J. Stephen Ferris

A Transactions Theory of Trade Credit Use

This paper derives a transactions theory of trade credit use from the motives of trading partners to economize on the joint costs of exchange. In the formal analysis, uncertain delivery time is used to generate a demand by firms to hold inventories of both goods and money. Trade credit is viewed as a mechanism that separates the exchange of money from the uncertainty present in the exchange of goods. By forewarning both trading partners of the timing of money flows, credit permits a reduction in precautionary money holdings and the more effective management of net money accumulations.

Growth in the Real Size of Government Since 1970

From at least 1893 economists have viewed income as an important determinant of government size and the hypothesis that government size increases with income is now enshrined in the literature as Wagner’s Law. More recently, however, public choice economists and growth theorists have tended to reverse that causality by questioning whether government size is a constraint on (or promulgator of) economic growth. Typically, increases in government size arising from increased consumption are viewed as constraints on growth, while increases in size that arise from government investment are viewed as positive in their effect on growth. In this paper we are concerned with the two-way interrelationship between government size and income growth highlighted by these separate literatures and investigate this relationship in three distinct stages. In the first part of the paper we set out what has actually happened to the real size of government for twenty OECD countries over the period since 1970 and survey some of the newer factors and approaches used to explain its more recent evolution. The second part re-estimates the parameters of the demand curve for government allows us to speculate whether the changing pattern of government growth represents a break in the structure of the model determining government size or, more simply, represents a change in the variation of the underlying variables. We find that the same model works at least as well as it did in earlier periods with coefficients that are close to their earlier estimates. We follow this by estimating a simple growth model that highlights the size of government consumption in relation to income and output growth for the same countries over the same time period. Increases in size do appear to constrain economic growth. The third part of our paper recognizes that while each of the two causal relationships has received considerable attention in their own right, less attention has been given to effecting a separation of their co-mingled effects. To do so, we estimate the two relationships simultaneously in the context of our panel. This allows us assess whether ignoring the simultaneity of the two-way relationship seriously biases the measure of either the income effect (in determining government size) and/or the measure of government’s effect on economic growth when each are estimated separately. While our discussion suggests that single equation estimates of the income elasticity in Wagner’s Law may have been biased upwards (in absolute terms) and the constraining effect of government size on growth biased downwards, our three stage estimates finds only modest support in the data. The paper concludes by exploring the interrelationship between government size and government regulation. In particular, we test the hypothesis that the appearance of slower growth in government side is due to the increased substitution of indirect control of private production for direct governmental output. On cross sectional data, we find the opposite. In our sample, larger government size is associated with more rather than less regulation.

What Determines the Length of a Typical Canadian Parliamentary Government

In this paper we examine the length of political tenure in Canadian federally elected parliamentary governments since 1867. Using data on tenure length, we categorize the distribution of governing tenures in terms of a hazard function--the probability that an election will arise in each year, given that an election has not yet been called. We then ask whether that distribution responds in a systematic way to characteristics of the political and/or economic environment. Our particular focus is on whether there is evidence of electoral timing and whether governing parties have used economy policy in conjunction with federal elections. Finally we investigate whether partisan effects emerge. The results suggest that, independent of party affiliation, governing parties do engage in election timing. The data also suggest that election calls coincide with periods of monetary expansion and more with tax decreases than with expenditure increases, supporting the Persson and Tabellini (2003) hypothesis that under parliamentary systems, it is tax cuts (rather than expenditure increases) that will be most closely associated with elections. Unlike the case in other parliamentary systems, however, Canadian data also support the hypothesis that tough measures (expenditure cuts) are postponed until after elections.

On the economics of regulated early closing hours: some evidence from Canada

In many countries such as Australia, Canada and Britain, the hours of daily retail operation are controlled through the political process. This paper tests one hypothesis for why regulation is adopted. The hypothesis is that early closing hours are a low cost institutional response to net social costs that can arise when time is used competitively to redistribute customers spatially. Competition produces this result when storess marginal customers value longer shopping hours more highly than the average customer. Evidence is presented on the characteristics of 45 Ontario cities that had the choice of whether or not to adopt early closing hours and logit analysis is used to test the models predictions. The estimates of the probability of choosing early closing hours are then used to test the models prediction on store density. In general, the evidence is consistent with the hypothesis that municipal control over shopping hours in Ontario is appropriate.

Quantifying Non-Tariff Trade Barriers: What Difference Did 9/11 Make to Canadian Cross-Border Shopping?

Dans cet article, je quantifie l’effet du resserrement des mesures de sécurité mises en place après le 11 septembre 2001 sur le volume de magasinage outre-frontière fait par les Canadiens aux États-Unis. Les résultats, obtenus grâce à une version étendue du modèle de magasinage outre-frontière de Ferris (2000), suggèrent que, après le 11 septembre 2001, le nombre de Canadiens se rendant aux États-Unis pour une journée a diminué, et que cette baisse, chaque mois, est de 300 000 à 600 000 visiteurs, ce qui représente environ le quart du nombre observé avant le resserrement des mesures de sécurité.

Private Versus Public Charity: Reassessing Crowding Out from the Supply Side

This paper tests a model where governmentand private charity are perfect substitutesin consumption, but the cost of providingcharitable assistance differs betweenprivate and government suppliers. Theanalysis demonstrates that higher costs oftransferring through the government canaccount for the observed phenomenon of lessthan complete crowding out and theempirical results are broadly consistentwith that approach. Overall the evidenceis consistent with the hypothesis thatindividuals both care about the leakagesinvolved in transferring funds to the poorthrough government and respond in theirprivate giving to changes in thedifferential public cost.

The cost disease and government growth: Qualifications to Baumol

Changes in real world wage movements across sectors account for about a third of the rise in the cost of U.S. government services between 1959 and 1989, while relatively slower productivity in the public sector accounts for the remaining two-thirds. Even though it is slower, however, the productivity record still is positive even in the labor intensive government sector. Consequently Baumol argues that the publics likely future objection to necessary increases in the share of expenditures over the next 50 years will betray a fiscal illusion unless policymakers take pains to dissolve it. But slower productivity may be equally due to the structural organization. Removing public monopolies, reducing bureaucracies, and undertaking privatization in education for example, are other policy options that could radically change the productivity record. Meanwhile in his recent calculations of dramatic government expenditure increases expected in the next half century, Baumol omits reference to the marginal welfare cost of public funds, which on our estimates, will increase at least ten times to reach 1.71 by the year 2040.

Just How Much Bigger is Government in Canada? A Comparative Analysis of the Size and Structure of the Public Sectors in Canada and the United States, 1929-2004

We compare the size and structure of the public sectors of Canada and the United States from 1929 to 2004 using national accounting and employment data. The challenge of defining the public sector for comparative purposes is explored and illustrated, especially with respect to the treatment of non-profits, and a number of intriguing similarities and differences in the comparative evolution of the public sectors are identified that remain to be explained. Use of a new Fisher-type government deflator for Canada indicates that, as of 2003, real government spending relative to real income was about 27 percent of Gross Domestic Product (GDP) in both countries.

Education Vouchers, the Peer Group Problem, and the Question of Dropouts

This paper extends the analysis of, who argue that vouchers encourage private schools to “skim the cream off” public schools. Because the education received by students depends on the quality of their classmates, this loss reduces the quality of education received by those remaining in the public system—the peer group effect. In our model, vouchers allow low-income students to escape the frustration of having to conform to the uniformity of the public school system. Ultimately, the size of the dropout effect relative to the peer group effect is an empirical question. Nevertheless, to the extent that voucher use reduces the student dropout rate, the peer group externality becomes insufficient in itself to prevent reconsideration of a voucher system on equity as well as efficiency grounds.

Cost Disease versus Leviathan Explanations of Rising Government Cost: An Empirical Investigation

In this paper we reexamine the apparently conflicting empirics of Borcherding et al. (1977) versus those of Barry and Lowery (1984). The latter, designed to test the cost disease versus bureau voting power hypotheses on US Citibase annual data between 1947 to 1979, was retested for the longer period available through 1989. Second, and more importantly, we isolate and test for the presence of a second channel for the exercise of bureaucratic power. That channel is the bureaus ability to use its information advantage to capture a portion of newly generated government rents through higher personal benefits (such as higher salaries). Such an analysis (following West, 1991) requires first that those factors generating new rents for government actually result in successful bureaucratic rent-seeking in the form of higher compensation levels. In addition, the analysis requires that these “artificial” increases in bureaucratic wages show up as significant determinants of the higher cost of providing government services. Incorporating a constructed Kau/Rubin variable into the Barry and Lowery database is then shown to improve the predictive power of both the cost disease and bureaucratic power hypotheses for US annual data between 1948 and 1989.