Vol.
25, No. 3 September 1999
Articles:
The
EMU and the NAMU: What is the Case for North American Monetary Union?
Willem H. Buiter
The
paper considers the pros and cons for Canada of monetary union between
Canada and the United States.
The
current Canadian monetary arrangements, a flexible exchange rate and
an inflation target, are contrasted both with a unilateral adoption
by Canada and the US dollar and with a full, formally symmetric monetary
union. Macroeconomic transactions costs savings argue in favour of
either form of monetary union. Seigniorage considerations argue against
unilateral adoption of the US dollar, but in favour of a formally
symmetric monetary union. Loss of the lender of last resort is a powerful
argument against unilateral monetary union. The optimal currency area
arguments (which concern the macroeconomic stabilization aspects of
a permanently fixed exchange rate) probably favour either form of
monetary union. The shock-absorber properties of a flexible exchange
rate are dominated by the extraneous instability and excess volatility
inherent in a market-determined exchange rate when financial markets
are highly integrated. On balance, the economic arguments favour a
full, formally symmetric monetary union but not the unilateral adoption
of the US dollar. Because of the absence of any democratic political
institutions spanning both Canada and the United States, the political
arguments against any form of monetary union are overwhelming. Without
a North American Political Union, the transfer of national sovereignty
to a supranational central bank would lack political legitimacy. The
lack of institutions for ensuring the political accountability of
a North American Central Bank means that NAMU is unlikely to happen
and that, if it were to happen, it is unlikely to survive.
The
W. Irwin Gillespie Round Tables on Canadian Exchange Rate Policy
This
roundtable set of comments on the Canadian Exchange Rate Policy follows
from the panel presentations of the following commentators in the
session on this topic at the Canadian Economics Association meetings
in May at the University of Toronto. The session was organized by
John Murray of the Bank of Canada, and chaired by William Watson of
the Department of Economics, McGill University and Editor of Policy
Options at the Institute for Research on Public Policy in Montreal.
The editor of Canadian Public Policy wishes to thank the four commentators
for providing their written remarks in timely fashion.
"Alternative
North American Currency Arrangements: A Research Agenda"
Thomas J. Courchene
"Canadian
Exchange Rate Policy"
John Crow
"The
NAMU Debate"
Richard G. Harris
"Canada's
Exchange Rate Options"
David Laidler
Tax
Havens: Investment Distortions and Policy Options
David W. Conklin and Darroch (Rick) A. Robertson
Differences
in business income tax rates among nations create the opportunity
for tax minimization by diverting capital through lower tax jurisdictions.
Furthermore, the opportunity to use a tax haven alters the relative
rates of return between domestic and foreign investment. Financing
reporting is often not sufficient to inform existing or potential
stakeholders about the use of tax havens, limiting their ability to
evaluate the risk of share price fluctuations in response to changes
in tax regimes. For Canada, both national and international policy
action is warranted in the context of these increasingly important
issues.
Individualized
Solutions to Environmental Problems: The Case of Automobile Pollution
Peter Urmetzer, Donald E. Blake and Neil Guppy
Combatting
air pollution associated with extensive motor-vehicle use has become
a major policy objective for cities around the world. Policy alternatives
toward this end can be divided into two categories: incentives (e.g.,
improved public transportation) and disincentives (e.g.,environmental
tax on gasoline). Based on survey data, this paper assesses which
of these two types of policies is most likely to meet with public
approval, and among which groups support is highest. Results show
that drivers act like "free-riders," that is, they tend
to support policies that socialize the costs of solutions rather than
those that target individual drivers.
An
Assessment of the Impact of Charging for Provincial Water Use Permits
Steven Renzetti and Diane Dupont
Population
and income growth and global warming have contributed to a growing
concern regarding the availability of potable water supplies in Canada.
While a number of provinces have already introduced fees for the permits
required for direct water withdrawals, others give these permits away
gratis. The paper assesses the likely impacts of introducing a charge
for water permits upon the water use and production costs of the major
water-using sectors in Ontario. These impacts are quantified by using
a numerical analysis based upon econometric models of water use. The
analysis indicates that by charging for water withdrawal permits the
government can encourage water conservation and bring in new revenues,
while doing relatively little to raise the industry's costs.
Wage
Opportunities for Visible Minorities in Canada
Derek Hum and Wayne Simpson
The
wage opportunities afforded different racial groups vary considerably.
We present a new analysis of wage differentials for different visible
minority groups in Canada which also accounts for immigration background,
using the first wave of the Survey of Labour and Income Dynamics.
With the exception of Black men, we find no statistically significant
wage disadvantage for visible minorities who are native born. It is
primarily among immigrants that wage differentials for visible minority
membership exist. Our results suggest that policies to achieve a colour-blind
Canadian labour market may have to focus more on immigrant assistance
and less on traditional employment equity legislation.
Canadian
Retirement Savings Plans and the Foreign Property Rule
David Burgess and Joel Fried
This
paper argues that the Foreign Property Rule (FPR), which limits the
foreign content of a Registered Savings Plan to no more than 20 percent
of book value, should be removed as quickly as possible. Given the
globalization of financial markets, the FPR does not protect what
it is meant to protect - a pool of savings for investment in Canada.
Instead, it distorts the allocation of credit among firms, and forces
agents to use more costly instruments - derivatives - to achieve desired
foreign risk exposure. Since the FPR lowers the return on registered
savings without benefiting any identifiable group, removing it would
be an unequivocal gain to Canadians.
