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ALEŠ BULÍR and A. JAVIER HAMANN

This article examines empirical evidence on the volatility and uncertainty of aid flows and their main policy implications. Aid is found to be more volatile than fiscal revenues—particularly in highly aid-dependent countries—and shortfalls in aid and domestic revenue tend to coincide. The article also finds that uncertainty about aid disbursements is large and that the information content of commitments made by donors is either very small or statistically insignificant. Specific policies and broader international efforts to cope with these features of aid are briefly discussed

ROBERT A. FELDMAN and MEHRA RAJNISH

This paper assesses alternative auction techniques for pricing and allocating various financial instruments, such as government securities, central bank refinance credit, and foreign exchange. Before recommending appropriate formats for auctioning these items, the paper discusses basic auction formats, assessing the advantages and disadvantages of each, based on the existing, mostly theoretical, literature. It is noted that auction techniques can be usefully employed for a broad range of items and that their application is of particular relevance to the impetus in many parts of the world toward establishing market-oriented economies.

KENNETH ROGOFF and JEROMIN ZETTELMEYER

This paper describes the evolution of ideas to apply bankruptcy reorganization principles to sovereign debt crises. Our focus is on policy proposals between the late 1970s and Anne Krueger’s (2001) proposed “Sovereign Debt Restructuring Mechanism,” with brief reference to the economics literature on sovereign debt. We describe the perceived inefficiencies that motivate proposals, and how proposals seek to change debtor and creditor incentives. We find that there has been a moving consensus on what constitutes the underlying problem, but not on how to fix it. The range of proposed approaches remains broad and only recently shows some signs of narrowing. [JEL B290, B300, F020]

Michèle Guerard

IN 1967 THE BRAZILIAN STATES abolished the heterogeneous turnover taxes that they had levied for 30 years and replaced them with a unified sales tax of the value-added type. The reform was designed to overcome the defects of turnover taxation and to secure a greater degree of tax coordination among the states of the Federation.

ALEX MOURMOURAS and JOSÉ A. TIJERINA*

The observation that inflation reduces real revenues when there are lags in tax collection has long been a strong argument against seigniorage. However, with the exception of Dixit, who used a general equilibrium model to reject this argument, the optimal taxation literature has not analyzed how collection lags affect desired tax structures. This paper reexamines the issue using an overlapping generations version of Dixit’s model. It is shown that depending on the size of the expenditure ratio and the specification of the collection cost function, lags may increase, leave unchanged, or reduce the desired rate of inflation.

Mr. Robert P Flood

The paper discusses a model in which growth is a negative function of fiscal burden. Moreover, growth discontinuously switches from high to low as the fiscal burden reaches a critical level. The paper provides an overview of key elements of corporate bankruptcy codes and practice around the world that are relevant to the debate on sovereign debt restructuring. It also describes the broad trends in international financial integration for a sample of industrial countries and explains the cross-country and time-series variation in the size of international balance sheets.

SLEMROD JOEL and SHLOMO YITZHAKI

It is argued that taxation causes deadweight losses—from substitution, evasion, and avoidance activities—and direct, administrative and compliance, costs. Some of these social costs tend to be discontinuous and/or nonconvex. Because most models of taxation ignore some components of the social costs of taxation, their conclusions cannot be considered all-encompassing. An alternative approach to policy evaluation is to rely on a marginal efficiency cost of funds rule that can indicate appropriate directions of reforms. The paper discusses the merits, applicability, and limitation of this rule, as well as its relationship to other concepts,

Sidney S. Alexander

FOR ANY COUNTRY or trading area except a very small one, a devaluation can generally be expected to bring a decline in the foreign price of its exports. If, instead of devaluing, a country should achieve the same improvement in its foreign trade balance by a restriction of imports, whether through a tariff or by quantitative restrictions, the foreign price of its exports would not fall significantly.1 Consequently, the value of exports and imports that must be sacrificed in order to achieve a given improvement in the foreign balance through devaluation exceeds, for such a country or trading area, the value of the imports that must be sacrificed in order to achieve an equal improvement of the foreign balance through import restriction or a tariff. If, then, the welfare value of a dollar’s worth 2 of imports is equal to the welfare value of a dollar’s worth of exports, it costs the country less to use import restriction rather than devaluation as an instrument for improving the foreign balance, subject to the qualifications mentioned below.