Pradeep K. Mitra

A theory of interlinked rural transactions

This paper argues that the interlinking of labor, output, and credit contracts often observed in rural economies can be regarded as an attempt to improve allocative efficiency in the face of moral hazard. It advances an economic explanation of the phenomenon which is rooted in the view that prevalent modes of transaction, of which interlinked contracts are an example, are shaped by technological considerations. Interlinking is shown to be an efficient economic response to unequally distributed information arising from the uncertainty which characterizes subsistence agriculture. All Pareto-efficient allocations require a combination of wage-cum-output sharing with consumption credit contracts. The analytical framework set up to demonstrate the results is used to examine the response of the contractual parameters to changes in: (i) the returns to alternative occupations available to tenant/laborers; (ii) the cost of credit to the village economy; and (iii) the riskiness of cultivation. The analysis concludes that public policy to alleviate rural poverty must recognize the relationships between technological considerations and modes of transaction in the absence of a complete set of markets.

Distributional and revenue raising arguments for tariffs

This paper presents and analyses distributional and revenue raising arguments in favor of tariffs and other trade taxes. It shows that such an argument depends crucially on the domestic tax powers that are available to the government. Conditions that must be satisfied by optimal tariffs are obtained and interpreted. These conditions are then applied to a simplified model in order to gain greater insight into the determinants of the optimal tariffs. Finally, the arguments are illustrated by some numerical examples which show that these tariffs can be far from negligible, and demonstrate their sensitivity to various parameter changes.

Restricted redistributive taxation, shadow prices and trade policy

Abstract This paper reports on the use of an algorithm to compute optimal policies in the areas of commodity taxation, international trade and public shadow pricing for a government which is interested in redistributing income but has limited powers of taxation. The algorithm is applied to selected LDC data using a highly simplified general equilibrium model. Some insight into the relationships between constraints on taxation and other areas of government policy is provided by analyzing models where domestic tax restrictions can make inefficient public production or tariffs on international trade desirable.

Tariff design and reform in a revenue-constrained economy: Theory and an illustration from India

Abstract This paper develops the theory of design and reform of protective tariffs in a revenue-constrained small open economy characterized by learning-by-doing. It shows that revenue-raising requires wedges between consumer prices and shadow prices while protection, when typically not achievable via subsidies directly targeted towards factor market distortions, requires wedges between producer prices and shadow prices. Illustrative calculations in a modestly disaggregated general equilibrium model of India support the view that uniformity in protective tariffs is likely to be a reasonably good policy in situations where the government intends no discrimination within the sectors already identified for special treatment.

Optimal taxation and public production in an open dual economy

Abstract This paper analyses the determinants of optimal tax policy, trade policy and shadow prices for cost-benefit analysis in a dual economy. It breaks new ground by combining in one model the tax and public investment policies considered in the public economics literature with the notion of labor market imperfection central to contributions on the dual economy. Optimal policies are first derived analytically, providing rules for organizing production, setting taxes and off-setting labor market distortions. Production efficiency is shown to obtain for the taxable part of the economy, a generalized Ramsey rule derived for producing-cumconsuming households in the directly non-taxable sector of the economy and new characterizations of optimal rural-urban migration established in the presence of distortionary taxation. A simple general equilibrium model is then numerically implemented on data for a particular developing country. The optimal policies analytically derived before are computed in the model under alternative assumptions about government revenue requirements, the degree to which different sectors of the economy are directly taxable, the nature of property rights and technological substitution possibilities. The results of these computations provide further insight into the theoretical results as well as clarifying their quantitative significance.

The Computation of Optimum Linear Taxation

The equitable sharing of the benefits arising from planned development is a subject of lively contemporary debate. One of the tasks being carried out by the System and Decision Sciences Area of the International Institute for Applied Systems Analysis (IIASA) concerns the treatment of planning and redustribution problems in ways that can provide some guidance to decision makers in the formulation of economic policy. This report examines the first part of a study undertaken to assess the redistributive leverage provided by different instruments of planning. It is devoted specifically to the analysis and computation of optimal redistributive policies in small, general equilibrium models of economic planning.

Convergence in institutions and market outcomes: cross-country and time-series evidence from the business environment and enterprise performance surveys in transition economies

This paper uses firm-level data from the Business Environment and Enterprise Performance Surveys to study the process of convergence of transition countries with developed market economies. The study focuses on competition and market structure, finance and the structure of lending to firms, and how firms respond to the economic environment by restructuring. The authors find substantial evidence of convergence in a number of dimensions. The pattern of growth at the country, sector, and firm levels shows rapid growth of the new private sector and of the micro and small-firm sectors, with the size distribution of firms moving toward the pattern observed in the surveys of developed market economies. In finance, increasing reliance on retained earnings in transition countries reflects a maturation of the sector as new firms come to rely less on informal and family sources of finance. The authors find evidence of an inverse-U pattern, with the peak of restructuring activity taking place in 2002, the middle of the period analyzed. Throughout, the regional patterns suggest greater convergence in the transition countries that joined the European Union in 2004 than in the other, lower-income transition economies.

Convergence in Institutions and Market Outcomes: Cross-Country and Time-Series Evidence from the Beeps Surveys in Transition Economies

This paper uses the BEEPS firm-level data to study the process of convergence of transition countries with developed market economies. The primary focus of the study is on competition and market structure, finance and the structure of lending to firms, and how firms respond to the economic environment by restructuring; we are able to do this because the BEEPS cover thousands of firms from virtually all transition countries over a long time period (1996-99 through 2002-05), as well firms from developed market economies, thus providing a set of natural benchmarks. We find substantial evidence of convergence of transition countries with developed market economies in a number of dimensions. The pattern of growth at the country, sectoral and firm level shows rapid growth of the new private sector and of the micro- and small-firm sectors, with the size distribution of firms moving towards the pattern observed in the BEEPS surveys of developed market economies. Our interpretation of the evidence on competition is that there is an initial move by firms into niches to exploit local market power, and later in transition entry and domestic competitive pressure increases. In finance, the increasing reliance on retained earnings in transition countries reflects a maturation of the sector as new firms come to rely less on informal and family sources of finance. The scale of restructuring and innovation activity is as high or higher in transition economies as in developed market economies. Interestingly, we find evidence of an inverse-U shape pattern, with the peak of restructuring activity taking place in 2002, the middle of the period analyzed. Throughout, the regional patterns suggest greater convergence in the transition countries that joined the European Union in 2004 than in the other, lower-income transition economies.

Labor reallocation and firm growth: benchmarking transition countries against mature market economies

This paper uses firm-level survey data to study labor reallocation and firm growth in the transition countries over 1996–2005, including benchmarking against developed market economies. The data shows rapid growth of the new private sector and of the micro- and small-firm sectors, with the size distribution of firms moving towards the pattern observed in comparable surveys of developed market economies. Throughout, the regional patterns suggest greater convergence in the transition countries that joined the European Union in 2004 than in the other, lower-income transition economies. We also find evidence of Kuznet-Chenery type structural change across sectors.JEL codesL11, O12, P31.

Commodity taxation with administered and free market prices: theory and an application to China

Abstract This paper analyses commodity taxes in an economy where some production is centrally planned, and subject to price controls, and some is market determined. It shows that backward shifting of taxes can lead to significant distributional effects, and demonstrates how these lead to the modification of tax rules. The implications of these modifications are analysed using a numerical model based on Chinese data. Significant non-uniformity of tax rates is shown to be desirable in a case where standard tax rules imply uniformity. The sensitivity of optimal taxes to concern for inequality, revenue requirements and food rations are also demonstrated.