Syed M. Ahsan

Toward a Theory of Agricultural Insurance

In this paper we develop a theory of crop insurance. We start by reaffirming the risk-spreading role of competitive crop insurance markets. It is argued, however, that once the problems of imperfect information are recognized, a competitive crop insurance market may not exist at all. Two candidates present themselves. First is market insurance with the public sector as a source of (costly) information gathering and dissemination, and second, is the direct provision of crop insurance by the public sector. We focus on the latter and develop a model of public insurance as a decentralized plan where the farmer determines factor utilization taking the insurance contract as given. In turn, the insurance agency, taking factor utilization as determined by the farmer, chooses the optimal contract so as to maximize the value of aggregate output in the economy.

Cointegration and Wagner's hypothesis: time series evidence for Canada

It is argued that Wagners hypothesis is essentially a proposition about the secular comovement of income growth and public spending. Using the Engle and Granger cointegration tests and time series data from Canada, the long-run validity of Wagners hypothesis is maintained.

The Design of a Consumption Tax under Capital Risk

This paper focuses on the design of a consumption tax in a world of capital risk. The certainty literature discusses two standard options, namely the cash flow method and the pre-payment method (i.e., the wage tax), and finds the two approaches to be equivalent. Models that consider capital risk (via asset choice) reach different conclusions. This discrepancy arises in part due to a different choice of the social discount rate. In light of the failure of the discount-rate argument to resolve the issue at hand, we explore the market certainty equivalence of risky government revenue. We let revenue risks stay in the private sector, and examine the market value of the feasible transfer (e.g., in the form of a public good) back to households. We reach three broad conclusions. First, we find that if the state returns to each household its own tax-revenue risks, equivalence will be re-established as in certainty models. Next, we show that if the state engages in intergenerational risk sharing (e.g., through a system of stochastic tax transfers), the wage tax cannot be construed to be a valid pre-payment alternative to the cash flow or a modified wage-tax-ation system. Efficient risk allocation across generations under a cash flow tax (or, one that includes future capital gains as well as wages in the tax base) leads to a Pareto improvement over the simple wage tax. Finally, a major policy implication follows; in order to be practicable, a consumption tax would have to be implemented via registered savings accounts much in the fashion of the Canadian registered retirement savings plans program rather than through the pre-payment route.

The Efficiency Loss of Capital Income Taxation Under Imperfect Loss Offset Provisions

The importance of capital loss offset provisions in a world of risk is well documented in the tax literature. However, the potential deadweight losses owing to imperfect offset has not been fully explored. This article develops a framework, whereby that investigation can be carried out, and uses numerical simulations to investigate the size of potential losses. The results obtained show that welfare losses owing to the absence of offset provisions could be substantial. Under plausible assumptions about attitudes toward risk and time preference, and with a capital income tax rate of 35 percent, over forty-five cents per dollar of tax revenue raised may be dissipated. In contrast, full loss offset may reduce that loss to approximately twelve cents.

Public Expenditure and National Income Causality: Further Evidence on the Role of Omitted Variables*

Whether changes in public expenditure growth help predict changes in national income growth (and/or vice versa) remains an important issue of sustained interest in the empirical public finance literature. In recent years, attention has mainly been confined to two specific areas, namely, estimation of the impact of the public sector on output growth (by means of regression analysis) and causality testing. Unfortunately, the outcome of both types of analysis has been inconclusive. Focussing on the impact studies, we note that a number of empirical investigations have attempted to measure the effect of the size of the public sector on overall economic growth. For instance, Ram [19], utilizing a two-sector model, found that growth of government size has a positive effect on economic growth. Landau [14; 15], however, presented opposite evidence, indicating that the government sector expansion led to a decline in output growth for many DCs and LDCs since 1960. In a recent study, Barth, Keleher and Russek [4] estimated variants of Rams models with data for 30 countries. Their empirical results largely support a negative relationship between the scale of government and aggregate economic activity. Furthermore, using the Hausman procedure, they rejected the hypothesis that the independent variables (namely, real government spending or other measures of the scale of the government, depending on the specification) in the regression equations are exogenous. This strongly suggests that the conclusions reached by

Choice of tax base under uncertainty: Consumption or income?

Abstract This paper compares the efficiency of alternative tax bases in the context of a two-period life-cycle model. Should the objective of tax policy be to encourage social risk-taking, savings, or to maximize welfare, the consumption tax is a clear front runner. This tax also leads to greater expected revenue than an equal expected utility income tax. Further, equal utility (or revenue) rates of consumption tax are practically independent of the degree of risk-aversion, and revenue fluctuations between alternative states of nature turn out to be small.

Taxation in a two-period temporal model of consumption and portfolio allocation

Abstract This paper examines the effects of alternative taxation policies on household consumption and investment decisions under uncertainty in an intertemporal context. Using a simple two-period model, and allowing for wage income as well as risky capital income, it is shown that, apart from the case of a zero rate of return on riskless investment, risk-aversion hypotheses are not sufficient to determine the effects of taxation. However, given the relative magnitudes of the income elasticities of consumption and of the risky asset demand, assumptions regarding the risk-aversion measures allow us to determine these results.

Portfolio selection in a lognormal securities market

ConclusionThis paper, therefore, once again establishes the usefulness of the two parameter distributions in the analysis of portfolio selection and taxation. Assuming a lognormal securities market and a chance-constrained portfolio choice model, we derive the well known results of portfolio separation and the effects of taxation which were earlier obtained under more restrictive mean-variance assumptions.

Micro Health Insurance in Bangladesh: Innovations in Design, Delivery and Distribution Channels

Bangladesh needs to start afresh with innovative means of financing the provision of health care since in its absence the poor end up relying largely on self-insurance devices to mitigate health risks, which entails high implicit premiums. Existing insurance type programmes essentially consist of subsidy-oriented interventions, not necessarily in kind, requiring upfront cash at each stage of service delivery, hence failing to overcome the incidence of high out-of-pocket (OOP) payments, nor do the existing programmes succeed in dealing with events leading to catastrophic payments. Given this vacuum, an innovative micro health insurance (MHI) scheme has been designed keeping in view the targets of adequate risk protection, inclusivity of access, affordability and programme sustainability. The research design embracing the methods of cluster randomised trial allows for identification of direct and indirect effects of MHI on actual OOP incurred by the insured vis-a-vis the non-insured households who are otherwise similar in economic, educational and social dimensions. Such an analysis holds the promise of determining whether MHI type of intervention may eventually lead to large-scale implementation so that quality health care reach the poor en masse thereby contributing to the cause of universal health coverage. Key Words: Micro Health Insurance, Cluster Randomised Trials, Out-of-Pocket Payments, Cost of Risks JEL Classification Code: C83, G21, G22 and I18

Institutions, Integration and Poverty in Eastern Europe and the Former Soviet Union (EEFSU)

At the beginning of the third millennium, underdevelopment and poverty continue to remain critical problems on a global scale. The purpose of this volume is to explore the various ways in which the institutions of the global economy might rise to the challenges posed by the twin goals of increasing the pace of global development and alleviating poverty.