| In Chapter 1, I examine the evolution of the Penn effect, an association between the national price level and the national income. I find that the Penn effect strengthens over time especially from 1984 to 1995, and levels-off after 1996. So does the explanatory power of the Penn effect. Developed countries exhibit a significantly larger Penn effect than developing countries. However, the strengthening of the Penn effect comes mainly from the developing country group. The Penn effect in the developed country group actually weakens over time. These findings are robust to different measures of real income, different control variables, the "new" dataset incorporated the 2005 round of ICP and an "old" dataset based on the previous round of ICP, the 1993 round. After taking into account a dummy variable for country groups, the effects of trade and capital account openness on the Penn effect are negligible. In the end, in order to gauge the misalignment of their currencies, the above findings are applied to China and India. The "old" dataset based on the 1993 round of ICP tends to overestimate the misalignment.;The most prominent explanation for the Penn effect is the Balassa-Samuelson (BS) theorem. However, there are always some outliers, such as China, Malaysia, Indonesia, in which the BS effect can not be identified. Plus, the BS effect strengthens over time. Chapter 2 analyzes the role of the crucial assumption of full employment in the BS hypothesis. The existence of surplus labor prevents the real wage from rising when there is productivity growth in the tradable goods sector, which will weaken the BS effect in labor surplus countries. Labor surplus has been a theoretical concept for some time. However, the empirical estimation of it is rare. I apply the stochastic frontier model to measure the extent of labor surplus. In the empirical study, I compile a large dataset and estimate the extent of labor surplus for a large sample of countries. In testing the BS hypothesis, I find that surplus labor plays an important role.;In Chapter 3, we study historical tax revenue downturn episodes and explore the link between tax revenue and imports. We document that tax revenue downturns of at least 1 percent of GDP in one year are common. The tax types that account for downturn episodes are different in advanced, emerging and developing, and oil producing countries. We find that tax revenue downturns and import contractions have a statistically significant link. Finally, we show that changes in imports are a statistically significant determinant of changes in tax revenues even after controlling for changes in the output gap and in the terms of trade. |
