CEA Journal of Economics

CRITICAL REVIEW OF THE (SECOND WAVE) OPTIMAL TAX THEORIES

Dushko Josheski — 2020-01-17

James Mirrlees (1971) launched the second wave of optimal tax models by suggesting a way to formalize the
planner’s problem that deals explicitly with unobserved heterogeneity among taxpayers.So, in this paper optimal
income taxation theories are subject of investigation following the classic paper in public finance by Mirrlees
(1971). This provides analytical solutions for the second-best efficient tax system in presence of such an
adverse selection. Until late 1990s, Mirrlees results were not closely connected to empirical tax studies and had
little impact on tax policy recommendations. Next, the famous result Diamond-Mirrlees efficiency theorem Diamond-Mirrlees (1971a), Diamond-Mirrlees (1971b),has been reviewed. This theorem is important because it states that there should be no taxes on intermediate goods, and that private and public production should be based on same prices. Also, taxation should not violate efficiency of production. Solution to the Mankiw problem on the other hand states that small open economy, labor bears 100% of small capital income tax. The availability of the eight documents does not indicate outright budget process transparency nor do we suggest that in means absolute accountability of the authorities however it demonstrates a step towards increased citizens informed and active civic participation.

ESTIMATING CROWDING OUT EFFECT OF THE GOVERNMENT BORROWING ON THE PRIVATE CREDIT: EVIDENCE FROM THE MACEDONIAN BANKING SECTOR

Milan Eliskovski — 2020-01-15

The relationship between the government borrowing and banks’ lending is unclear from theoretical point of view. It is usually perceived as negative relationship, but there are arguments that it could be positive as well. The two conflicting theories are the crowding out and the Ricardian equivalence whereas the former provides arguments for the negative relationship, while the latter theory may offset this negative effect. Thus, the aim of this study is to detect and quantify the crowding out effect of the real central government borrowing on the private sector real loans provided by the Macedonian banks. However, as it was mentioned above, the crowding out effect might be compensated by the Ricardian equivalence effect. Therefore, the relationship between the real central government
borrowing and real deposits will be studied as well. The point of the investigating the Ricardian equivalence is to consider whether this effect compensates for the crowding out. This paper utilizes a Vector Error Correction Model (VECM) for investigating the relationship between private loans, deposits and government borrowing from the Macedonian banks. The estimated results indicate that the government borrowing crowds out the private loans, while the effect of the Ricardian equivalence is not large enough to offset the former effect.

USING GREY RELATIONAL ANALYSIS WITH FUZZY LOGIC IN PORTFOLIO SELECTION

Tatjana Shkrinjarich — 2020-01-17

This research combines the Grey Systems Theory with the Fuzzy Logic in the process of selecting stocks into
the portfolio. Since many financial data often include uncertainties with incomplete data, the mentioned
approaches are quite useful for modelling such data. Based on the weekly data on 20 stocks on the Zagreb
Stock Exchange for the period 2 January - 30 April 2019, the rankings from the Grey Relational Analysis are
used to form membership functions within the Fuzzy Logic approach of making the final decision on investing.
The dynamic analysis provides insights into the simulated portfolio characteristics which are compared to
benchmark ones. The results of this study indicate that there exists potential in using the mentioned two
approaches combined to achieve investment goals.