Copyright (c) 2008 All rights reserved. http://works.bepress.com/josetavares Recent documents in José Tavares en-us Thu, 03 Jan 2008 06:00:52 PST 3600 http://works.bepress.com/josetavares/25 http://works.bepress.com/josetavares/25 Fri, 28 Sep 2007 15:07:11 PDT State elections in Brazil are an excellent laboratory to test the fiscal preferences of voters in new democracies. Brazil is a developing economy with a history of large budget deficits at the federal and state level, with a established democracy since the late 1980´s, mandatory vote and considerable social and economic diversity. In addition, in 1998 Brazil has undertaken substantial reforms increasing fiscal responsibility at the state level that substantially altered the incentives to run deficits. This paper uses the experience of state level elections in Brazil in the period from 1990 to 2002. We identify a change in politicians´ behavior in the term before the 2002 elections and present evidence that this change is mostly due to a series of institutional reforms that hardened budget constraints. Our results show that, despite the prevalence deficits, the governors did not increase their reelection prospects by running larger deficits. Moreover, after the fiscal reforms, fiscal deficits turn almost immediately to surpluses while the probability of an incumbent being reelected increased. We conclude that voters in Brazil behave much like their counterparts in older democracies, showing evidence of fiscal conservatism. Brazilian voters needed neither more experience with democratic elections nor better information to reward fiscally conservative politicians. Paulo Arvate Fiscal Policy http://works.bepress.com/josetavares/24 http://works.bepress.com/josetavares/24 Fri, 28 Sep 2007 15:05:08 PDT Francisca Guedes de Oliveira Institutions and Economic Growth http://works.bepress.com/josetavares/23 http://works.bepress.com/josetavares/23 Fri, 28 Sep 2007 15:03:50 PDT Political factors have been put forward as explanations for business cycles since the 1970's. Opportunistic and partisan political parties have been introduced in political business cycle models and the behavior of both types of parties was shown to induce business cycles. Most of those models look at the expenditure or revenue side of government budgets as a whole. We consider the decomposition of government budgets into their main fiscal categories and explore whether partisan differences are important in explaining the different levels (as shares of GDP) of those fiscal categories across countries. Our database comprises most OECD countries ranging from 1970 to 1999. We show that left-wing governments tend to expend more money in all categories but total consumption, non-wage consumption and investment, whereas in the revenue side, left-wing governments tend to collect bigger total amounts with positive and strongly significant effects on social security and other taxes. These results are robust to the use of different ideology indicators. José Tavares Fiscal Policy http://works.bepress.com/josetavares/22 http://works.bepress.com/josetavares/22 Fri, 28 Sep 2007 15:00:53 PDT Probably, and unfortunately also for the worst reasons, terrorism will be high on the political agenda for years to come. Understanding the motivations of terrorists and terrorist groups and diminishing the occurrence and the effects of violence must be a key element in the response to terrorism. This paper puts forward a broad survey of the economic literature on terrorism, organized in seven different topics: we identify what we think we know, we highlight the key issues that remain to be answered and the data that might illuminate this research effort. Fernanda Llussá Institutions and Economic Growth Natural Disasters, Terrorism and Economic Performance http://works.bepress.com/josetavares/21 http://works.bepress.com/josetavares/21 Fri, 28 Sep 2007 14:59:14 PDT We analyze the effect of taxes and government spending on quarterly market returns of stocks, government bonds, and corporate bonds. In US data from 1960 to 2000, a one standard deviation increase in the share of tax receipts in GDP has a statistically and economically significant effect on returns, lowering annualized expected returns by 4% and 9% at quarterly and yearly horizons, respectively. Interestingly, the impact of taxes is quantitatively similar for stock and bond returns. These results can partly be explained by the high persistence of taxes so that increases today imply permanently higher tax levels in the future. An increase in government spending has a positive impact on expected returns, but the effect is statistically significant only for bonds at short horizons. Our findings represent a novel test of Ricardian Equivalence using market returns. Fiscal policy shocks account for 3-4% of the variation in unexpected stock returns and 8-10% of the variation in unexpected bond returns. When fiscal and monetary policy are jointly identified, our results remain qualitatively unchanged and the quantitative results are only reinforced. More importantly, we find that fiscal policy is at least as important a source of return variability as is the policy of the Federal Reserve. The findings are surprisingly robust to various system specifications, such as cointegration assumptions and variable choice. Our results strongly suggest that fiscal policy shocks should be given more serious consideration in asset pricing. José Tavares Asset Returns Fiscal Policy http://works.bepress.com/josetavares/20 http://works.bepress.com/josetavares/20 Fri, 28 Sep 2007 14:56:05 PDT The increase in income per capita is accompanied, in virtually all countries, by two changes in the structure of the economy: an increase in the share of government spending in GDP and an increase in female labor force participation. This paper suggests that the changes in female labor force participation and government size are not just coincident in time, they are causally related. We develop a growth model with endogenous fertility, labor force participation and government size to illustrate this causal link. When government consumption and/or subsidies decrease the cost of performing household chores - including, but not limited to child rearing and child care - an increase in the female market wage leads to an increase in labor force participation by women and a demand for higher government spending. As women make the decision to work outside the home, they increase their demand for services typically provided by the government, such as education and health care, which, in turn, decrease the cost of home and family activities that are overwhelmingly performed by women. We show, for a wide cross-section of developed and developing countries, that higher female participation rates in the labor market are positively associated with larger governments. We investigate the causal link by instrumenting for female labor force participation with the prevalence of contraceptive methods and the relative price of household appliances. Female labor force participation is found to cause an increase in government size, with a 10 percent rise in the former leading to a 6.5 to 9 percent rise in the latter. This effect is stronger for government consumption than for government subsidies and is robust to the country sample, time period, and a set of controls in the spirit of Rodrik (1998). Tiago Cavalcanti Female Labor Force Participation and the Macroeconomy http://works.bepress.com/josetavares/19 http://works.bepress.com/josetavares/19 Fri, 28 Sep 2007 03:35:13 PDT Fátima Monteiro http://works.bepress.com/josetavares/18 http://works.bepress.com/josetavares/18 Fri, 28 Sep 2007 03:31:46 PDT Francisco Veloso http://works.bepress.com/josetavares/17 http://works.bepress.com/josetavares/17 Fri, 28 Sep 2007 03:30:07 PDT The economics literature provides ample evidence that higher corruption levels discourage FDI inflows. In this paper we address, for the first time, the exact reverse link, i.e., the empirical effect of higher FDI inflows on corruption. Our dataset covers a wide set of countries in the period between 1980 and 2000 and we confront the issue of causality by constructing a new set of instrumental variables that rely on geographical and cultural distance between FDI emitting and receiving countries. FDI as a share of GDP significantly decreases country corruption and the quantitative impact is stronger when we instrument for FDI. The results are extremely robust to the inclusion of other determinants of openness such as trade intensity and average tariff level and the impact of FDI on corruption is of the same order of magnitude as that on per capita income. Felipe Larraìn B. Causes and Consequences of Openness http://works.bepress.com/josetavares/16 http://works.bepress.com/josetavares/16 Fri, 28 Sep 2007 03:28:36 PDT From 1980 to 1990 Portugal experienced a generalized liberalization of economic activity, due in large part to its 1986 integration in the European Union. This paper studies the changes in the Portuguese distribution of household income and expenditure during this period, using micro-data on household budgets and applying recent developments in statistical inference for Lorenz curves. We find a significant increase in six measures of welfare and an unambiguous decrease in the inequality of the respective distributions. Different explanations for the findings of decreased inequality are discussed. Miguel Gouveia Income Distribution