Stuart Landon

Government debt spillovers and creditworthiness in a federation

Estimates are presented for the impact of debt accumulation by the central and subcentral governments of a federation on the creditworthiness of other federation member governments. The estimates, calculated using an ordered probit model and Canadian provincial data, indicate that debt accumulation by the central government has reduced the creditworthiness of indebted provincial governments. Interprovincial debt accumulation effects are negative but relatively small, except for the debt of the largest province, which has a strong positive effect on the creditworthiness of the other provinces. These findings may have implications for other federations and associated jurisdictions, such as the European Union.

The Political Costs of Taxes and Government Spending

The marginal political costs of different types of taxes and government spending, as well as voter preferences over different fiscal variables, are examined using two different specifications for political cost--one based on the probability of incumbent defeat and the other based on the incumbents percentage of the vote. Models associated with these two specifications, in which voting behavior depends on disaggregated taxes and government expenditures, are estimated using data from Canadian provincial elections. The empirical results, which indicate that different types of taxes and expenditures have quite different marginal political costs, have important implications for models that incorporate voter preferences.

High School Enrollment, Minimum Wages and Education Spending

The impact on high school enrollment of minimum wages and different types of education spending is examined empirically using Canadian provincial-level data. Increases in the minimum wage are shown to have a significant negative effect on the enrollment rates of 16- and 17-year-old males and 17-year-old females. The empirical estimates imply that a 50 cent increase in the hourly minimum wage causes a 0.7 percentage point fall in the percent of 16- and 17-year-olds enrolled in school (a decline that, in Ontario, would amount to more than 1,700 students). The results also indicate that lower student-teacher ratios, better paid teachers, more administrative spending, increased spending on instructional supplies, and increases in other school board operating expenditures do not have a systematic effect on enrollment rates.

Energy Prices and Alberta Government Revenue Volatility

Alberta government needs a revamped resource revenue stabilization fund to overcome the effects of wild swings in resource revenue and spending.Energy prices change substantially and unpredictably, causing revenue planning trouble for the Alberta government. Adjusting to these movements typically involves economic, social, and political costs that need to be factored into the government’s fiscal outlook. The best option for handling this is a resource revenue stabilization fund that collects a fixed proportion of resource revenue each year, and funds the provincial budget each year with a fixed share of the fund’s assets.

Does Health-Care Spending Crowd Out Other Provincial Government Expenditures?

Health spending, the largest component of provincial government spending, has risen significantly over the past decade. It has been asserted that larger health expenditures have caused provincial governments to spend less on other types of government services. Using a panel of province-level data for the period 1988/89 to 2003/04, this study provides a test of the hypothesis that health spending has crowded out other types of spending. The results indicate that, for the period studied, there is no evidence that increased provincial government health expenditures resulted in lower levels of spending on other categories of government provided goods and services.

Rule-Based Resource Revenue Stabilization Funds: A Welfare Comparison

Resource prices, and petroleum prices in particular, are volatile and difficult to predict, so government revenue in resource-producing regions is also uncertain and volatile. Adjusting government expenditure in response to these revenue movements involves economic, social and political costs. Many jurisdictions have established rule-based revenue stabilization funds to address revenue volatility, but there is little evidence on whether these funds improve welfare or if some fund designs increase welfare more than others. Using Monte Carlo techniques, we provide a quantitative welfare comparison of several types of rule-based stabilization funds for a petroleum-producing jurisdiction. We find large potential gains from the use of a fund to stabilize revenue, but some fund types reduce welfare, particularly those that accumulate large stocks of assets or debt. A fund that performs well, and is generally robust to changes in the simulation parameters, has a fixed deposit rate out of resource revenue and a fixed withdrawal rate out of assets.

Education costs and institutional structure

Abstract An empirical comparison is made of the impact on disaggregated education costs of three types of education spending control regimes — state-level control of education spending; local school board control of spending with non-overlapping jurisdictions; and local school board control with overlapping jurisdictions. A model is specified which describes the determination of teacher wages, the teacher–student ratio, administrative costs, and other operating costs under each regime. The model is estimated using Canadian provincial-level data and the entire estimated structure of behaviour is allowed to vary across the three regimes. The estimates imply that education costs are regime dependent and that a single proxy variable is unlikely to reflect the differences between regimes. Simulations indicate that centralized state or provincial control of spending leads to the lowest teacher costs. The local control regime with non-overlapping jurisdictions is the most successful at controlling administrative and other operating costs.

Government Revenue Stabilization Funds: Do They Make Us Better Off?

Les recettes que le gouvernement de l’Alberta tire de l’exploitation des ressources naturelles sont très instables, et l’ajustement des dépenses du gouvernement aux variations des revenus implique des coûts sociaux et économiques. Dans cet article, nous montrons, grâce à des simulations, que, si le gouvernement albertain avait créé au début des années 1970 un fonds de stabilisation fondé sur des règles, cela aurait permis de réduire l’instabilité et d’augmenter le bien-être. Tous les types de fonds ne permettent pas d’augmenter le bien-être. Le plus performant est celui où 50 % des recettes de l’exploitation des ressources naturelles sont déposées et dont 25 % des actifs sont retirés chaque année. Par contre, les fonds où sont accumulés de très grandes quantités d’actifs et ceux qui fondent les dépenses sur la simple moyenne mobile des recettes passées entraînent un bien-être inférieur.

Government Deficits and Money Growth

Additional empirical evidence is provided concerning the impact of government financing decisions on monetary expansion in the United States for the post-World War II period. The budget position of the fiscal authority and the rate of money growth set by the Fed are specified as endogenous variables within a system of equations. The empirical analysis generates evidence of a policy shift in the 1980s, with budget deficits exerting no independent influence on high-powered money growth prior to 1981 while, after 1981, such a linkage is found to exist. Copyright 1990 by MIT Press.

Exchange rates and investment good prices: A cross-industry comparison

This paper presents estimates of the impact of exchange rate movements on the industry-level price of investment goods using a panel of OECD countries. An exchange rate depreciation (appreciation) causes a significant rise (fall) in the prices of the investment goods used by most industries, but the magnitude of this effect differs greatly across sectors. A currency depreciation causes a stronger increase in the price of investment goods used by industries that produce high-technology products and employ a larger proportion of imported capital. Hence, movements in the exchange rate may affect the level and distribution of investment across sectors.