Volume 21, Issue 1, 1991

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Articles:

  • On the Real Exchange Rate as a Measure of Australia’s External Competitiveness (A.P. Layton and J. McLaren)
  • Grants Commission Assessment of Local Government Debt Servicing and Capital Expenditures (B. Burgan, S. McDonald and N. Thomson)
  • Educational Attainment and the Returns to Education for Australian Youth: Evidence of Self-Selection? (N. Gaston, R. Sturm)
  • Some Australian Evidence on the Consensual Approach to Poverty Measurement (P. Saunders and B. Bradbury)
  • Book Reviews

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On the Real Exchange Rate as a Measure of Australia’s External Competitiveness

A.P. Layton and J. McLaren

Pages: 1-13

Abstract:
The use of a country’s real effective exchange rate as a measure of external competitiveness implicitly assumes that, in the long run, purchasing power parity prevails between the country and its trading partners [Dornbusch (1985)].  A testable definition of long run equilibrium existing among non-stationary time series is provided in the recently developed theory of cointegration [Engle and Granger (1987)].  The paper extends earlier U.S. work in this area by Layton and Stark (1990) by investigating the existence of such a long run ‘statistical equilibrium’ between measures of the Australian inflation rate and an effective exchange rate adjusted inflation rate computed from Australia’s major trading partners.

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Grants Commission Assessment of Local Government Debt Servicing and Capital Expenditures

B. Burgan, S. McDonald and N. Thomson

Pages: 15-28

Abstract:
The Commonwealth Government provides funds to local government via the States.  Each State is required (via the State Grants Commission) to distribute those funds in compliance with the provisions of the Local Government (Financial Assistance) Act.  In essence, the Act requires the State Commissions to estimate the relative needs of each local government authority (LGA) based upon revenue-raising capacity and differences in the cost of providing public services.  It is this latter aspect that is the focus of this paper.
At present most State Grants Commissions consider costs differentials associated with all major expenditures except debt servicing (with only Victoria and Western Australia making some allowance).  No State Commission makes allowance for capital expenditures financed out of current budgets.  Debt servicing is a particularly important cost for many LGAs and the potential exists for quite substantial differences in the cost of debt incurred.  These differences may depend upon the timing of the debt (and therefore the interest rate), the primary cost of expenditures to which the debt relates and an unequal distribution of the burden of shortfall between the funds provided by the Commonwealth and the effort-neutral budget deficit of LGAs.
This paper demonstrates the case for both a debt servicing and capital expenditure cost component in Grants Commission assessment, and shows that in practice, taking account of the differences in these costs between LGAs can be relatively simple.  The inclusion of these costs ensures a comprehensive assessment of the relative needs of local government.

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Educational Attainment and the Returns to Education for Australian Youth: Evidence of Self-Selection?

N. Gaston, R. Sturm

Pages: 29-45

Abstract:
Debates concerning the re-introduction of tertiary fees in Australia have made rates of return on education an active topic for investigation.  This paper provides estimates of the returns to education that allow for worker heterogencity and individual self selection in the education process.  Using data drawn from the Australian Longitudinal Survey, a sequential estimation procedure is used that enables us to study the interaction between educational attainment and earnings determination.  We find that traditional OLS measures of rates of return to education are understated and hence, counsel caution in the interpretation and use of the estimated returns provided by some authors.

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Some Australian Evidence on the Consensual Approach to Poverty Measurement

P. Saunders and B. Bradbury

Pages: 47-78

Abstract:
Estimates of poverty in Australia have relied exclusively on the Henderson poverty line, despite extensive criticism of its relevance to contemporary Australian conditions.  This paper analyses data from Morgan Gallup Poll (MGP) surveys on the minimum income required by an Australian family of four to keep in health and live decently in order to assess community views on minimum income levels required in Australia.  Analysis of how the average response to the MGP question has changed over the last four decades suggests that community views of adequate minimum income levels are adjusted upwards in line with average income levels.  This evidence suggests that Australians see poverty more in relative than absolute terms.  Data from the July 1987 MGP survey are then used to derive a consensual poverty line based on responses to the minimum income question.  The resulting poverty line is well above the Henderson poverty line.  The survey data are then used to provide an estimate of poverty among families of four in July 1987 and to investigate some aspects of how family needs vary with family circumstances.

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Book Reviews:

Pages: 81-104

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