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371. The Case against a Carbon Tax

Author:
Robert P. Murphy, Patrick J. Michaels, and Paul "Chip" Knappenberger
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
A vigorous campaign aimed at American policymakers and the general public has tried to create the perception that a federal carbon tax (or similar type of “carbon price”) is a crucial element in the urgently needed response to climate change. Within conservative and libertarian circles, a small but vocal group of academics, analysts, and political officials are claiming that a revenue-neutral carbon tax swap could even deliver a “double dividend” — meaning that the conventional economy would be spurred in addition to any climate benefits. The present study details several serious problems with these claims. The actual economics of climate change — as summarized in the peer-reviewed literature as well as the U.N. and Obama Administration reports — reveal that the case for a U.S. carbon tax is weaker than the public has been told.
Topic:
Climate Change, Economics, Energy Policy, and Politics
Political Geography:
Global Focus

372. A Tale of Two Villages: Kinship Networks and Political Preference Change in Rural India

Author:
Neelanjan Sircar
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
This paper develops a theory on how voters form and change political preferences in democratic developing world contexts. In the developing world, where state institutions are often weak, voters tend to be more focused on the competence and capacity of parties and candidates to deliver benefits. Such information may be difficult to ascertain, so voters must glean information from how candidates conduct themselves during the electoral campaign. Voters use kinship networks to develop more accurate preferences by collectively reasoning through newly available information on candidates. In order to demonstrate these claims, this study analyzes data collected on political preferences and kinship networks in two villages just before and after the campaign period during the 2011 Assembly election in the Indian state of West Bengal. The paper finds very strong kinship network effects on changes in issue preferences and vote choice over the course of the campaign and explains the results through qualitative work and a series of network autoregressive statistical models. In sum, this paper demonstrates how voters develop independent preferences and implement political change, even in low information contexts with weak human capital.
Topic:
Democratization, Politics, Self Determination, and Elections
Political Geography:
India

373. Whose Side Are You On? Identifying the Distributive Preferences of Local Politicians in India

Author:
Mark Schneider and Neelanjan Sircar
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The literature on decentralized public programs suggests that errors in the targeting of anti-poverty programs are rooted in the capture of these programs by local elites or local politicians. Consistent with the literature on moral economy in political science and experimental economics, we argue that voters in contexts of rural poverty prefer local leaders who target subsistence benefits to the poor. In a high information village context, where voters and leaders know each other, we argue that local elections lead to the selection of local leaders with pro-poor preferences over the distribution of these benefits. We show this with a novel theory of local politicians’ social preferences. We test our theory with unique data from a behavioral measure, conducted in the context of a lottery with a modest cash prize in rural India, that captures a scenario in which local leaders have full discretion and anonymity over allocation among members of their rural communities. We analyze our data using a novel estimation strategy that takes the characteristics of the pool of potential beneficiaries into account in decisions over allocation under a budget constraint. We find that local leaders have strong preferences for targeting the poor, and particularly those they believe supported them politically in the past. This article suggests that free and fair elections at the local level can powerfully encourage pro-poor targeting even in contexts of weak institutions and pervasive poverty. It also makes a fundamental contribution to research on distributive politics by challenging research in this area to demonstrate the effect of electoral strategies and other distortions on allocation relative to local leaders’ baseline distributive preferences.
Topic:
Democratization, Economics, Politics, Political Theory, and Elections
Political Geography:
India

374. Deploying Combined Teams: Lessons Learned from Operational Partnerships in UN Peacekeeping

Author:
Donald C.F. Daniel, Paul D. Williams, and Adam C. Smith
Publication Date:
08-2015
Content Type:
Working Paper
Abstract:
Only fifteen United Nations’ member states provide more than 60 percent of the 104,000 UN uniformed personnel deployed worldwide. How can a more equitable sharing of the global peacekeeping burden be produced that generates new capabilities for UN operations? Operational partnerships are one potentially useful mechanism to further this agenda. They are partnerships that occur when military units from two or more countries combine to deploy as part of a peacekeeping operation. This report assesses the major benefits and challenges of these partnerships for UN peace operations at both the political and operational levels.
Topic:
Conflict Resolution, Politics, United Nations, and Peacekeeping
Political Geography:
Global Focus

375. An Assessment of the Korea-China Free Trade Agreement

Author:
Jeffrey Schott, Eujiin Jung, and Cathleen Cimino-Isaacs
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
Topic:
Economics, International Trade and Finance, Politics, and Bilateral Relations
Political Geography:
United States, China, Asia, and Korea

376. Toward a European Migration and Mobility Union

Author:
Jacob Funk Kirkegaard
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
After surviving its worst economic downturn since the Great Depression and the near collapse of its common currency, Europe is now engulfed by hundreds of thousands of desperate migrants and refugees from the Middle East and Africa. It needs new and permanent migration institutions and resources not only to accommodate the influx of refugees but also to set up a new border control system throughout the region. These demands pose a challenge for European policymaking as serious as the euro crisis of the last five years. Kirkegaard proposes a migration and mobility union, to be implemented gradually, with the goal of comprehensively reforming European migration policy.
Topic:
Economics, Migration, Politics, and Refugee Issues
Political Geography:
Europe

377. World on the Move: The Changing Global Income Distribution and Its Implications for Consumption Patterns and Public Policies

Author:
Tomas Hellebrandt and Paolo Mauro
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In the next two decades, hundreds of millions of people in emerging economies are projected to reach income levels at which they will be able to afford cars and air travel. As purchasing power increases worldwide, people will spend proportionately less on food and beverages and more on transportation. Higher spending on transportation, especially in China, India, and Sub-Saharan Africa, will increase pressures on the infrastructure in these economies and aggravate global climate change. Governments will need to respond to these challenges in a fiscally sustainable and environmentally responsible way.
Topic:
Emerging Markets, International Trade and Finance, Politics, and Economies
Political Geography:
Global Focus

378. Enhancing Financial Stability in Developing Asia

Author:
Adam S. Posen and Nicolas Veron
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Given no generally accepted framework for financial stability, policymakers in developing Asia need to manage, not avoid, financial deepening. This paper supports Asian policymakers' judgment through analysis of the recent events in the United States and Europe and of earlier crisis episodes, including Asia during the 1990s. There is no simple linear relationship between financial repression and stability—financial repression not only has costs but, so doing can itself undermine stability. Bank-centric financial systems are not inherently safer than systems that include meaningful roles for securities and capital markets. Domestic financial systems should be steadily diversified in terms of both number of domestic competitors and types of savings and lending instruments available (and thus probably types of institutions). Financial repression should be focused on regulating the activities of financial intermediaries, not on compressing interest rates for domestic savers. Cross-border lending should primarily involve creation of multinational banks' subsidiaries in the local economy—and local currency lending and bond issuance should be encouraged. Macroprudential tools can be useful, and, if anything, are more effective in less open or less financially deep economies than in more advanced financial centers.
Topic:
Economics, International Trade and Finance, Markets, and Politics
Political Geography:
Asia

379. Testing the Modigliani-Miller Theorem of Capital Structure Irrelevance for Banks

Author:
William R. Cline
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Some advocates of far higher capital requirements for banks invoke the Modigliani-Miller theorem as grounds for judging that associated costs would be minimal. The M&M theorem holds that the average cost of capital to the firm does not depend on its capital structure (ratio of equity finance to debt finance), because any reduction in capital cost from switching to higher leverage using lower-cost debt is exactly offset by an induced increase in the unit cost of higher-cost equity capital as a consequence of the associated rise in risk. Statistical tests for large US banks in 2002–13 find that less than half of this M&M offset attains in practice. Higher capital requirements would thus impose increases in lending costs, with associated output costs from lower capital formation. These costs to the economy would need to be compared with benefits from lower risk of banking crises to arrive at optimal levels of capital requirements.
Topic:
Economics, International Trade and Finance, Markets, Politics, and Budget
Political Geography:
Global Focus

380. Much Ado about Nothing? The RMB's Inclusion in the SDR Basket

Author:
Hongying Wang
Publication Date:
12-2015
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
The International Monetary Fund recently concluded its quinquennial review of the composition of the Special Drawing Right (SDR), accepting the Chinese currency into the SDR basket alongside four major international currencies — the US dollar, the euro, the British pound and the Japanese yen. The Chinese government has spent a great deal of energy and political capital to achieve this outcome. This policy paper explains China’s interest in this seemingly exotic and technical pursuit, identifying the political and economic motivations underlying this initiative.
Topic:
Economics, Politics, International Monetary Fund, and Monetary Policy
Political Geography:
China