The New Nation - Internet Edition

EU on emergency, reforms

NOTWITHSTANDING the recent advocacy from certain quarters for the fastest withdrawal of emergency and the holding of elections, the donors' stand on these issues continues to be on the side of cautious withdrawal of emergency and carrying out of political reforms before the holding of elections. This was reflected at a recent meeting between the German Ambassador in Bangladesh and a number of media persons at his residence where he told them that his government and the European Union (EU) are in favour of withdrawal of emergency. But this should be done carefully calibrated to progress on the election roadmap.

He told the media persons that political parties should ensure internal democratisation in choosing leadership as well as establishing transparency in operation of party funds. EU has 0.5 million Euro earmarked for the political parties and the government to spend for bringing about reforms within the political parties in Bangladesh through consultation and other means. He said that a detailed work plan could be devised in consultation with UNDP to utilise the political development funds - a gratis for helping the country avert a repeat of the past political crisis.

In varying degrees, the same is also the position of other donors. The developed countries hope that the present government would give a healthy new direction to the country culminating in the successful holding of elections leading to handing over of power to an elected government for sustaining political stability. There may be differences of interpretation of the EU move, but fact remains that the anarchy for which emergency was proclaimed in the country cannot but be blamed on the political parties.

The political parties in Bangladesh may take advantage of this initiative and embrace reforms to enhance their credibility to be trusted more to be in charge of governing Bangladesh again.

Colleges face teacher shortage

TWO government intermediate colleges in Pabna town are reportedly facing shortage of teachers. At least 21 posts out of 83 are lying vacant in the Government Women's College and the Government Shahid Bulbul College since long. The two colleges have about 1,300 and 1,500 students respectively. The students and the teachers of the two institutions complained that the shortage of teachers is hampering academic activities. In fact, one of the two colleges runs with half of the teaching strength for more than a year. Neither the teachers nor the students can maintain properly their academic activities in these institutions for shortage of teachers.

In the Government Women's College, at least 12 posts out of 24 - two associate professors, six assistant professors and four lecturers - are vacant for over a year. Just one teacher is teaching in each of the departments of Bangla, economics, chemistry and mathematics. The post of librarian is vacant in the college. The situation is less acute at the Government Shahid College where nine out of 49 posts of teachers are lying vacant and eight of those are of assistant professors. The posts of sports teacher and librarian are vacant.

Sufficient classes are not being taken because of the shortage of teachers.

Students hardly can complete their lessons before examinations. Science practical classes cannot be completed again due to crisis of teachers and demonstrators. Following closure of HSC admission in the Government Edward College in 1996 following introduction of honours courses in different subjects, pressure is mounting on these two colleges. Teachers' shortage is reportedly the common feature of most government colleges because the authorities sitting in the capital remain detached from the situation faced by those at far away places. In many government colleges offering honours courses the problem is rather perennial and requires urgent solution.

Developing cultural tourism

Mohammad Shahidul Islam

Bangladesh is an affluent terra firma of folklore. But for long time, its position in art and culture has become shaky and al most remains unrepresented with the young generation. Our resourceful folklore gives us the pride of cultural heritage. But we always look down on folklore because of our ignorance about its national importance. Our rich folklore contains bunches of tales, songs, dances, operas, legends, proverbs, myths, riddles and traditions which are supposed to roll on from generation to generation. But the present generation is not encouraged or privileged to know and experience the rich folklore for the lack of conservation, and transmission. Most of the folklores are fading away from the society, which once were popular to people and their spirit of life. We need to for protecting the folklores by sanctioning law without delay.

Bangladeshi folklore can give majestic insight into the country's social and ethnic background as well as people's habits and beliefs. Bengali folklore also depicts much about residents of the past such as their ideologies, customs and way of thinking on home or social affairs. Diverse ethnic groups that have resided in the land throughout the periods of time have largely influenced Bangladesh's folklore. A diversity of nitty-gritty can therefore be clearly seen in the folklore of Bangladesh. Puthis, ancient manuscripts are in fact books of folk tales and religious customs existing in rural Bangladesh. Educated individuals, both as a form of amusement and as education, read these books to the society.

In order to fully utilise the potential of folklore resources in tourism, further improvements are necessary, both in the general infrastructure and in the tourism sector itself. It must be understood that though the attractiveness of each individual folklore is limited, the power of appropriate combined attraction is multiple.

One possible way of developing new types of tourist packages would be to design thematic routes for various market segments (cultural trails based on folklore events, exhibitions, workshops, textile or pottery routes, etc.). Another idea could be a stronger co-operation between tourist businesses and folklore organisations or folk artists, which would provide additional sponsorship for the artists, contribute to the improvement of service quality and to product development, and could even widen the country's existing image.

A well-known Bangla epic-lore is Manasamangal. This story is constituted to give glory and respect to Manasa, a Hindu goddess. Nevertheless, it has become popular for the love story of Behula (the heroine) and Lakhindar (her husband). The story tells how the father of Lakhindar saddens the snake goddess Manasa. She then bites Lakhindar on his wedding night. Behula takes her husband's lifeless body on a boat and sails off. After soothing the goddess, Lakhindar is brought back to life. Behula is repeatedly adored to be the model of Bengali women who exhibit extreme bravery and love.

Culture in general consists of behaviours and artifacts, beliefs and values, and underlying assumptions, i.e. ways of perceiving, thinking and evaluating the world, self and others. Through the development of tourism in a destination, culture is usually being transformed into a product as an element of the overall supply to tourists. Culture can be marketed to tourists through tangible and/or intangible elements, e.g. buildings, crafts, art objects, and/or behaviours and values. Culture is part of the tourism system, both as an attraction and as an element in the system's environment. In a country like Bangladesh, with a limited exposure of particularly attractive or internationally unique natural attractions, culture can be one of the most significant tourist attractions. Cultural tourism is a fast growing from of tourism internationally and this trend can be reflected in the development of Bangladeshi tourism as well.

Folklore art can be a unique element of the Bangladeshi tourist product. The originality and the variety of different art forms provide a special experience for the tourists and a powerful promotional tool for national marketing. Since the photos and films showing folk art objects and scenes of traditional events can play an important role in the visual representation of Bangladesh, tourists develop their expectations accordingly before their trip.

So the animated and inanimate forms of folk culture can remain significant elements of the tourist supply not only in cultural tourism, but also in rural or even incentive tourism. When tourists will attend folklore programmes, participate in folk traditions or see examples of folk architecture or handicrafts, they will see their expectations fulfilled as well as reinforced. Consequently, folk art objects will be among the most popular souvenirs that international tourists will buy in Bangladesh. Since these objects can perfectly fulfil the basic requirements concerning souvenirs-they are relatively inexpensive, easy to take home and typical to the visited area-so can act as reminders and proofs of the trip.

The existing measures to preserve the folklore treasure trove are not enough to meet the needs. For the purpose appropriate law needs to be enacted soon. It is almost mandatory for the government to devote greater attention and resources to the aspects of preservation, conservation, documentation, development and legal protection of folklore.

Government also needs to be determined to ensure the safety and security of the materials and documents to prevent unfair exploitation. In addition, government has to support communities who are dependable for the creation, maintenance, custodianship and development of folklores. On the other hand, we have to elevate the level of awareness about the legal system at the national level through transmission of information to the public by mass media, debates, discussions and studies with experts and all interested groups. To protect and conserve the folklores properly, there would be no alternative to seeking aids and assistance from UNESCO on passing the national law.

Folklore art and traditions can play a key role in Bangladesh tourism. Being part of our cultural heritage, objects of folklore art and handicrafts are among the main tangible attractions of the country. Costumes and other tangible forms of art can be best preserved in small rural settlements, where the inhabitants' everyday life can be tightly interwoven with traditions. Thus rural tourism development emphasizes the importance of these attractions, in order to attract the type of visitors who will be highly motivated to learn more about our traditional arts and crafts.

Folk arts and crafts, traditions and customs can be classified as local, regional or national attractions. There are several diverse functions of folklore. Cultural tourism of Bangladesh could be the main source of tourists' attraction in the protection of folklore. If folk tales are examined closely, we find that many are used to pass down cultures with morals and values from one generation to the next. Folklore fulfils the role of teaching the importance of tradition and roots. So we have to conserve and protect our rich folklores by passing strict law in the national interest as well as for boosting cultural tourism.

When taxpayers ignore less visible taxes

Matt Nesvisky

When analyzing tax policies, economists traditionally have assumed that individuals take maximum advantage of (that is, optimize fully with respect to) the incentives created by those policies. In Salience and Taxation: Theory and Evidence Raj Chetty, Adam Looney, and Kory Kroft test that assumption by studying whether the salience (or visibility) of tax rates affects consumers' purchase decisions. The researchers find that salience is quite important in their data, and that salience matters because shoppers are inattentive to taxes. They develop a new theoretical model to analyze the economic effects of taxation with inattentive individuals.

To begin their investigation, Chetty, Looney, and Kroft partnered with a supermarket chain to conduct a three-week experiment in one of its stores. For taxable items, like cosmetics and other non-food products, stores customarily do not include the sales tax in the price tags on the shelves. Instead, the tax appears only on the sales slip when the purchases are rung up at the cash register, making them less salient to the consumer. In the targeted store, the researchers adjusted the price tags to display prices including the 7.375 percent sales tax. The result was a decline in sales of those items by 6 to 8 percent. Reminding shoppers of the tax at the time of purchase made for more cautious consumers, suggesting that most of them do not normally take into account the sales tax on such products.

To complement this experimental evidence, Chetty, Looney, and Kroft ran a second test using observational data over a longer time period and comparing the effect of price changes with tax changes. Here they focused on alcohol consumption, because alcohol is subject to both the (salient) excise tax, which is included in the shelf price, and the less-salient sales tax that appears only at the cash register. Looking at state-level changes in these two tax rates between 1970 and 2003, and at data on annual alcohol consumption by state, the researchers found that the drop in consumption attributable to increases in the excise taxes was measurably larger than the reduction caused by the increases in sales taxes. Thus, sales and excise taxes appear to induce different consumer behavior in both the short and the long run.

The researchers identify two possible explanations for why consumers under react to taxes that are not included in posted prices. One is that shoppers are ignorant of the sales tax rate or of which items are taxable. Another is that salience matters: that is, shoppers know what is taxed, yet still focus on the posted price.

To distinguish these explanations, Chetty, Looney, and Kroft surveyed supermarket customers and found that their awareness of the tax rate and of what items were taxable was very high. The researchers concluded that when shoppers make their purchases, they simply do not bother to compute tax-inclusive prices.

To explain this behavior and understand its implications for tax policy, Chetty, Looney, and Kroft develop a theoretical model of inattentive consumers and tax policy. Their first observation is that from an individual's perspective, the cost of not paying attention to taxes is actually quite small.

For example, they calculate that the value of learning about a 10 percent tax on an item that costs $1,000 (and thus choosing to spend less on that item) is only $5. Hence, it is not surprising that people who have limited time or attention ignore taxes. Surprisingly, though, the authors show that these same taxes can be quite important from a social perspective: a 10 percent tax raises a substantial amount of revenue for the government, and can create substantial social efficiency costs by distorting economic decisions.

In the authors' model, the tax policies differ substantially from the predictions of the traditional theory that assumes that everyone pays attention to all taxes. A key prediction of the traditional theory is that a tax creates an efficiency cost - that is, a loss of aggregate economic welfare - only to the extent that it reduces demand for the taxed good. In the authors' model of inattentive consumers, a tax can have a substantial efficiency cost even when the demand for the taxed good does not change.

This is because a tax that is completely ignored by consumers distorts consumption of other goods. For example, an individual who does not account for taxes on cars would over-spend on the car and end up with less money left than he would like for food or healthcare, reducing economic welfare.

Another implication of the model is that the incidence or pass-through of the tax -- that is, who ultimately bears the burden of paying the tax once price changes are taken into account -- depends on whether the tax is levied on consumers or firms. This result challenges the conventional wisdom that it does not matter if the government taxes consumers or firms, which again is based on the presumption that all individuals pay attention to taxes. The authors give the example of a cell-phone plan whose "sticker price" is $39.99 but whose actual price, including taxes and fees levied on the consumer, may be $47.00. If the same taxes were levied on the firm, it could only pass them through by raising the sticker price, thereby reducing demand. Therefore, firms would be more likely to bear the burden of the tax if it were levied on them rather than on the consumers.

The finding that individuals optimize inaccurately -- even with respect to relatively simple sales taxes -- suggests that similar issues may arise in the analysis of a broad set of government policies. The approach proposed by Chetty, Looney, and Kroft could shed light on a wide range of issues that have received attention in recent policy debates, such as consumption taxation (where taxes may be included in posted prices), social security reform (where the link between taxes paid and benefits received is currently not salient), and the value of simplifying the tax code.

Only higher investment would not correct trade deficit

Matt Nesvisky

By isolating composition, return, and timing effects, the researchers determine that essentially no positive differential exists for portfolio securities. That is to say, the positive and negative differentials that do appear from year to year balance themselves out, so that the average differential is virtually zero. "

Conventional wisdom holds that the United States consistently earns more on its foreign investments than foreigners earn on their U.S. investments - that is, that the United States enjoys a positive returns differential with the rest of the world. It is further believed that such a situation contributes to overall economic stability, or what has been called a "relatively benign continuation of global imbalances." But a quite different view emerges in The Stability of Large External Imbalances: The Role of Returns Differential (NBER Working Paper No. 13074) by Stephanie Curcuru, Tomas Dvorak, and Francis Warnock.

Studying data from the Treasury International Capital Reporting System compiled between January 1994 and December 2005, a period of rapid financial globalization, Curcuru, Dvorak, and Warnock analyze the country and asset class composition of U.S. portfolio claims (U. S. investments abroad) and liabilities (foreign investments in the United States). By isolating composition, return, and timing effects, the researchers determine that essentially no positive differential exists for portfolio securities. That is to say, the positive and negative differentials that do appear from year to year balance themselves out, so that the average differential is virtually zero.

The researchers find a positive composition effect, as global equities had higher returns than bonds, U.S. investments favor equities, and U.S. liabilities are weighted toward debts. But this composition effect is offset by a negative return effect. The U.S. equity markets performed well over the last dozen years, while bond returns were essentially equal around the developed world. So, in sum, U.S. securities yielded higher returns than foreign securities. Given that the negative return effect almost exactly offsets the positive composition effect, the researchers say that it is surprising that they find any return differential at all.

Their explanation for this is that investors in foreign countries, and especially in developed countries, have shown a lack of aptitude in shifting between U. S. bonds and equities. Curcuru, Dvorak, and Warnock find that foreigners tend to have a relatively high equity weight when U.S. equity prices have already peaked and a relatively low equity weight when U.S. equity prices are about to rise. This finding strongly suggests that foreign investors have exhibited poor timing in their portfolio decisions.

For example, in 1994 and 1995, U.S. equities outperformed U.S. bonds, so the buy-and-hold weight for January 1996 was considerably higher than the actual weight from January 1994 and the actual weight for January 1996. In fact, actual equity weights are lower than the buy-and-hold weights for most of the second half of the 1990s. Putting a low weight on U.S. equity during the late 1990s, the researchers point out, proved to be a poor decision, as U.S. equities performed spectacularly during that period.

When U.S. equities peaked in early 2000, foreigners' actual equity weights were higher than the buy-and-hold weights, indicating that foreign investors were buying stocks (or selling bonds), which proved profoundly unwise.

The same kind of poor timing shows up yet again during 2003 and 2004. Curcuru, Dvorak, and Warnock estimate that foreign investors might well have improved their returns by 70 basis points per year had their timing in reallocating between stocks and bonds been better.

Understanding why foreign investors consistently fail to anticipate shifts in relative returns on different classes of assets, the researchers say, is an important subject for future study. Factors like the accumulation of dollar reserves, or fluctuations in foreign currency values, do not seem to apply. It is important to know if the poor timing shown by foreign investors is more of a permanent phenomenon than a temporary one.

"Should foreign investors improve their timing," they write, "the U.S. external position would worsen at a faster pace. Our estimate of poor foreign timing is stable over our 12-year sample, but we have no confidence in its permanency. Increasing financial integration, cross-ownership of financial institutions, as well as improving information flows suggest that any skill advantage is unlikely to persist."

This means that the returns differential experienced by the United States would no longer be insignificant, but would in fact turn negative. U.S. investors therefore could no long count on earning more on their foreign investments than they pay on their foreign liabilities.

Another area that needs analysis, the researchers add, is foreign investors' reallocations within each asset class. The current assumption is that foreigners invest in market indices for both equity and bonds; that is, their allocations within each asset class matches that of the benchmark index for each asset class.

But if over time foreign investors' timing within asset classes is as poor as it seems to be between asset classes, then the true magnitude of timing and trading effects may well be underestimated.