Vol. 8, No. 1

Markku Lanne:
Co-integration and the term structure of Finnish short-term interest rates (pp. 3–16)


The term structure of Finnish HELIBOR interest rates is studied by modelling it as a co-integrated system. There are three co-integrating vectors among the six rates. They can be identified as the spreads between the two and one and three and one month rates, and a third vector tending to keep the yield curve linear. Co-integration analysis of partial systems suggests that it is only for the three shortest-term yields that the expectations hypothesis cannot be rejected. Recursive analysis reveals that the co-integratioll space has changed in time, which is not surprising given the changes in monetary policy regimes.

(JEL: C32, E43)

Pasi Holm:
Alcohol policy harmonization and trade liberalization in the Nordic countries (pp. 17–24)


In this paper, a partial equilibrium analysis is used to evaluate consequences of a partial alcohol policy harmonization and a trade liberalization in the Nordic countries. The former will reduce alcoholic beverage taxes and the latter will increase imports of alcoholic beverages. The effects on welfare contributed by the alcohol sector depend on three factors: firstly, whether the import restriction is implemented through quota or voluntary import restriction set by the EU; secondly, how a public monopoly producing an externality generating commodity behaves, i.e. is a public firm e.g. welfare or profit maximizer?; and thirdly, whether alcohol taxation in the EU is higher or lower than its Pigovian level in the Nordic countries.

(JEL: 615, 823, 1232)

Hannu Piekkola:
Foreign investment, international mergers and the 1993 capital income tax reform in Finland (pp. 25–39)


Foreign direct investment in Finland and the 1993 Finnish Capital Income Tax Reform are examined in this article. Under territorial taxation, the most common form of international double taxation relief; the tax reform will encourage new capital investment. New capital investment from the US, which applies worldwide taxation, would be mildly discouraged, and FDI in the form of mergers and acquisitions largely discouraged. In the UK and Japan, the worldwide principle only covers tax rates. Thus, lower statutory taxes have a negative effect on tax expenditure leading to jurther discouragement. Only when international investment is subject to double taxation rather than to a bilateral double taxation treaty do lower statutory taxes encourage FDI irrespective of their form.

(JEL: F21, F23, H25)

Elias L. Khalil:
On the scope of economics: what is the question? (pp. 40–55)


The paper attempts to identify the bone of contention concerning the extension of the neoclassical economic approach to traditional domains of other social sciences. The extension of the optimization hypothesis to the study of crime, status, and ideology – known as »economics imperialism> – definitely advances a universal social science. The paper tries to expose the crux of the debate surrounding such a broad scope of economics. The paper maintains that the central bone of contention concerns whether interest and moral commitment, understood as preferred interest, are commensurable as claimed by the optimization hypothesis of orthodox neoclassical economics. The paper argues, the commitment/interest commensurability issue is at the heart of the scope of economics debate. The paper tries to show that the universality of economics thesis is not about, first, whether moral utility is independent of pecuniary utility. Second, it is not about whether the taste for fine arts and the taste for American-style wrestling are commensurable. Third, the thesis is not about whether tastes are given or whether they are endogenously determined by sociocultural values. Fourth, the universality thesis is not about the tradeoff between self-interest and other-interest (i.e., altruism). For that matter, fifth, it is not about the determination of preferences per se. Rather, the paper maintains, the universality of economics thesis stands or falls depending on whether the taste for commitment (i.e., preferred moral principles and rules of justice) is smoothly substitutable with interest.

(JEL: D0, B4)

Gylfi Gislason:
Fisheries management in Iceland and J. Warming’s contribution to the economics of the fisheries (pp. 56–58)


In this paper I argue that the origin of the economics of the fisheries can be tracedback to a Danish Professor Jens Warming. In 1911 he published an article comparing the rent available from fishing grounds and land. He pointed out a common property qualification that open access fishing without charge tends to decrease the rent from fishing. He also discussed how to price fishing licenses to restrict the amount of fishing. In light of Warming’s contributions I also briefly discuss the construction of fishing licences in Iceland since 1984.

(JEL: O1, O2)

Finnish Economic Papers 1/1995