A conceptual note on accounting for budget internalities in public policy making
In a recent paper, Fleming, Heinecke and Dollery (2007) developed the government failure taxonomic system advanced by Charles Wolf into a conceptual framework to incorporate positive and negative internalities for analyzing public programs and policies. However, their paper unfortunately ignored the treatment of budget internalities, often an important question in real-world policy applications. This neglect is remedied in the present note by extending the analytical framework to include this important type of internal cost.
THE GOOD, THE BAD AND THE UGLY: ECONOMIC PERSPECTIVES ON REGULATION IN AUSTRALIA
The paper examines the existing scope and role of regulations in Australia. While there are many benefits from regulation, there is also a myriad of, often underplayed, costs associated with regulations. While compliance costs are large, probably the most significant costs arise from behavioural responses to regulations that reduce efficiency or compromise social goals. These adverse effects are often unanticipated and arise from complex interactions between regulations. The main reasons for regulatory failure are excessive ambition (underestimating the deficiencies of the regulatory ‘solution’), capture of regulatory agencies, and poor regulatory processes and institutions. The paper offers some guidelines for producing better regulation.
The curse of aid
Foreign aid provides a windfall of resources to recipient countries and may result in the same rent seeking behavior as documented in the “curse of natural resources” literature. In this paper we discuss this effect and document its magnitude. Using panel data for 108 recipient countries in the period 1960–1999, we find that foreign aid has a negative impact on institutions. In particular, if the foreign aid over GDP that a country receives over a period of 5 years reaches the 75th percentile in the sample, then a 10-point index of democracy is reduced between 0.5 and almost one point, a large effect. For comparison, we also measure the effect of oil rents on political institutions. We find that aid is a bigger curse than oil.