Tax-versus Debt-Financing of Public Investments: A Dynamic Simulation Analysis
Staatstitel als Geld. Legal-Restrictions-Theory: Stand der Debatte und weitere Überlegungen
Fase, M. M. G. and Huijser, A. P.
Foreign Exchange Rate Stabilization and the Profitability of Official Market Intervention. A Case Study for the Netherlands 1974-1989
Kommunale Sparkassen privatisieren? Bemerkungen aus ordnungs- und wettbewerbstheoretischer Sicht
Zur Optionsscheinbewertung mit Rücksicht auf die Kapitalverwässerung bei der Ausübung
Finanzintermediation und Wiederverhandlungen
Schlesinger, Helmut and Weber, Manfred and Ziebarth, Gerhard
Staatsverschuldung - ohne Ende? Zur Rationalität und Problematik des öffentlichen Kredits (Michael Burchardt)
"Tax- versus Dept-Financing of Public Investment: A Dynamic Simulation Analysis"
In this paper a two-period life cycle growth model is presented in order to illustrate the global effects of debt versus tax finance of public investment. Dynamic simulations are used to show how capital formation and the welfare of current and future generations are affected during the transition to a new equilibrium. It is demonstrated how economywide changes in real output and interest rates caused by an alternative choice between tax and debt financing of public investment affect the government's budget constraint, a subject that has not yet been studied in detail in the prevailing literature. The results suggest that tax finance is superior to debt finance of public investment. In the long run, debt-financing creates substantially higher crowding-out effects than does tax-financing of public investment. Negative short-run effects of tax-financing can be avoided by an efficient tax-transfer policy during transition periods, without lowering the long-run welfare gains of public investment policy.
"Government Securities as Money: Legal Restrictions Theory: State of the Debate and Further Considerations"
The market designed for managing transaction holdings has started to move. Money market funds are just one innovative product that exists already. In theory, there would also be other products such as interest-bearing shares of funds eligible for payment purposes. These have been the subject of a theoretical debate in the recent Anglo-Saxon literature. The question is why market participants, besides holding interest-bearing government securities, also hold non-interest-bearing "government papers" for payment purposes, ordinarily called bank notes. Since both products' financial standing and quality are equal, their existence side by side is paradoxical. Believers in the legal restrictions theory have put forward the hypothesis that legal restrictions on private intermediation of government securities in shares of funds were precisely the ones which prevented cash money from crowding out. On the other hand, the opponents of the legal restrictions theory maintained that the ultimately exorbitant costs of intermediation and transaction prevented government securities from being offered as money. This much about the debate.
Further considerations show that on grounds of innovation theory the main argument of the legal restrictions theory cannot be accepted. It is to be presumed that legal restrictions on and impediments to private intermediation can be overcome by appropriate innovative financial products in the longer term. The question should thus rather be whether the cost functions used by the proponents of the legal restrictions theory in their models might not be helpful. It may be demonstrated on the basis of the demand function of network products that government securities, when used as money, generate exorbitant initial marketing costs that might nib any marketing success in the bud. The main reason therefore is the legal institute of central-bank money being legal tender. It follows therefrom that the legal restrictions applicable to the marketing of money which adequately explain the co-existence of non-interest-bearing bank notes and interest-bearing government securities.
Fase, M. M. G. and Huijser, A. P.
"Foreign Exchange Rate Stabilization and the Profitability of Official Market Intervention: A Case Study for the Netherlands 1974 - 1989"
This paper presents an empirical analysis of the official foreign exchange interventions by the Netherlands' central bank during the period 1974 - 1989, using monthly data of spot and forward exchange market.
The main message of this analysis is that foreign exchange market interventions in the Netherlands have a stabilising impact. The yardstick of the stabilising effect is profitability. However, it is shown that it is difficult to assess the profitability of central bank intervention unambiguously. In addition a statistical test is developed to examine whether the results should be attributed to random factors.
(Friedman criterion, official exchange market intervention, central banking)
"Privatise Municipal Savings Banks? Competition-Theory and Competition-Policy Observations"
The author of this contribution studies whether the demand for privatising the municipal savings banks is a requirement under general economic and competition-theory aspects. In doing so, he reviews in a critical manner the pros and cons of the Monopoly Commission's demand included in its 9th main expertise to privatise the municipal savings banks for general economic policy principles. In this context, the author of this contribution reaches the conclusion that - in the case of commercial enterprises which are, though in public ownership, exposed to competition and which include the municipal savings banks - one cannot at all speak about "centralised decision-making" and "politically defined business objectives" within the meaning of the theory of central economic management and that competition amongst groups of financial institutions, i.e. publicly owned credit institutions, private banks and cooperative banks, is not limited to a "closed and self-contained banking market they divide up amongst themselves". He attempts to prove that what is called group competition is no competition among groups, but between individual banks in different ownership pursuing partly divergent business objectives and that especially the heterogeneity of the banking structure might contribute substantially to the functioning ability of competition. The author does not rule out the possibility of privatising publicly owned companies under specific circumstances, but he demands that the tasks justified by reasons of the "public interest" be thoroughly examined and that a market structure analysis be made in the interest of assessing the implications of privatisation for the market structure and the competition pattern in the future, before any privatisation decision is taken.
"Evaluation of Warrants bearing in Mind the Dilution of Capital when exercised"
In practice, the difference between stock options and covered warrants on the one hand and warrants directly issued by public limited companies on the other is ignored in most cases, although it ought to be borne in mind that, when evaluating the latter, exercising warrants results in capital dilution and, thus, in an erosion of their own value. This analysis verifies the solution to be found in the literature for European call warrants. Subsequently, it develops an approximation formula permitting simple evaluation on the basis of the parameters and index figures customarily available. Where several types of directly issued warrants are involved, this analysis demonstrates the interdependencies that exist between evaluations of stock and evaluations of any of the other types of warrants. Here, the author makes the pragmatic proposal to ignore such other types of warrants.
"Financial Intermediation and Renegotiation"
Using the services of a financial intermediary for limiting the number of financial relations to a single one may help to avoid problems that may stem from non-cooperative modes of behaviour of capital donors. Diamond proved this in 1984 by identifying the possibility to save control costs through financial intermediation. This contribution shows that similar considerations are applicable in connection with the renegotiation of debts aimed at waivers of claims outstanding within the framework of corporate insolvencies: It is easier to bring such debt renegotiations to a successful conclusion when conducted with a single financial intermediary than with a large number of small capital donors. This may help to avoid, under certain circumstances, corporate liquidations which are inefficient in macroeconomic terms. Owing to diversification effects, financial intermediaries themselves are only exposed to a negligible risk of insolvency and, thus, to a negligible debt renegotiation problem compared with their capital donors; this may mean a net overall economic prosperity increase on account of financial intermediation.