Increased Policy Space under Globalization Rohit Azad and Anupam Das

[Working Paper No. 04/2012] A severe blow to active Keynesian policy intervention occurred as a result of the New Classical resurgence in macroeconomics. With a vertical aggregate supply curve in the short and the long runs (New Classicals) or at least in the long run (New Keynesians), it has been argued that the economy settles down at a unique non-accelerating inflation rate of unemployment (NAIRU) without any government intervention. Implicit in the NAIRU theory is that the prices can decrease just as they can increase. However, if the prices cannot decrease, the aggregate supply curve would be an inverse-L shaped…

Heterodox Central Bankers: Eccles, Prebisch and financial reform Matías Vernengo and Esteban Pérez Caldentey

[Working Paper No. 03/2012] The Great Depression led to a need to rethink the principles of central banking, as much as it had led to the rethinking of economics in general, with the Keynesian Revolution at the forefront of the theoretical changes. This paper suggests that the role of the monetary authority as a fiscal agent of government and the abandonment of the view of the economy as self-regulated were the central changes in central banking in the center. In the periphery, the change in central banking was related to insulating the worst effects of balance of payments crises, while…

An Essay on the Crisis of Capitalism – a la Marx? Korkut Erturk

[Working Paper No. 02/2012] The paper argues that a crisis of collective agency is at the root of the global economic crisis we face today. The secret of prosperous capitalism, the so-called golden age, was the ability of the state to uniformly impose welfare-enhancing market restrictions that made it possible to invest in common pool resources. This ability has waned during the neoliberal era and the result has been a resurgence of forces of competition – what Marx called the law of value – generating long-term collective costs that go increasingly unaddressed. This is reminiscent of classical capitalism's main weakness…

Fiscal Policy Evolution and Distributional Implications: The Indonesian experience Smitha Francis

[Working Paper No. 01/2012] This paper analyses Indonesia's resource mobilisation and public expenditure policies against the backdrop of her inequality trends and macroeconomic policy evolution. It is argued that the country's fiscal policy stance has been adversely impacted by her monetary and financial sector policies under an open capital account, with attendant regressive distributional implications. Juxtaposing the analysis of revenue mobilisation trends and taxation policies with the evidence of increasing asset and land concentration and persisting high inequalities reveals that the increase in income tax revenue did not necessarily come from the upper income profiles or corporate profits. Meanwhile, although…

Trade Policies and Ethnic Discrimination in Mexico Alicia Puyana and Sandra Murillo

[Working Paper No. 03/2011] Given that the indigenous population in Mexico is the poorest segment of its society, this paper explores how inequality has been affected by the trade liberalisation put into effect after the eruption of the debt crisis in the early eighties and the coming into force of NAFTA. The focus is on the agricultural sector for two reasons: first, the regions with the highest concentration of indigenous population are specialised in agriculture; second, agriculture has been identified as the main loser from trade liberalisation. The paper presents direct and indirect evidence on discrimination at the municipal level…

The New Vulture Culture: Sovereign debt restructuring and trade and investment treaties Kevin P. Gallagher

[Working Paper No. 02/2011] The global community still lacks a regime for sovereign debt restructuring. But it has often been overlooked that the definition of a covered investment within international trade and investment agreements often includes sovereign debt. There is thus increasing concern that international investment agreements may become a ''court'' for sovereign workouts by default. In this context, this paper analyzes the extent to which investment provisions in various treaties may hinder the ability of nations and private creditors to comprehensively negotiate sovereign debt restructurings when a debtor nation has defaulted or is close to default on its government…