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Journal Cover IMF Working Papers
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   Full-text available via subscription Subscription journal  (Not entitled to full-text)
   ISSN (Print) 1018-5941
   Published by International Monetary Fund Homepage  [11 journals]
  • Tax Administration and Firm Performance : New Data and Evidence for
           Emerging Market and Developing Economies
    • Abstract: Tax compliance costs tend to be disproportionately higher for small and young businesses. This paper examines how the quality of tax administration affects firm performance for a large sample of firms in emerging market and developing economies. We construct a novel, internationally comparable, and multidimensional index of tax administration quality (the TAQI) using information from the Tax Administration Diagnostic Assessment Tool. We show that better tax administration attenuates the productivity gap of small and young firms relative to larger and older firms, a result that is robust to controlling for other aspects of tax policy and of economic governance, alternative definitions of small and young firms, and measures of the quality of tax administration. From a policy perspective, we provide evidence that countries can reap growth and productivity dividends from improvements in tax administration that lower compliance costs faced by firms.
      PubDate: 14 Apr 2017 09:00:00 EST
  • Demographic Changes in Latin America : The Good, the Bad and …
    • Abstract: The paper develops a simple, integrated methodology to project public pension cash flows and healthcarespending over the long term. We illustrate its features by applying it to the LAC5 (Argentina, Brazil, Chile,Colombia and Mexico), where public spending pressures are expected to increase significantly over 2015-50due to demographic trends and rising healthcare costs. We simulate alternative pension reforms, including thetransition from a defined benefit to a defined contribution pension system and the fiscal burden of a minimumguaranteed pension under the latter. We also analyze public healthcare outlays in the LAC5, which is likewiseexpected to increase significantly over 2015-50 due to aging and the so-called excess cost growth factor ofhealthcare services, showing that curbing the evolution of the latter (e.g., through enhanced competition in thehealthcare sector) could aid in containing spending pressures. Despite its simplicity, the methodology yieldsprojections that compare well with other approaches. It therefore provides a good benchmark for assessingalternative reform scenarios, particularly in data-constrained countries.
      PubDate: 13 Apr 2017 09:00:00 EST
  • Growth Inclusiveness in Djibouti
    • Abstract: The paper examines the poverty-reducing and distributional characteristics of Djibouti’s economic growth, and discusses policies that might help make growth more inclusive. It covers the period between 2002 and 2013, for which comparable household surveys are available. The main findings are that while in the past decade the overall level of poverty in Djibouti declined, there have been no clear signs of improvements in either equality or growth inclusiveness. Growth has not been inclusive and benefitted mainly those in the upper part of the income distribution. These conclusions should be treated as indicative. Progress in poverty reduction and inclusiveness would require not only sustained high growth but also the creation of opportunities in sectors with high earning potential for the poor. Better targeted social policies and more attention to the regional distribution of spending would also help reduce poverty and improve inclusiveness.
      PubDate: 13 Apr 2017 09:00:00 EST
  • Late to the game? Capital flows to the Western Balkans
    • Abstract: The boom and bust in capital flows to the New Member States of the European Union have received a considerable amount of attention; foreign direct investment and bank flows to the region and countries’ participation in regional supply chains have been well-documented. Relatively little has, however, been written about capital flows to the Western Balkans economies, which are often perceived to be ‘late arrivals’ to large capital flows. This paper aims to examine how capital flows to the Western Balkans compare with flows to the New Member States, in terms of levels as well as dynamics. We find that while financial integration took off somewhat later in the Western Balkans than in the New Member States, it has increased rapidly, despite still much lower capital account openness. Capital inflows as a share of GDP are comparable to those observed in the New Member States, (perhaps surprisingly) diverse in terms of source countries and broadly similar in composition, though with equity shares higher than they were in the New Member States at comparable levels of GDP per capita.
      PubDate: 07 Apr 2017 09:00:00 EST
  • Thick vs. Thin-Skinned : Technology, News, and Financial Market Reaction
    • Abstract: We study the impact of technology on the reaction of financial markets to information, focusing on the foreign exchange market. We contrast the “thin-skinned” view that technological improvements cause markets to react more to new information with the “thick-skinned” view that they react less. We pinpoint exogenous technological changes using the timing of the connection of countries via the submarine fiber-optic cables used for electronic trading. Cable connections dampen the response of exchange rates to macroeconomic news, consistent with the “thick-skinned” hypothesis. This is in line with the view that technology eases access to information and reduces trend-following behavior. According to our estimates, cable connections reduce the reaction of exchange rates to U.S. monetary policy news by 50 to 80 percent.
      PubDate: 07 Apr 2017 09:00:00 EST
  • Challenges in Correspondent Banking in the Small States of the Pacific
    • Abstract: Access to financial services in the small states of the Pacific is being eroded. Weaknesses in Anti-Money Laundering and Combating the Financing of Terrorism compliance in the context of high levels of remittances are contributing to banks’ decisions to withdraw corresponding banking relationships and close bank accounts of money transfer operators. In this paper, we gather evidence on these developments in the small states of the Pacific, discuss the main drivers, and the potentially negative impact on the financial sector and macroeconomy. We then identify the collective efforts needed to address the consequences of withdrawal of corresponding banking relationships and outline policy measures to help the affected countries mitigate the impact.
      PubDate: 07 Apr 2017 09:00:00 EST
  • Policy, Risk and Spillover Analysis in the World Economy : A Panel Dynamic
           Stochastic General Equilibrium Approach
    • Abstract: This paper develops a structural macroeconometric model of the world economy,disaggregated into forty national economies, to facilitate multilaterally consistentmacrofinancial policy, risk and spillover analysis. This panel dynamic stochastic generalequilibrium model features a range of nominal and real rigidities, extensivemacrofinancial linkages, and diverse spillover transmission channels. Thesemacrofinancial linkages encompass bank and capital market based financialintermediation, with financial accelerator mechanisms linked to the values of the housingand physical capital stocks. A variety of monetary policy analysis, fiscal policy analysis,macroprudential policy analysis, spillover analysis, and forecasting applications of theestimated model are demonstrated. These include quantifying the monetary, fiscal andmacroprudential transmission mechanisms, accounting for business cycle fluctuations, andgenerating relatively accurate forecasts of inflation and output growth.
      PubDate: 04 Apr 2017 09:00:00 EST
  • Tax Administration Reforms in the Caribbean : Challenges, Achievements,
           and Next Steps
    • Abstract: Over the past decade, governments in the Caribbean region have introduced the value-added tax (VAT) to modernize their tax system, rapidly mobilize revenue and reduce budget deficits. This paper analyzes VAT performance in the region and concludes that while it has boosted revenues, the VAT has not reached its potential. Intended as a broad-based tax with limited exemptions, a single rate and zero-rating confined to exports, the VAT’s design often lacks these characteristics.The paper also finds that although tax administration reforms can boost revenues, countries have just started to address organizational inefficiencies, data integrity issues, and operational ineffectiveness. These reforms need to intensify in order to have a more significant impact on compliance and revenue.
      PubDate: 04 Apr 2017 09:00:00 EST
  • Labor Market Institutions and the Cost of Recessions
    • Abstract: This paper studies the effect of two labor market institutions, unemployment insurance (UI) and jobsearch assistance (JSA), on the output cost and welfare cost of recessions. The paper develops atractable incomplete-market model with search unemployment, skill depreciation duringunemployment, and idiosyncratic as well as aggregate labor market risk. The theoretical analysisshows that an increase in JSA and a reduction in UI reduce the output cost of recessions by makingthe labor market more fluid along the job finding margin and thus making the economy moreresilient to macroeconomic shocks. In contarst, the effect of JSA and UI on the welfare cost ofrecessions is in general ambiguous. The paper also provides a quantitative appliation to the Germanlabor market reforms of 2003-2005, the so-called Hartz reforms, which improved JSA (Hartz IIIreform) and reduced UI (Hartz IV reform). According to the baseline calibration, the two labormarket reforms led to a substantial reduction in the output cost of recessions and a moderatereduction in the welfare cost of recessions in Germany.
      PubDate: 03 Apr 2017 09:00:00 EST
  • Fiscal Crises
    • Abstract: A key objective of fiscal policy is to maintain the sustainability of public finances and avoid crises. Remarkably, there is very limited analysis on fiscal crises. This paper presents a new database of fiscal crises covering different country groups, including low-income developing countries (LIDCs) that have been mostly ignored in the past. Countries faced on average two crises since 1970, with the highest frequency in LIDCs and lowest in advanced economies. The data sheds some light on policies and economic dynamics around crises. LIDCs, which are usually seen as more vulnerable to shocks, appear to suffer the least in crisis periods. Surprisingly, advanced economies face greater turbulence (growth declines sharply in the first two years of the crisis), with half of them experiencing economic contractions. Fiscal policy is usually procyclical as countries curtail expenditure growth when economic activity weakens. We also find that the decline in economic growth is magnified if accompanied by a financial crisis.
      PubDate: 03 Apr 2017 09:00:00 EST
School of Mathematical and Computer Sciences
Heriot-Watt University
Edinburgh, EH14 4AS, UK
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Fax: +00 44 (0)131 4513327
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