Showing papers in "IMF Working Papers in 2000"
TL;DR: Social capital is an instantiated informal norm that promotes cooperation between individuals as mentioned in this paper, which is a byproduct of religion, tradition, shared historical experience, and other types of cultural norms.
Abstract: Social capital is an instantiated informal norm that promotes cooperation between individuals. In the economic sphere it reduces transaction costs, and in the political sphere it promotes the kind of associational life that is necessary for the success of limited government and modern democracy. Although social capital often arises from iterated Prisoner’s Dilemma games, it also is a byproduct of religion, tradition, shared historical experience, and other types of cultural norms. Thus whereas awareness of social capital is often critical for understanding development, it is difficult to generate through public policy.
449 citations
TL;DR: In this article, the authors discuss some channels through which corruption affects growth such as the impact of corruption on enterprises, on the allocation of talent, and on investment, and also discuss some aspects of public finance.
Abstract: The paper discusses some channels through which corruption affects growth such as the impact of corruption on enterprises, on the allocation of talent, and on investment. It also discusses the impact of corruption on some aspects of public finance.
402 citations
TL;DR: In this paper, tax policy issues facing developing countries today are discussed from both the macroeconomic perspective, which focuses on broad questions such as the level and composition of tax revenue, and the microeconomic perspective focusing on certain design aspects of selected major taxes.
Abstract: This paper discusses important tax policy issues facing developing countries today. It views tax policy from both the macroeconomic perspective, which focuses on broad questions such as the level and composition of tax revenue, and the microeconomic perspective, which focuses on certain design aspects of selected major taxes, such as the personal income tax, the corporate income tax, the value-added tax, excises, and import tariffs. It provides a review of the rote of tax incentives in these countries, and identifies some policy challenges posed by the globalization of the world economy.
365 citations
TL;DR: In this article, the authors present estimates of the size of the shadow economy in 76 developing, transition, and OECD countries, which are derived by combining figures from different estimation methods.
Abstract: This paper presents estimates of the size of the shadow economy in 76 developing, transition, and OECD countries, which are derived by combining figures from different estimation methods. We describe and discuss the strengths and weaknesses of the different estimation methods. We find that the growth of the shadow economy—which is now remarkably large in the 76 countries—is strongly related to increasing burdens of taxation and social security contributions, as well as to the extent of state regulatory activities. Rising corruption also has a clearly positive impact on the growth of the shadow economy.
207 citations
TL;DR: This article explored the relationship between the degree of division or fractionalization of a country's population (along ethnolinguistic and religious dimensions) and both political instability and government consumption, using a neoclassical growth model.
Abstract: This paper explores the relationship between the degree of division or fractionalization of a country’s population (along ethnolinguistic and religious dimensions) and both political instability and government consumption, using a neoclassical growth model. The principal idea is that greater fractionalization, proxying for the degree of conflict in society, leads to political instability, which in turn leads to higher government consumption aimed at placating the opposition. There is also a feedback mechanism whereby the higher consumption leads to less instability as government consumption reduces the risk of losing office. Empirical evidence based on panel estimation supports this hypothesis.
160 citations
TL;DR: The main purpose of as discussed by the authors is to provide an overview of approaches to assessing fiscal sustainability, focusing on the present value budget constraint, which is the benchmark against which solvency is determined, tests of sustainability (including sustainability indicators), and sustainability and uncertainty.
Abstract: The main purpose of this paper is to provide an overview of approaches to assessing fiscal sustainability. It summarizes the general analytical background, focusing on the present value budget constraint, which is the benchmark against which solvency is determined, tests of sustainability (including sustainability indicators), and sustainability and uncertainty. The paper then looks at the way in which fiscal sustainability has been assessed in different types of IMF work. Finally the link between fiscal and external sustainability is discussed.
120 citations
TL;DR: In this article, the relevance of external, domestic, and financial weaknesses as well as trade and financial linkages in inducing financial crises for a sample of 61 emerging market and industrial countries was investigated empirically.
Abstract: This paper investigates empirically the relevance of external, domestic, and financial weaknesses as well as trade and financial linkages in inducing financial crises for a sample of 61 emerging market and industrial countries. A panel probit estimation finds these economic indicators to be significant for emerging market countries during the Mexican, Asian, and Russian crises. In particular, the indicators of vulnerability to international financial spillover (common creditor) and of financial fragility (reserve adequacy) are highly significant and appear to explain the apparent regional concentration of these crises. Exchange rate regimes and capital controls, however, do not seem to matter.
119 citations
TL;DR: In this article, the authors argue that corruption is largely a symptom of underlying weaknesses in public policies and institutions, a formulation that provides deeper insights into economic performance than do measures of perceived corruption.
Abstract: Recent studies have highlighted the adverse impact of corruption on economic performance. This paper advances the hypothesis that corruption is largely a symptom of underlying weaknesses in public policies and institutions, a formulation that provides deeper insights into economic performance than do measures of “perceived corruption.” The hypothesis is tested by assessing the relative importance of structural reforms vs. corruption in explaining macroeconomic performance in the transition economies. The paper finds that for four widely used measures of economic performance—growth, inflation, the fiscal balance, and foreign direct investment—structural reforms tend to dominate the corruption variable.
111 citations
TL;DR: In this article, the authors explore the behavior of emerging market mutual funds using a novel database covering the holdings of individual funds over the period January 1996 to March 1999, and find that, on average, funds withdrew money one month prior to the events.
Abstract: This paper explores the behavior of emerging market mutual funds using a novel database covering the holdings of individual funds over the period January 1996 to March 1999. An examination of individual crises shows that, on average, funds withdrew money one month prior to the events. The degree of herding among funds is statistically significant, but moderate. Herding is more widespread among open-ended funds than among closed-end funds, but not more prevalent during crises than during tranquil times. Funds tend to follow momentum strategies, selling past losers and buying past winners, but their overall behavior is more complex than often suggested.
105 citations
TL;DR: In this article, the authors extend the BEER approach which identifies an estimated equilibrium relationship between the real exchange rate and economic fundamentals, with the latter used to estimate the Permanent Equilibrium Exchange Rate, or PEER, for the U.S. and Canadian dollars and the pound sterling.
Abstract: In this paper we extend the BEER (Behavioral Equilibrium Exchange Rate) approach which identifies an estimated equilibrium relationship between the real exchange rate and economic fundamentals. Here the economic fundamentals are decomposed using Johansen cointegration methods into transitory and permanent components, with the latter used to estimate the Permanent Equilibrium Exchange Rate, or PEER, for the U.S. and Canadian dollars and the pound sterling. The BEER and the PEER move closely together for the U.S. and Canadian dollars and generally track the actual exchange rate. By contrast, for the pound sterling the BEER and the PEER diverge sharply, with the latter following the actual exchange rate quite closely.
96 citations
TL;DR: The authors analyzes panel data for 61 countries during 1980-97 and concludes that explicit deposit insurance tends to be detrimental to bank stability, more so where bank interest rates are deregulated and the institutional environment is weak.
Abstract: This study analyzes panel data for 61 countries during 1980–97 and concludes that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak. Also, the adverse impact of deposit insurance on bank stability tends to be stronger when the coverage offered to depositors is extensive, when the scheme is funded, and when it is run by the government rather than by the private sector.
TL;DR: This paper summarized the macroeconomic performance of the transition economies and found that both stabilization policies and structural reforms, particularly privatization, contribute to growth, and concluded that the faster is the speed of reforms, the quicker is the recovery and the higher is growth.
Abstract: This paper summarizes the macroeconomic performance of the transition economies. We first review the initial conditions confronting these economies, the reform strategy that was proposed, and the associated controversies that arose a decade ago. We then account for the widely different outcomes, highlighting the role of exogenous factors and the macroeconomic and structural policies adopted by the countries. We find that both stabilization policies and structural reforms, particularly privatization, contribute to growth. We also conclude that the faster is the speed of reforms, the quicker is the recovery and the higher is growth.
TL;DR: In this paper, the authors review the experience of economic growth during the twentieth century with a view to highlighting implications for both growth economists and policy-makers, and the possibility that the growth process will lead to another globalization backlash reminiscent of the 1930s is analyzed.
Abstract: This paper reviews the experience of economic growth during the twentieth century with a view to highlighting implications for both growth economists and policy-makers. The unprecedented divergence in income levels between the OECD economies and many developing countries is documented but so too is a more optimistic picture of widespread progress in terms of the Human Development Index. Various aspects of the changes in economic structure are explored in terms of their implications for growth performance both in retrospect and prospect. The possibility that the growth process will lead to another globalization backlash reminiscent of the 1930s is analyzed.
TL;DR: In this article, the authors present a framework to analyze how the revenue generated by an exhaustible source of wealth that belongs to the government should be distributed between current and future generations.
Abstract: This paper develops simple guidelines for fiscal policy in oil producing countries, focusing on three issues: intergenerational oil distribution, precautionary saving, and adjustment costs. The paper presents a framework to analyze how the revenue generated by an exhaustible source of wealth that belongs to the government should be distributed between current and future generations. This framework is used to show the strengths and limitations of existing answers, which motivates a new approach for dealing with this question. The paper derives simple, closed form approximations to the optimal level of government expenditure when an important part of government revenue is generated by an uncertain and exhaustible natural resource such as oil. Price uncertainty, budget uncertainty, and the (possibly asymmetric) costs of adjusting expenditure levels are considered.
TL;DR: An overview of the recent theoretical and empirical research on herd behavior in financial markets can be found in this paper, where the authors address the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?
Abstract: Policymakers often express concern that herding by financial market participants destabilizes markets and increases the fragility of the financial system. This paper provides an overview of the recent theoretical and empirical research on herd behavior in financial markets. It addresses the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?
TL;DR: In this article, the impact of corruption on the public provision of social services has not been analyzed, but the relevant theoretical models and users' perceptions of corruption in the public service provision of public goods have been reviewed.
Abstract: Government intervention to correct market failures is often accompanied by government failures and corruption. This is no more evident than in social sectors that are characterized by significant market failures and government intervention. However, the impact of corruption on the public provision of social services has not been analyzed. This paper reviews the relevant theoretical models and users’ perceptions of corruption in the public provision of social services. It then provides evidence that reducing corruption can result in significant social gains as measured by decreases in child and infant mortality rates, percent of low-birthweight babies, and primary school dropout rates.
TL;DR: In this article, the authors explore whether changes in the age distribution have significant effects on financial markets that are rational and forward-looking, and they present an overlapping generations model in which agents make a portfolio decision over stocks and bonds when saving for retirement.
Abstract: This paper explores whether changes in the age distribution have significant effects on financial markets that are rational and forward-looking. It presents an overlapping generations model in which agents make a portfolio decision over stocks and bonds when saving for retirement- Using the model to simulate a baby boom-baby bust demonstrates that returns to baby boomers will be substantially below returns to earlier generations, even when markets are rational and forward-looking. This result is important because the current debate over how to reform pay-as-you-go pension systems often takes historical returns on financial assets—and on the equity premium—as given.
TL;DR: In this paper, a gravity model is used to measure intra-Arab trade and Arab trade with the rest of the world, which suggests considerable scope for regional integration and multilateral integration.
Abstract: This paper estimates a gravity model to address the issue of whether intra-Arab trade is too little. Although gravity models have been extensively used to measure bilateral trade among countries, they have—to the best of our knowledge—never been used to measure intra-Arab trade. Our results suggest that intra-Arab trade and Arab trade with the rest of the world are lower than what would be predicted by the gravity equation, suggesting considerable scope for regional—as well as multilateral—integration. The results also suggest that intra-GCC and intra-Maghreb trade are relatively low while the Mashreq countries exhibit a higher level of intragroup trade.
TL;DR: In this paper, a number of different methods that can be used to estimate potential output and the output gap are reviewed. And the authors compare results from some of these methods to the case of Sweden, showing the range of estimates.
Abstract: This paper reviews a number of different methods that can be used to estimate potential output and the output gap. Measures of potential output and the output gap are useful to help identify the scope for sustainable noninflationary growth and to allow an assessment of the stance of macroeconomic policies. The paper then compares results from some of these methods to the case of Sweden, showing the range of estimates.
TL;DR: In this article, the authors used micro data from the German Socio-economic Panel to document that the wage structure in West Germany was remarkably stable during 1984-97, with little variation over time in wage or earnings inequality between and within different skill groups.
Abstract: This paper uses micro data from the German Socio-Economic Panel to document that the wage structure in West Germany was remarkably stable during 1984-97, with little variation over time in wage or earnings inequality between and within different skill groups. Empirical evidence suggests that this stability is attributable to institutional factors rather than market forces. The rigidity of relative wages, despite relative shifts in labor demand that favor skilled workers, has resulted in sharp declines in employment rates for unskilled workers. The microeconomic evidence is shown to have important implications for interpreting trends in wage shares, capital-labor ratios, and aggregate unemployment.
TL;DR: In this article, the authors consider the generic arguments for and against the creation of a unified regulatory agency, covering each of the main types of financial institutions (banks, insurers and securities firms).
Abstract: The paper considers the generic arguments for and against the creation of a unified regulatory agency, covering each of the main types of financial institutions (banks, insurers and securities firms). The strongest arguments for unification are the enhanced oversight of financial conglomerates and the economies of scale they can potentially deliver. However, there are also a number of potentially serious disadvantages to unification, especially the risk that the change process will be mismanaged and will result in a reduction in regulatory capacity. The issue requires careful deliberation and ultimately depends on a matrix of factors which vary in importance from country to country.
TL;DR: In this paper, the authors review the operational modalities and experience of oil funds currently in place in Norway, Chile (copper), the State of Alaska, Venezuela, Kuwait, and Oman, and draw some preliminary conclusions on their contribution to enhance fiscal management.
Abstract: The main purposes of this paper are to review the operational modalities and experience of oil funds currently in place in Norway, Chile (copper), the State of Alaska, Venezuela, Kuwait, and Oman, and to draw some preliminary conclusions on their contribution to enhance fiscal management. The outcome so far of their experience has been mixed, with differences among countries reflecting the variety of objectives attached to the funds, the challenges in adhering to established rules, the institutional set-up. and the soundness of the overall fiscal discipline in each country (or state).
TL;DR: This paper argued that globalization will affect governments' ability to continue providing this social protection at the level of recent decades, and that tax competition among jurisdictions, ballooning electronic commerce, and increased mobility of the factors of production will likely cause significant falls in tax revenue.
Abstract: Social protection in industrial countries has been provided through regulations, tax expenditures, and public spending. This paper argues that globalization will affect governments’ ability to continue providing this social protection at the level of recent decades. Specifically, tax competition among jurisdictions, ballooning electronic commerce, and increased mobility of the factors of production will likely cause significant falls in tax revenue in future years. The paper concludes that the welfare states need to look for alternative ways to provide social protection.
TL;DR: This article constructed the equilibrium real exchange rate, using an error correction model and a technique developed by Gonzalo and Granger (1995), and the evidence indicates that current account deficits and investor confidence also played significant roles in the sharp exchange rate depreciation.
Abstract: Did real overvaluation contribute to the 1991 currency crisis in India? This paper seeks an answer by constructing the equilibrium real exchange rate, using an error correction model and a technique developed by Gonzalo and Granger (1995). The results are affirmative and the evidence indicates that current account deficits and investor confidence also played significant roles in the sharp exchange rate depreciation. The ECM model is supported by superior out-of-sample forecast performance versus a random walk model.
TL;DR: In this article, the authors identify and discuss eight trends which may generate revenue falls and discuss some measures that might neutralize or reduce the impact of these trends, while also discussing some measures to mitigate the negative impact of such trends.
Abstract: Deepening globalization and associated or parallel technological and institutional developments are creating conditions which may reduce the industrial countries’ ability to sustain high levels of taxation. The paper identifies and discusses eight trends which may generate revenue falls. It also discusses some measures that might neutralize or reduce the impact of these trends.
TL;DR: In this paper, the authors discuss the strategic building blocks of pension reform and draw together the conclusions for policy design from earlier theoretical discussion, set out the prerequisites which any pension reform must respect, and discuss the range of choices facing policymakers.
Abstract: This paper discusses the strategic building blocks of pension reform. The early sections set out the simple economics of pensions and discuss a series of myths which have proved remarkably persistent. Subsequent sections draw together the conclusions for policy design from earlier theoretical discussion, set out the prerequisites which any pension reform must respect, and discuss the range of choices facing policymakers. The main conclusions are threefold: the key variable is effective government; from an economic perspective the difference between PAYG and funding is second order; and the range of potential choice over pension design is wide.
TL;DR: In this paper, the correlation between output growth and lagged stock returns in a panel of emerging market economies and advanced economies was studied and it was shown that the correlation is as strong in emerging markets as in advanced economies.
Abstract: This paper studies the correlation between output growth and lagged stock returns in a panel of emerging market economies and advanced economies. It finds that the correlation is as strong in emerging market economies as in advanced economies. Asset prices therefore contain valuable information to forecast output also in emerging market economies. Moreover, the paper finds that the strength of the correlation between output growth and lagged stock returns is significantly related to a number of stock market characteristics, such as the number of listed domestic companies and initial public offerings and, especially, a high market capitalization to GDP ratio and English legal origin.
TL;DR: The authors investigates the contagion from Russia to Brazil in late 1998 under two dimensions: players involved and the timing of events. But they do not support the hypothesis that it was the liquidity crisis in mature markets, and not the Russian crisis, that timed the crisis in Brazil.
Abstract: This paper investigates the contagion from Russia to Brazil in late 1998 under two dimensions— players involved and the timing of events. The data does not seem to reflect a compensatory liquidation of assets story by international institutional investors. It does contribute, however, to the suspicion that the contagion was triggered by foreign investors panicking from the Russian crisis, and joining local residents on their speculation against the Brazilian real. Adjusted correlations in the Brady market increase significantly during the crisis, which lends support to the view that if there was a contagion from Russia to Brazil, the most likely place of the transmission was the off-shore Brady market. Finally, the paper does not support the hypothesis that it was the liquidity crisis in mature markets, and not the Russian crisis, that timed the crisis in Brazil.
TL;DR: In this article, the relationship between international payments and the real exchange rate is studied and the authors present a model yielding testable implications on the long-run co-movements of real exchange rates, external positions, relative GDP and terms of trade, and cross-country and time-series evidence.
Abstract: The relationship between international payments and the real exchange rate—the “transfer problem”—is a classic question in international economics. We use new data on countries’ net external positions together with real exchange rate data to shed light on this question. We present a model yielding testable implications on the long-run co-movements of real exchange rates, external positions, relative GDP and terms of trade, and cross-country and time-series evidence on the subject. Countries with net external liabilities are found to have more depreciated real exchange rates, with the main channel of transmission working through the relative price of nontraded goods.