South Asian Journal of Macroeconomics and Public Finance

In many countries, the government provides goods and services that are rival in consumption—essential commodities, such as water, public transportation and basic health care, and merit goods like professional education and tertiary health care. For such goods, the government has to specify allocation rules under which citizens can access them. Affluent citizens often have the incentive and the ability to influence public allocation rules by engaging in allocation contests. This article presents simple models of allocation contests for a divisible essential commodity and an indivisible merit good, and studies contest equilibria and their implications for social outcomes. Given allocation contests over public provision, falling public supply of an essential commodity can have magnified negative impact on social welfare, and raising the reservation quota of a publicly provided merit good for a set of disadvantaged citizens might effectively lower their access to the good.

JEL: C72, D61, H42

Pakistan’s tax revenue remains low relative to comparator countries and the tax effort expected for the country’s level of development. This creates significant challenges in providing the much-desired fiscal space to expand growth-enhancing expenditure on infrastructure, education, health care and targeted social assistance. This article estimates both short-run and long-run elasticities of tax revenue in Pakistan over the period 1960–2015 to better understand the evolution of tax revenue in the context of changing economic activity, using a novel identification strategy based on the instrumental variable (IV) approach and an error correction model (ECM) to address concerns about the potential endogeneity of tax revenue and economic growth. The empirical results indicate that both short-run and long-run elasticities of tax revenue are slightly above 1 over the sample period. There is, however, significant variation in short-run and long-run elasticities across subcategories of tax revenue. These findings underscore the need for a concerted agenda of comprehensive reforms at federal and provincial levels aimed at broadening tax bases, strengthening revenue administration and taxpayer compliance, eliminating distortionary and overgenerous tax concessions and exemptions, and rationalizing tax policy in an efficient and equitable manner.

JEL: C23, C32, E62, H2, H62, H68

A simple macroeconomic model is used to show that the market failure to maintain macroeconomic stability can be due to (a) price rigidity or (b) price flexibility that allows false and abnormal prices to prevail. The macroeconomic literature typically considers the first case only; this article focuses on the second case. Besides the Keynesian fiscal policy, this article considers a Pigouvian tax–subsidy scheme; the latter can be used to correct each false price individually (this use in macroeconomics resembles the more familiar use in public economics). This helps alleviate the scarcity of instruments with policymakers. As in the writings of Keynes, price stability (or rigidity) here is a policy target rather than an assumption in the model. There has been a general need to reconsider macroeconomic models since the Great Recession of 2008; this article contributes in this endeavour.

JEL: E12, E62, H20

This article examines varying macroeconomic impacts of international emigrant remittances in Bangladesh since 1976 by using a vector auto-regression (VAR) framework. Bangladesh has recorded better economic performance during last two decades, 1996–2014, compared to earlier two decades, 1976–1995. The time-series analysis therefore uncovers some transition in the remittance impacts composed of the ‘Dutch Disease’ effect and the capital accumulation effect. The empirical results reveal the existence of the Dutch Disease effect for the first period, 1976–1995, but turned to show the positive impact on capital accumulation for the second period, 1996–2014. We speculate that the recent manufacturing-oriented policies together with institutional improvements have contributed to the transformation in the remittance impact towards a positive direction between two periods.

JEL: F22, F39, O53

This study examines the relationship between fiscal decentralization and economic growth in the case of India using panel data for 14 non-specialized states for the period 1981–2014. The results revealed from panel cointegration, and dynamic ordinary least squares (DOLS) framework indicate that spending decentralization has a positive and significant impact on the state domestic product. On the other hand, revenue decentralization has a negative and significant effect on state domestic product. The overall measure of fiscal decentralization is found positively associated with the state income. This study is consistent with the divergence hypothesis in opposite to convergence hypothesis of Oates (1972).

JEL: E62, H71, H72

Although the countries in the present world are staying away from formal wars like that of the First and the Second World Wars, still there has been persistence of informal wars among countries. The countries are now observed to be investing upon defence items in a larger way. The so-called backward countries are coming in a strong way in terms of increasing defence outlays and trying to catch up with the advanced countries in possessing military items. The present article, thus, tries to study whether the countries are converging in terms of per capita military expenses across a selection of 45 countries for the period 1988–2013. It reveals that there are absolute β and σ convergence among the countries with Kuwait and South Africa as outlier countries. It also observes conditional β convergence among the countries with various resources, particularly, crude oil production, regional dummies and time trend as significant conditional variables.

JEL: H56, O47, C13, O50

Duvvuri Subbarao. Who Moved My Interest Rate? Leading The Reserve Bank of India through Five Turbulent Years. Penguin Books India Private Limited, 2016, pp. xxv + 323, ₹699, ISBN 978-0670088928