This paper attempts to evaluate the public finance implications of financial liberalization in Cyprus. It argues that a complete assessment of a cost benefit analysis of abolishing capital controls should include the public finance aspect of capital controls. An attempt is made to quantify the size of this revenue in the case of Cyprus.

 

 

Recent theoretical contributions in the area of finance and development, argue that "liberalised" financial markets is the best way onto a higher rate of economic development. The policy implications of this thesis seem to have been endorsed by the monetary policy makers in Cyprus. This paper argues that the liberalisation thesis is marred by a number of problems, both theoretical and empirical. The paper argues strongly that administered interest rates is still the best policy prescription for developing economies. This is so since such policy would ensure that lending rates are maintained sufficiently low, a fundamental prerequisite for healthy economic development.

 

 

The paper begins by describing three important macroeconomic approaches to the measurement of the underground economy. Estimates of the size of the underground economy in Cyprus are then discussed. The estimates are derived using a method first applied by Tanzi to data for the United States. Using annual times series data for the period 1960-1990 the size of the underground economy in Cyprus is estimated to have averaged 8.8 per cent of GNP during the 1980s.

 

 

One of the important macroeconomic characteristics of the labour market in Cyprus which has attracted considerable attention is the exceptionally low rate of unemployment that has prevailed in the last thirty years. One of the questions that we want to investigate therefore is why unemployment has remained so low for so long. This paper looks at the labour market in detail and describes some important empirical characteristics. It must be stressed from the outset that in writing the paper the main objective is to provide a broad understanding of the working and problems of the labour market in Cyprus which will provide an agenda for future work on the topic.