionally managed investment products—that automatically place participants on a secure retirement path. DC plans can also solve many of the political-economy and benefit-design problems associated with DB plans.

Available for download here.