Antonis Adam

Inequality and the import demand function

In this paper we assess the empirical importance of changes in inequality on the demand for imports by examining panel data for 59 developing and developed countries for the 1970-1997 period. We find significant evidence supporting that inequality has a large influence on the demand for imports. Moreover we find that this influence is positive for high-income countries (countries that mainly produce and export high quality varieties of vertically differentiated products) and negative for low-income countries (countries that produce and export low-quality varieties of vertically differentiated products). These findings are explained by developing a model of trade in vertically differentiated products. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

Fiscal Reliance on Tariff Revenues: In Search of a Political Economy Explanation?

One “stylized fact” about trade policy is that trade taxes as a proportion of total tax revenue are inversely related to a countrys economic development, as in countries with poor administrative capabilities trade taxes represent the easiest way for governments to raise revenue (Administrative Capabilities Hypothesis). In this paper we develop an alternative explanation based on political economy considerations: using data from 64 developing countries from 1982 until 1997 we find that the Administrative Capabilities Hypothesis must be complemented with a political economy explanation in order to be able to provide a better account of the relevant empirical evidence.

Self-Containment Achieving Peace in Anarchic Settings

In anarchic settings, potential rivals can be dragged into arms races degenerating in open wars out of mutual suspicion. We propose a novel commitment device for contestants to avoid both arming and fighting. We assume that the military decides the armament levels of a country, while the civilian decides whether to attack a rival country. When these decision-making bodies perfectly communicate, the decision makers are unable to credibly communicate to their foe their willingness not to arm and not to attack, thus implying that war ensues. With imperfect information, however, peace may ensue as countries credibly signal to their rival a more peaceful stance since contestants are more reluctant to enter in an armed confrontation with a potentially understaffed army. Using data on the 1975 to 2001 period, we provide supportive evidence that in countries where the head of the state or the defense minister are military officers, and are therefore better informed of their armies’ fighting preparedness, the likelihood of observing an international conflict is higher.

PENSION FUNDING IN A UNIONIZED ECONOMY

This paper analyzes the effects of pension funding for a small open economy in which wages are subject to bargaining. Using an overlapping-generations framework, we show that a reform away from a Pay-As-You-Go towards a funded pension system will be Pareto improving only if the reform results in a reduction in the steady-state unemployment rate. However, the reduction in the unemployment rate is by no means warranted: although for pension systems which involve a limited amount of intra-generational redistribution this is likely, for systems displaying a high degree of intra-generational redistribution the unemployment rate may well rise thus preventing the realization of welfare gains.

Pension Benefits, Labour Market Institutions, and Unemployment

As argued by Summers et al. and Cigno public old-age pension benefits may work as a wage-moderating device, thereby lessening the distorting effects of labor taxation on unemployment. An implication of this argument is that there should be a negative relationship between the generosity of the pension system and the unemployment rate, for those countries where there is a strong link between individual contributions to the pension system and benefits, i.e. countries with Bismarckian pension systems. We test this hypothesis using a panel of 20 OECD countries for the time period of 1960-2004. The paper also provides evidence on the unemployment effects of various labor market institutions.

Do Democracies Have Higher Current Account Deficits

In this paper we argue that democracies tend to run (larger) current account deficits than autocracies. Our argument is based on the different incentives faced by democratic and autocratic leaders. The main theoretical hypothesis is tested on a dataset of 121 countries over the period 1980–2012, using 5 year averages and a fixed effects panel data model. Special focus is given on the issue of endogeneity by estimating an IV Fixed Effects model. Relying on the idea of the regional waves of democratization and the special role of the Christian Church on the third wave of democratization, we use as instruments of Democracy the level of democracy in neighboring countries and also the share of Christian adherents in each country. Both instruments turn out to be valid determinants of democracy. The empirical findings suggest that autocracies run lower current account deficits than democracies. These results are found to be robust across alternative empirical specifications.