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Volume 18, Number 1, Winter 2004
Symposium: Japan’s Economy
Japan’s Financial Crisis and Economic Stagnation by Takeo Hoshi and Anil K Kashyap
We survey the macroeconomic stagnation and financial problems in Japan. The financial sector assessment includes separate analyses of the commercial banks, the life insurance companies and the government’s fiscal investment and loan program (FILP). We estimate that the Japanese taxpayer will have to pay at least another ¥100 trillion (20% of GDP) to cover financial system losses. We explain how the current dysfunctional Japanese banking system misallocates funds by keeping many insolvent firms in business. These inefficient firms crowd out potentially profitable ones and worsen macroeconomic stagnation. A sustained macroeconomic recovery requires serious restructuring aimed at stopping this cycle.
Competition in Japan by Michael E. Porter and Mariko Sakakibara
This article examines competition in Japan and its link to postwar economic prosperity. While Japan’s industrial structure and competition policy seem to indicate that competition in Japan has been less intense, the empirical evidence does not support this conclusion. The sectors in which competition was restricted prove to be those where Japan was not internationally successful. In the internationally successful sectors, internal competition in Japan was invariably fierce. While the level of competition in Japan is currently rising, economic recovery is still hindered by distortions in the competition in many industries.
Symposium: Political Economy
Do Democracies Have Different Public Policies than Nondemocracies? by Casey B. Mulligan, Ricard Gil and Xavier Sala-i-Martin
Estimates of democracy’s effect on the public sector are obtained from comparisons of 142 countries over the years 1960-90. Based on three tenets of voting theory—that voting mutes policy preference intensity, political power is equally distributed in democracies, and the form of voting processes is important—we expect democracy to affect policies that redistribute, or economically favor the political leadership, or enhance efficiency. We do not find such differences. Instead democracy is correlated with policies that limit competition for public office. Alternative modeling approaches emphasize the degree of competition, and deemphasize the form or even existence of voting processes.
Constitutions and Economic Policy by Torsten Persson and Guido Tabellini
Rational Choice Theory and the Paradox of Not Voting by Timothy J. Feddersen
Legislative Organization by Keith Krehbiel
With an emphasis on the U.S. Congress, this essay addresses political economy approaches to the study of legislative organization. Simple models provide a foundation for more sophisticated studies of one of two problems: how coalitions of intense minorities pass policies that reflect gains from trade (efficiency in distributive policies) and how the legislature obtains gains from specialization (efficiency in information acquisition and dissemination). The recurring impediment to solutions to these problems is that legislatures are self-organizing and, therefore, have difficulty in committing to potentially effective institutional solutions.
Articles
Choosing the Federal Reserve Chair: Lessons from History by Christina D. Romer and David H. Romer
Understanding Why Crime Fell in the 1990s: Four Factors that Explain the Decline and Six that Do Not by Steven D. Levitt
Crime dropped sharply and unexpectedly in the United States in the 1990s. I conclude that four factors collectively explain the entire drop in crime: increases in the number of police, increases in the size of the prison population, the waning of the crack epidemic, and the legalization of abortion in the 1970s. Other common explanations for declining crime appear far less important. The factors identified are much less successful in explaining fluctuations in crime in the preceding two decades. The real puzzle is not why crime fell in the 1990s, but rather, why crime did not begin falling earlier.
Is Housing Unaffordable? Why Isn’t It More Affordable? by John M. Quigley and Steven Raphael
This paper reviews trends in housing affordability in the U.S. over the past four decades. There is little evidence that owner-occupied housing has become less affordable. In contrast, there have been modest increases in the fraction of income that the median renter household devotes to housing. We find pronounced increases in the rent burdens for poor households. We explore the low-income rental market in more detail, analyzing the relative importance of changes in the income distribution, in housing quality, land use regulation, and zoning in affecting rent burdens. We also sketch out some policies that might improve housing affordability.
Witchcraft, Weather and Economic Growth in Renaissance Europe by Emily Oster
Retrospectives: Gender in Classical Economics by Robert W. Dimand, Evelyn L. Forget and Chris Nyland
Features
Recommendations for Further Reading
Comments: Bernard Saffran
Notes