Marcello D'Amato

Interest Rate Spreads between Italy and Germany 1995-1997

In this paper the determinants of the long term yield spread between Italian and German government bonds are studied using daily observations for a period 1 January 1995–28 October 1997. Total spread is split into two main factors: an exchange rate factor, that is approximated by a differential on swap contracts (same maturity) and a default risk factor, that is considered as a residual. Cointegration analysis is used to test if the interest rates parity condition holds in the period considered and also the dynamic adjustment of total spread and its components is studied using impulse response analysis. The main result is that an uncovered parity condition cannot be rejected in the sample only if the relationship is augmented by the German short term interest rate. Impulse response analysis shows that this latter variable permanently affects the default risk. The main conclusion is that the reduction of the total spread in the period studied was due both to credibility gains and to favourable dynamics in the German interest rate.

Co-movements of OECD growth cycles

The study is of short-run and long-run co-movements and convergence across 21 OECD real per capita outputs on a sample period spanning 1960 to 1992 using dynamic principal components analysis and coherence analysis. We reject the hypothesis of convergence, but find evidence for long-run growth cycles closely related across countries. In particular, the G5 group exhibits the highest degree of economic integration in the long run. The group of the original members of the Community also exhibits linkages at high and medium frequencies and represents the most homogeneous area in Europe in terms of output dynamics both in the long and short run.

Tax evasion and corruption: endogenous deterrence and the perverse effects of fines

We consider a simple economy where self interested taxpayers have incentives to evade taxes and to escape sanctions by bribing public officials in charge of tax collection. However, tax collectors may be monitored by second-level inspectors whose incentives to exert detection activity are endogenously determined. In this framework, it is shown that the effects of classical deterrence instruments, such as fines, may be perverse; in particular, larger fines for corruption directly reduce corruption and indirectly reduce incentives to monitor it determining, as an overall effect, an increase in the underlying offence, that is tax evasion. Nevertheless, on the normative side, we show that, even if the Government cannot commit to a given level of deterrence, the maximal fine principle still holds.