Scottish Journal of Political Economy

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• Judicial efficiency and economic growth: Evidence based on European Union data

  We investigate the effects of judicial efficiency on economic growth using a new dataset over the period 2010–2018 drawn by the European Union Justice Scoreboard. To do so, we estimate a growth equation controlling for alternative de facto judicial efficiency indicators. Our findings suggest that operational inefficiencies of judicial systems undermine economic growth, weakening its capability to safeguard the enforcement of private contracts and the security of property rights. Our results are robust when we account for endogeneity and also provide significant policy implications.

• The geopolitical risk spillovers across BRICS countries: A quantile frequency connectedness approach

  This paper investigates the geopolitical risk spillovers among BRICS countries during the 1985–2022 period. We adopt the novel quantile frequency connectedness approach, which allows us to examine the risk transmission by frequency and quantile. The geopolitical risks spread more intensely among BRICS countries during extreme circumstances. The long‐term geopolitical risk spillovers are the main contributors to the overall spillovers. Additionally, we note that significant increases in spillovers are associated with remarkable political events. Russia is the most dominant country and the largest short‐term and long‐term geopolitical risk transmitter to other BRICS members during the research period.

• The impact of the COVID‐19 pandemic on high‐skilled and low‐skilled labor markets in a DSGE model

  This research analyzes the unequal impact of COVID‐19 on high‐skilled and low‐skilled labor in a dynamic stochastic general equilibrium (DSGE) model. The model is calibrated to fit Taiwan's economy and evaluates the effectiveness of various fiscal measures, including an increase in government spending, an increase in lump‐sum transfers, a disbursement of consumption vouchers, and an income tax cut, for combating the pandemic recession. Our results indicate that low‐skilled households tend to hoard labor more than high‐skilled households during economic downturns. An income tax cut outperforms other fiscal instruments in generating the highest aggregate welfare and in advancing output, employment, and consumption.

• Capital misallocation in Chinese industrial firms

  This paper investigates the impact of volatility in profitability shock, capital price distortion and adjustment costs on capital misallocation among Chinese industrial firms. We estimate a dynamic model pertaining firms' investment decision, incorporating institutional differences between state and private firms, so the model can reproduce salient features observed from Chinese firms. Our analysis shows: (i) capital price distortion is more severe among state firms than private ones; (ii) adjusting capital is more costly for state than private firms; (iii) volatility in profitability shock is a major source that causes capital misallocation for both types of firms.

• A tale of two taxes: State‐dependency of tax policy

  In this paper, we build a simple endogenous growth model with labour and corporate taxes to investigate the asymmetric effects of tax policy over the growth trajectory. We employ a newly developed panel smooth transition model to empirically analyse a sample of 19 advanced economies over the 1961–2017 period. We find that both the asymmetric effects and the tax measures used are essential. We also find that the effects of corporate and personal taxes on long‐run growth are non‐linear, while the detrimental effects of personal taxes are empirically larger compared to those of corporate taxes once non‐linearities are controlled for.

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• Income taxation and progressivity: A measure of equitability

  This paper proposes a measure of ‘equitability of taxation’, in the context of progressivity and the income tax. By postulating specifications of ‘extreme equitability’ and ‘extreme inequitability’ of a tax system, the paper advances a measure of tax equitability as the normalised area distance of a ‘tax concentration curve’ from its most inequitable version. The measure is derived, and a procedure is outlined for the decomposition of differences in the measure across regimes into a ‘distribution effect’ and a ‘tax system’ effect. A criterion is established for asserting ‘unambiguously greater equitability’ in comparisons across regimes, in terms of a dominance relation akin to the Lorenz quasi‐ordering. The measure is illustrated with the help of numerical examples.

• The role of liquidity in monetary policy transmission: Evidence from Indian banks1

  The role of bank liquidity in monetary policy transmission has received insufficient attention in the literature. Faced with monetary tightening, banks with more liquidity can sell off securities and protect their loan portfolios. We test this proposition using panel data for Indian banks during 2005–2020. Employing dynamic threshold panel regressions with liquid assets as the threshold variable, we show that bank lending declines with monetary policy tightening in low liquidity regimes, but not in high liquidity regimes. We also find evidence for different portfolio reallocation behaviour by banks in high versus low liquidity regimes in response to monetary policy changes.

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• Fiscal crises, decentralization, and indiscipline

  How does fiscal decentralization influence fiscal discipline and the probability of a fiscal crisis? Discrete choice analysis used with panel data reveals that crisis probability is associated positively with spending decentralization and negatively with vertical fiscal imbalance. These effects are prevalent in countries with a higher degree of tax revenue decentralization, while a stronger rule of law mitigates such adverse decentralization effects. The findings imply that reduced risk sharing against local shocks under tax revenue decentralization destabilizes the sustainability of a nation's fiscal system. Therefore, policymakers should be cognizant of the undesirable impacts of decentralization on fiscal crisis and indiscipline.

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