Dictators and binding revolution constraints

The dictator’s approach to electoral patterns;

Democracies rarely repress their own citizens but authoritarian and totalitarian regimes do. According to one estimate (See Table 1), of the 110 million persons repressed by Marxist-Leninist regimes in the twentieth century, more than 90% were their own citizens. In democracies, less than 0.5% of victims were own citizens. It is statistics, such as these, that suggest some "generality" in Stalin's behaviour. Empirical studies also suggest that totalitarian regimes generate more "violence" than democracies (Mulligan, Gil, Sala-I-Martin, 2004)...

Our model suggests that the number of eliminations depends on the probability of correctly identifying enemies, the number of enemies, and the “threat” that the enemy poses. Although we are unable to “prove” our model based on the stylised facts of the three repressions, we can show that the model is consistent with these facts. The model makes one prediction that is consistent with Stalin’s observed behaviour that is far from intuitively obvious. A rational dictator will deliberately eliminate innocent citizens and will eliminate more innocents when enemies are difficult to identify. Stalin’s slaughter of innocents is cited by historians as a sign of his mental derangement, but in our model it is the predicted behaviour of a dictator facing a binding revolution constraint.

Assorted Pakistan

Demand Analysis For Tax Reform In Pakistan
Angus Deaton and F. Grimard

Abstract: Pakistan, like many LDCs, derives most of government revenue from indirect taxation. However, the system of taxes and subsidies has grown up piecemeal over the years. Previous exercises in price reform for Pakistan have been forced to make very restrictive assumptions about consumer preferences, and have typically used demand systems that prejudge what are the desirable directions of price reform. In this paper, the methodology of Deaton (1988, 1991) is extended and applied to the 1984-85 Household Income and Expenditure Survey. A theory of quality variation based on separable preferences is developed, and the implications for welfare and empirical analysis laid out. The prices of oils and fats and of sugar do not vary very much in the survey data, and the symmetry and homogeneity restrictions from the theory play an important part in obtaining sharp estimates of own and cross-price elasticities. The parameter estimates suggest that there are significant cross-price elasticities between the high-calorie foods and the presence of these substitution patterns means that the effects of potential price reforms are quite different from those that would be estimated using the traditional assumptions. Based on demand patterns alone, it would be desirable to raise government revenue by raising the consumer price of rice. However, in Pakistan it is not generally possible to decouple the producer and consumer prices of rice.

Zakat and Inequality: Some Evidence from Pakistan

This paper presents empirical evidence on the extent to which zakat---a form of religiously-mandated charity under Islam---achieves its intended objective in Pakistan. Detailed income and expenditure data from Pakistan's Household Income and Expenditure Survey for 1987-88 are used to construct two income distributions---one containing the distribution of income which would have obtained if relevant forms of charity were not given, and one containing the distribution of income which obtains under a regime in which such charitable giving takes place. Atkinson-Kolm-Sen (AKS) ethical relative indices of income inequality are computed for Pakistan and each of its four provinces, for each of these two income distributions, and are compared over a range of parameter values. Evidence is found that zakat does redistribute from the better off to the worse-off, and so achieves some reduction in measured income inequality in Pakistan. Both intra-province and inter-province components of over-all inequality decline, though the amount of change is generally small. These conclusions are shown to be robust to a wide range of normative values the investigator may select.

An Islamic Perspective on Inequality in Pakistan;

This paper examines the distribution of income in Pakistan, and in each of its four provinces, from an explicit and formal Islamic perspective. A cardinally significant Atkinson--Kolm--Sen relative index of inequality reflecting that perspective is proposed and computed from the full HIES data series for the years 1984-85, 1985-86, 1986-87, and 1987-88. There is evidence of a significant decline in overall inequality in Pakistan from 1984-85 to 1987-88, but the level of inequality remains very high. Inter--province and inter--urban/rural differences in inequality profiles within Pakistan and each of its provinces are found to be generally less significant than intra--province and intra--urban/rural differences.

Optimal Disaster Insurance

On the Optimal Design of Disaster Insurance in a Federation
by Timothy J. Goodspeed and Andrew F. Haughwout

Abstract: Recent experience with disasters and terrorist attacks in the US indicates that state and local governments rely on the federal sector for support after disasters occur. But these same governments are responsible for investing in infrastructure designed to reduce vulnerability to natural and man-made hazards. This division of responsibilities – regional governments providing protection from disasters and federal government providing insurance against their occurrence – leads to the tension that is at the heart of our analysis. We explore these tensions building on the model of Persson and Tabellini (1996). We show that when the federal government is committed to full insurance against disasters, regions will have incentives to underinvest in costly protective measures. We derive the structure of the optimal second-best insurance system when regional governments choose investment levels non-cooperatively and the central government cannot verify regional investment choices. Surprisingly, second-best transfer levels (and the corresponding regional investment levels) can be greater or less than their first-best counterparts, depending on the relative probability of a disaster. If the probability of a disaster is low, secondbest transfers will be designed to reward regions that succeed in avoiding disasters and punish those that do not, thereby giving regions an incentive to increase investment in protective infrastructure. However, this raises the further question of whether the central government can credibly commit to such a scheme, and we find that ex-post an optimizing central government will decrease transfers if a region provides protective infrastructure that increases its expected future income, generating a soft-budget constraint for regions. This provides an additional incentive for regions to underinvest in protective infrastructure. We discuss these results in light of recent disaster policy outcomes in the US.

From World Banker to World Venture Capitalist

From World Banker to World Venture Capitalist:US External Adjustment and the Exorbitant Privilege
by Pierre-Olivier Gourinchas, Hélène Rey

Does the center country of the International Monetary System enjoy an "exorbitant privilege" that significantly weakens its external constraint as has been asserted in some European quarters? Using a newly constructed dataset, we perform a detailed analysis of the historical evolution of US external assets and liabilities at market value since 1952. We find strong evidence of a sizeable excess return of gross assets over gross liabilities. Interestingly, this excess return increased after the collapse of the BrettonWoods fixed exchange rate system. It is mainly due to a "return discount": within each class of assets, the total return (yields and capital gains) that the US has to pay to foreigners is smaller than the total return the US gets on its foreign assets. We also find evidence of a "composition effect": the US tends to borrow short and lend long. As financial globalization accelerated its pace, the US transformed itself from a World Banker into a World Venture Capitalist, investing greater amounts in high yield assets such as equity and FDI. We use these findings to cast some light on the sustainability of the current global imbalances.

Empirical Tests of the Ricardian trade model

• G. D. A. MacDougall, "British and American Exports: A Study Suggested by the Theory of Comparative Costs," Economic Journal, December 1951 (Part I: pp. 697–724) and September 1952 (Part II: pp. 487–521). Reprinted in R. E. Caves and H. G. Johnson, Readings in International Economics (Homewood, Ill.: Irwin, 1968), pp. 553–578.

• R. M. Stern, "British and American Productivity and Comparative Costs in International Trade," Oxford Economic Papers, October 1962, pp. 275–296.

• B. Balassa, "An Empirical Demonstration of Classical Comparative Cost Theory," Review of Economics and Statistics, August 1963, pp. 231– 238.

• S. S. Golub and C. T. Hsieh, "The Classical Ricardian Theory of Comparative Advantage Revisited," Review of International Economics, May 2000.

• Sources of International Comparative Advantage

Source: Salvatore, International Economics

Recently from the Fund

Where Did All the Aid Go? An Empirical Analysis of Absorption and Spending

Terms of Trade Shocks and Economic Recovery

Big Government, High Debt, and Fiscal Adjustment in Small States

Issues in Central Bank Finance and Independence

Where Did All the Borrowing Go? A Forensic Analysis of the U.S. External Position
Islamic Banks and Financial Stability: An Empirical Analysis

The Impact of Trade Liberalization on the Trade Balance in Developing Countries

Evaluating Alternative Approaches to Poverty Alleviation: Rice Tariffs versus Targeted Transfers in Madagascar


Tax Rate Cuts and Tax Compliance--The Laffer Curve Revisited

Assorted Macro

Global Imbalances and the Global Saving Glut – A Panel Data Assessment

A SURVEY OF RECENT DISCOURSE ON THE GLOBAL IMBALANCES

The increase in “global imbalances” has often been cited as a key risk to the global economy and financial system. This paper surveys a broad spectrum of perspectives on this complex and multi-dimensional issue, and provides a brief historical account of the workings of the Bretton Woods system. By considering recent history and taking into account latest developments in the global trade and financial arena, we aim to provide a useful platform on which discussions about the implications arising from these imbalances can be framed. In this regard, we note that on one side of this debate, a number of economists have argued that the growing trade imbalances – with a corresponding reduction in “home bias” on the financial front – merely reflected the largely beneficial effects of globalization. This benign view stresses the efficient intermediation role of the global financial system. Some have also characterized the present system as a form of Bretton Woods II arrangement, with theUS as the core country and Asia ex-Japan as the new periphery. Others, however, are of the view that the present global imbalances are inherently unsustainable. Such imbalances reflect ever rising US external debt and persistently low US saving. Eventually, foreign investors might become increasingly reluctant to raise their holdings of US assets. Although the evolution of the deficit and conditions in financial markets have been rather benign in recent years, proponents of this view caution against complacency.

Asset prices and monetary policy: booms and fat tails in East Asia

Do housing and equity booms significantly raise the probability of extremely bad outcomes at the margin? This study addresses this question for a group of 8 East Asian countries. The main findings are the following: (i) Asset price booms in housing and equity markets, either separately or jointly but especially in housing, significantly raise the probability at the margin that (a) the real output gap will be in the left tail of its distribution, in which output is significantly below trend, and (b) the price-level gap will be in the right tail of its distribution, in which the price level is significantly above trend. At the margin, the risk of the occurrence of these particular tail events due to asset price booms is largely asymmetric and does not apply to the tails of good outcomes; and (ii) Expected real output and price level outcomes that are either obtained without conditioning on asset price booms or are obtained conditional on asset price booms using the normal approximation underestimate the risk of tail events and lead to less pessimistic but misleading inferences. One implication for monetary policy is that an approach that is ex-ante more compatible with risk management may be appropriate.

Presentation on the Global Economy by Simon Johnson

Assorted IMF and World Bank

World Bank Group To Implement Volcker Report

National Income Statistics online course

Dictating Loans

World Bank Summer Internship Program- deadline January 31, 2008

Colombia: Selected Issues

Fair Growth: Economic Policies for Latin America's Poor and Middle-Income Majority

Evaluating Alternative Approaches to Poverty Alleviation: Rice Tariffs versus Targeted Transfers in Madagascar

Brown says radical changes needed to IMF and World Bank

Reading for the week

No Exit: Framing the Problem of Justice by Tom Palmer

Careers of New York Prostitutes

An interesting paper from Sudhir A. Venkatesh, "Vice Careers: The changing contours of sex work in New York City,",

In the mid-1990s, changes to law enforcement strategies in New York City pushed many women working in the sex trade off of the streets and into the indoors. Increasing numbers of women began advertising sexual services in bars, over the Internet, and in print media, and conducting their work in their homes, hotels, and brothels. This study uses in-depth interviews and participant observation to examine the impact of this change on the life and work of women working in New York’s indoor sex trade. A critical finding is that as women move their work indoors, they begin to conceive of sex work as a profession and a career, rather than just a short-term means of employment. This “professional and careerist orientation” may have significant implications for the length of women’s tenure in sex work and ultimately, for their ability to exit the trade completely.

Some random excerpts from the paper;

As Whelehan (2001) writes, “Female prostitutes in the U.S. and cross-culturally can earn as much or more in the kind of work that they do than for comparably paid work in the straight world given their skills and levels of education”

In one Chicago based study on sex workers, 71% of respondents reported that someone that they knew had suggested selling sexual services. Of those who suggested prostitution, 45% were friends of the respondent, 24% cousins, 19.6% a boyfriend or girlfriend, 14.4% a sister, 7.2% were live-in partners of a parent, and 6.5% were the respondent’s mother (Raphael & Shapiro 2002).

For example, in one study, 67.5% of sex worker respondents reported spending most of their sex work income on rent and household bills, and settlement of personal and household-related debts. While a number of women reported spending significant amounts of money on drugs and alcohol, 87.5% of the sample did not prioritize spending money on material goods and considered them to be “extras” (Sharpe 1998)

Numerous women spoke of sex work as an “addiction.” Allison, who has worked as an escort and who currently works independently soliciting clients in bars and clubs, says, “It's addicting. The work, it definitely, it becomes a lifestyle.”

When asked to describe a time when she had been forced to do something she did not want to do, one woman in our indoor-based sample responded, “He had me fuck his son, a little kid. It was disgusting but he gave me $500.” Similarly painful, one woman recounted her experience with being threatened and beaten up for being a sex worker:

I got beat up twice, both times by a cop. Both of them wanted me to suck their dicks for free, right in the car. I said no, because I really don't like being in the cop cars. But, they said I had to and pulled their dicks out and just grabbed my head and pushed me down there. The first time I bit the guy on his dick. He just screamed and started beating me with his stick. I passed out. I don't know for how long. I was just laying there and when I woke up it was almost morning.

Ebony, for example, is an independent escort who is planning to relocate to California where she believes she can maximize her potential as a sex worker. She feels that there is greater opportunity to earn money in the sex trade in California. She anticipates making $5,000 a week there by seeing only five clients, money which she hopes will support family planning and retirement. For Ebony, making such money by seeing so few clients demarcates her attainment of success in the trade, and thus her achievement of upward mobility within the industry. Ebony hopes to marry and have children, desires which she does not view as antithetical to sex work.

Women frequently drew parallels between indoor sex work and legal work in a way that tempered exit. Many of them said legal work could be considered a form of “prostitution.” As Nancy reflected:

I look at what other people do, the jobs that they have, and all I can think about is what little money they make working these jobs. I think people are forced to take these legal jobs. But really, I think they are just another form of prostitution. In fact, if you ask me, the housewife is really the biggest form of prostitution. You don’t have to be out there to be a sex worker, you know. And you know, it’s hard to get out when the money is so easy. I tried to start over completely after jail but it was hard. The money and way of making it means, it means that sex work is not hard to leave but it’s, it’s very easy to stay in.

At the end of the day, may be we all are prostitutes.

Recently from the Fund

Banks During the Argentine Crisis: Were They All Hurt Equally? Did They All Behave Equally?
Adolfo Barajas, Emiliano Basco, V Hugo Juan-Ramón and Carlos Quarracino

Escaping from the Resource Curse: Evidence from Botswana and the Rest of the World
Atsushi Iimi

Price Variability Under Price Level Stability—A Study of Sierra Leone's Price Dynamics Using Micro-Level Price Data
Arto Kovanen

Volatility of Development Aid: An Update
Aleš Bulíř and A Javier Hamann

Exchange Rate Volatility and Reserves Transparency
John Cady and Jesus Gonzalez-Garcia

The Political Economy of Normal Macroeconomic Pathologies
Shanker Satyanath and Arvind Subramanian

Deficit Limits and Fiscal Rules for Dummies
Paolo Manasse

Work Absence in Europe
Lusine Lusinyan and Leo Bonato

Is Housing Wealth an "ATM"? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates
Vladimir Klyuev and Paul Mills

Spending Seigniorage: Do Central Banks Have a Governance Problem?
Alain Ize

The Employment Effects of Labor and Product Market Deregulation and Their Implications for Structural Reform
Helge Berger and Stephan Danninger

Equilibrium Exchange Rates: Assessment Methodologies
Isard, Peter

Do Reserve Portfolios Respond to Exchange Rate Changes Using a Portfolio Rebalancing Strategy? An Econometric Study Using COFER Data
Lim, Ewe-Ghee

Border and Behind-the-Border Trade Barriers and Country Exports
Sadikov, Azim M.

Use of Participatory Notes in Indian Equity Markets and Recent Regulatory Changes
Singh, Manmohan

Stochastic Volatilities and Correlations, Extreme Values and Modeling the Macroeconomic Environment, Under Which Brazilian Banks Operate
Barnhill, Theodore M. and Souto, Marcos

Changing Nature of North-South Linkages: Stylized Facts and Explanations
Akin, Cigdem | Kose, M. Ayhan

A growing public

Another question from Delong;

What reasons are there to think that the role of the federal government will grow further in the next half century? What reasons are there to think that the growth of the federal government in the past 80 years has carried it beyond its sustainable size, and that its size will decline in the next half century?

A related recent paper from the Fund;
Government for the People: On the Determinants of the Size of U.S. Government

From World Bank Research

World Bank Research E-Newsletter

-World Development Report 2009

Economic activity becomes increasingly concentrated with development. As this happens, substantial disparities in welfare can emerge between rural and urban areas, between leading and lagging regions within countries and, perhaps most dramatically, between countries in different parts of the world. The objective of the World Development Report (WDR) 2009 "Seeing Development in 3D" is to identify and understand the interactions between economic geography, growth, and living standards, and to draw the implications of these interactions for policy. WDR 2009 charts the changes in the three spatial dimensions of economic activity and household welfare: rising density, falling distance and persisting division. The WDR will highlight the dimensions and significance of spatial forces that shape economic development; and recommend policies to facilitate the spatial transformations necessary to sustain economic growth, reduce disparities in welfare, and reduce poverty. The report aims to reframe three important policy debates: on urbanization in developing countries; on territorial development policies; and on the pros and cons of regional integration.

Analyzing health equity using household survey data

Equity has long been considered an important goal in the health sector. Yet inequalities persist between poor people and those who are better off, with the poor tending to suffer higher rates of mortality. They also often tend to use health services less, despite having higher levels of need. A new book entitled “Analyzing Health Equity Using Household Survey Data” by O’Donnell, Doorslaer, Wagstaff, and Lindelow provides rigorous analytic techniques for both measurement and analysis of such inequalities, with a view to stimulating health equity research that can support the design and evaluation of health policies and programs. The book offers researchers and analysts a step-by-step practical guide to key analytic techniques in health equity analysis, with examples and computer code, mostly for the Stata program.

Does employment generation really matter for poverty reduction ?

Does employment generation really matter for poverty reduction ?

Summary: This paper analyzes how the employment/productivity profile of growth and its sectoral pattern are correlated with poverty reduction. The authors use a sample of 104 short-run growth spells in developing countries, between 1980 and 2001. They also identify some conditions of the labor market and the economic environment that are associated with employment-intensive growth or specific sectoral growth. The results show that, in the short run, although the aggregate employment-rate intensity of growth does not matter for poverty reduction any more than the aggregate productivity intensity of growth, the sectoral pattern of employment growth and productivity growth is important. Employment-intensive growth in the secondary sector is associated with decreases in poverty, while employment-intensive growth in agriculture is correlated with poverty increases. Similarly, productivity-intensive growth in agriculture is associated with decreases in poverty. Although the study does not address causality, coincidence of these phenomena in this large sample of heterogeneous countries and periods suggests that, in the short run, the sectoral productivity and employment pattern of growth may have important implications for poverty alleviation. Therefore, policies for reducing poverty should not overlook the sectoral productivity and employment implications of different growth policies.

Recently from the Fund and Bank;
Simple Monetary Rules Under Fiscal Dominance
Do Remittances to Latin America Depend on the U.S. Business Cycle?

African Parliamentarians Discuss Ways to Promote Good Governance in the Management of Public Finance
Another Bangladesh Paradox?

Poverty reduction without economic growth ? explaining Brazil's poverty dynamics, 1985-2004
The composition of public expenditure and growth : a small-scale intertemporal model for low-income countries

Russian WTO accession : what has been accomplished, what can be expected
The determinants of HIV infection and related sexual behaviors : evidence from Lesotho
Insurance, credit, and technology adoption : field experimental evidence from Malawi

Statistical analysis of rainfall insurance payouts in southern India
Distributional effects of educational improvements :are we using the wrong model ?
Comparative analysis of labor market dynamics using markov processes : an application to informality

Assorted Working Papers

From World Bank;

Measuring ancient inequality ( a must read)by Milanovic,Branko; Lindert, Peter H.; Williamson, Jeffrey G.;

Summary: Is inequality largely the result of the Industrial Revolution? Or, were pre-industrial incomes and life expectancies as unequal as they are today? For want of sufficient data, these questions have not yet been answered. This paper infers inequality for 14 ancient, pre-industrial societies using what are known as social tables, stretching from the Roman Empire 14 AD, to Byzantium in 1000, to England in 1688, to Nueva España around 1790, to China in 1880 and to British India in 1947. It applies two new concepts in making those assessments - what the authors call the inequality possibility frontier and the inequality extraction ratio. Rather than simply offering measures of actual inequality, the authors compare the latter with the maximum feasible inequality (or surplus) that could have been extracted by the elite. The results, especially when compared with modern poor countries, give new insights in to the connection between inequality and economic development in the very long run.

Bank privatization in Sub-Saharan Africa : the case of Uganda commercial bank

Analyzing the impact of legislation on child labor in Pakistan

Fiscal policy, public expenditure composition, and growth theory and empirics

Patterns of rainfall insurance participation in rural India

The Mortality Cost to Smokers

The Mortality Cost to Smokers by W. Kip Viscusi and Joni Hersch

This article estimates the mortality cost of smoking based on the first labor market estimates of the value of statistical life by smoking status. Using these values in conjunction with the increase in the mortality risk over the life cycle due to smoking, the value of statistical life by age and gender, and information on the number of packs smoked over the life cycle, produces an estimate of the private mortality cost of smoking of $222 per pack for men and $94 per pack for women in 2006 dollars, based on a 3 percent discount rate. At discount rates of 15 percent or more, the cost decreases to under $25 per pack.

Monetary policy in China and India

The Chinese macroeconomic policy framework by Eswar Prasad


Exchange rate pass-through in India
Ramkishen Rajan, George Mason University

Both papers from this conference

Working Paper for the Day

Financial Linkages Between the U.S. and Latin Amercia: Evidence from Daily Data

Summary: Motivated by recent bursts of global financial market turbulence, this paper investigates the linkages between the financial markets in the United States and those of the seven largest Latin American economies, focusing on the impact of shocks originating in the U.S. stock, bond, and currency markets. After documenting that cross-country linkages were different in "tranquil" and "turbulent" times within our sample, we find that: (i) for stock markets, recent episodes of market turbulence stood out from preceding ones as they showed an increased sensitivity of Latin American markets to U.S. shocks, reversing a trend of weakening linkages; (ii) currency markets in Latin America exhibited a decrease in cross-market linkages with the U.S. during the last episodes of volatility, consistent with increased exchange rate flexibility in the region; and (iii) the external bond markets in Latin America remained on a trend of weakening linkages with U.S. corporate bonds, while they increased their sensitivity to movements in other emerging market bond markets.

Financial Supervision- Case Study from Philippines

Integrated Financial Supervision: An Institutional Perspective for the Philippines

This paper looks at the issue of reforming financial regulatory structures from the New Institutional Economics perspective. In particular, it examines how the broader institutional environment in developing countries like the Philippines may affect the institutional arrangements for financial regulation, and how these might be taken into consideration when designing or reforming financial regulatory structures.

The paper argues that the state of financial conglomerates in the Philippines does not warrant a shift toward integrated financial supervision. Instead, any effort to reform the financial supervisory structure must explicitly address the country’s most fundamental need: to strengthen institutions and governance structures.

A background on Latin American Economic Policies

Latin America since the 1990s: Rising from the Sickbed? by Arminio Fraga

The first section of this paper compares Latin America's economic performance in the 1990s with the 1980s and finds definite macroeconomic and social progress during the decade. The following section considers the policy performance of the region during the 1990s and finds that, on a country-by-country basis, the nations of Latin America that were more active in carrying out Washington Consensus reforms also experienced better economic performance. The final section will argue that rather than seeking to reverse the economic reforms that have been carried out, Latin American nations should be thinking about how to extend and complement the existing reforms.