No. 331

April 2003

Vol LXXXIII

ISSN 0019-5170

 

The Indian Journal of
Economics
 

University of Allahabad

Contents


 

 Tax Evasion, Domestic Output and Tax Collections A Further Examination of the Rickett & Approach

TA!-YUNG KAM
 

This paper incorporates firms' tax evasion with the model of Ricketts [1984] and investigates the effect of tax evasion on domestic output and tax collects through two channels: individual consumption expansion due to higher disposable income and firms investment expenditure increment as a result of lower input costs. The results indicate that a rise in tax evasion is not necessarily associated with a higher level of domestic output, and may actually lead to higher total tax collection.

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  The Money Supply Process in Bangladesh: An Error-Correction Approach

M. KABIR HASSAN, MUHAMMAD MUSTAFA AND SVED ABUL BASHER
 

In this paper we examine both long-term and short-term dynamic relationships among money supply and its components for Bangladesh economy within an Engle-Granger error-correction framework. Using 24 years of annual data on money and its components, our results suggest that MI and M2 money supply have very predictable long-run relation- ships with its components. Moreover, MI money supply has short-run relationship with its components but no short-term relationships exist among M2 and its components indicating the absence of a developed money market operation in Bangladesh. Finally, the choice between monetary targeting and inflation targeting is also discussed.

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   The Impact of Government Size on Economic Growth in Botswana

IMOGEN MOGOTSI AND CHRISTOPHER MUPIMPILA
 

This study analyses whether or not the fast growth in the size of the government sector in Botswana was a stimulus to economic growth; in particular, whether it continued to be a stimulus, or it later became an impediment to Botswana's economic growth. The study employs two methods to gauge the impact of government size on economic growth. First, it utilizes the conventional approach, which is a variant of the famous Slow growth model. Secondly, the study employs a novel approach, which allows for intersectoral productivity differential between the government and non-government sectors, The new approach also explicitly models the externality effect of government size, Furthermore, in both methods of a structural break is included by means of an interactive dummy variable to determine whether or not the role of the government sector remains the same or changes over time. These methods are estimated with data for Botswana for the period 1976-98.
The results show that up to 1995, the government sector, as measured by government development expenditure, has a positive externality on the non-government sector. However, after 1995, the impact of the government sector is negative. These results support the view held by some economists that the government sector is a necessary catalyst in fostering economic growth in the initial stages of the growth and development of a country. Eventually, 'however, the government sector becomes an impediment to economic growth because big government starts to crowd out the private sector.

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  An Empirical Validity of Monetary Model of Exchange Rate Behaviour

K. SHAM BHAT AND R. RAJENDRAN
 

The study investigated the empirical validity of the monetary model of exchange rate determination for Indian rupee, Pound Sterling and Yen in terms of US dollar. The necessary monthly information were collected from the International Financial Statistics for the year 1975 : 10 to 1998: 05. The model doubts the role of monetary variable viz., money supply, interest rate and Index of Industrial Production on the nominal exchange rate of the selected currencies in the short run. The model proves that the exchange rates are not determined by purely monetary factors. Besides economic liberalization did not alter the results of variability of exchange rate determination under monetary model framework of the selected countries' currencies. Hence the study provides scope for developing a comprehensive structural model by incorporating other fundamental variables like trade balance, reserve position, government's fiscal deficit as percentage to GDP, public debt position etc., to judge the value and direction of exchange rate movements.

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 Miltor Transactions Under Capital Regulation and Deposit Insurance

JYH-HORNG LIN AND YIN-CHIEH HSU
 

We use an option-based valuation to examine mirror transactions of loan profolio swaps between a parent bank and its structured derivative product company (DPC). The transactions are governed by capital regulation and deposit insurance. We model the risk premium compensation on the parent bank's loan portfolio swaps that reflect the magnitude of potential default risk of its structured DPC. We show that under strategic complements, the parent's optimal non-swap-performing and swap-performing loan rates are a decreasing function of the defaulting of the DPC's collateral and capital-to-deposits ratio, and an increasing function of the DPC's customer bank's loan rate and deposit insurance premium.

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  Government Debts: An Empirical Study on Taiwan Government Revenues and Expenditures

TIFFANY HUI-K&ANG Yu
 

Government debts are directly relevant to government revenues and expenditures. The relationship between government revenues and expenditures has long been an interesting topic for research. Some studies supported tax-spend, some supported spend-tax, some believed fiscal synchronization, and others regard that is irrelevant. This study uses Taiwan quarterly data from 1981 to 1999 to examine the debate on the temporal relationship between government revenues and expenditures. The government revenues grow at the growth of GDP, while the size of expenditures is result of a requirement to conform to a budget constraint. The new government in Taiwan faces the challenges in balancing the deficit and realizing campaign promises. Government cut down the expenditure in order to reach a balanced budget.

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 The Heavily indebted Poor Countries initiative: Prospects and Concerns for Ghana

J. V. MENSAH AND F. ENU-KWESI
 

Despite almost two decades of implementing the structural adjustment program (SAP) of the World Bank and International Monetary Fund (IMF), Ghana's economy is characterized by high inflation, heavy debt burden, mass unemployment and vulnerability to external shocks. These problems compelled the government to announce its intention to join the HIPC initiative in March 200 I. The decision has engendered a lot of 4ebates and speculations. The main argument used by supporters of the decision is that the current economic problems of the country provide little room for running the economy without adopting the initiative. On the other hand, the opponents are skeptical about the potency of the initiative in solving the country's economic woes. This paper contributes to the debate by examining the prospects and concerns facing Ghana for joining the HIPC initiative. It starts with a brief discussion of antecedent factors, the eligibility characteristics, and the conditions associated with joining the initiative. Further discussion concentrate on the possible benefits and losses and prospects for the economy. It finally argues that since the initiative only provides a short-term relief, the nation needs real economic reforms that address its fundamental problems.

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 Stemming the Wave of Distress in the Nigerian Banking Industry

G. O. YOMERE AND PRINCE F. IZEDONMI
 

The banking industry in Nigeria is currently experiencing a crisis of confidence that has resulted in some banks being liquidated while some others have been taken over by the Central Bank of Nigeria (CBN). 'The situation is of serious concern to the entire economic system, particularly considering the significance of the banking industry to a nation's economic growth. How can this trend be stopped? This is the focus of this paper.
To accomplish this task, we gathered data and information from some randomly selected banks through the instrument of questionnaire coupled with personal discussion with staff of the Research Department of Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), and the Nigerian Stock Exchange (NSE). Our analysis of these date gave us a clear insight of the factors responsible for the current wave of distress in the banking sector. Based on our findings, we have made suggestions that may help to restore confidence in the banning sector.

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 An Appraisal of the Theory of the Consumer Behaviour

SUHASINI PARASHAR
 

In the changing scenario of market (limited monopolistic competitive structure) due to globalization, the focus has been shifted from the determination of the consumer behaviour with respect to utility function to that with reference to economical (budget construction) as well as non-economical or environmental (tastes, preference of self, other family members, social interest (welfare), global interest [meta-welfare (welfare of welfare)] etc. Thus the behaviour of the consumer effected by the income, nature of product and market structure becomes more sensitive issue to be discussed. The purpose of the paper is to discuss the current state as well as developmental status of the theory of the consumer behaviour with "empirical/justification of the situation. The study shows that the behaviour of the consumer can be determined by the situational as well as institutional/organisational considerations with empirical justification of the situation. The maximization of satisfaction hypothesis-based on fact of life self interest-developed under the changing institutional or conceptual framework by adopting behavioural assumptions (such as law of diminishing marginal utility, law of diminishing marginal rate of substitution) suitable to the empirical situation. It leads the theory of the consumer behaviour towards empirical justification of the situation which is relevant to self-interest, social interest and global interest and, showing revolution which is scientific-where new heuristic rules are required.

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 Impact of Economic Liberalization on Employment in India

G. C. TRiPATHl AND S. K. MISHRA
 

With the advent of neo-liberal ideas, old economic philosophies have been replaced by the new one. India has also introduced the process of stabilization and structural adjustment. Since the introduction of reform process it has been hotly discussed about its effect on various areas' of economy, specially about the effect of economic reforms on poverty and unemployment. Present study tries to see the effect of reform process on unemployment scenario. Study by using the secondary data finds that opposition of reform process does not hold ground. As generally assumed overall unemployment situation has not deteriorated, in fact, it has improved.

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University of Allahabad