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Wai-Yip Alex Ho and Chun-Yu Ho
We find that from 1995 to 2002 in China, the dispersion of wealth decreased, the moneywealth ratio increased for all wealth levels and the aggregate money-output ratio increased. We develop a two-asset dynamic general equilibrium model in which households face a portfolio adjustment cost and a borrowing constraint. We find that financial development lowers the dispersion of wealth by reducing the precautionary motive of households. In addition, tight monetary policies increase the value of money and thus increase the moneywealth ratio for all wealth levels and the aggregate money-output ratio.
Mr. Serhan Cevik and Carolina Correa-Caro
This paper investigates the empirical characteristics of income inequality in China and a panel of BRIC+ countries over the period 1980–2013, with a focus on the redistributive contribution of fiscal policy. Using instrumental variable techniques to deal with potential endogeneity, we find evidence supporting the hypothesis of the existence of a Kuznets curve—an inverted Ushaped relationship between income inequality and economic development—in China and the panel of BRIC+ countries. In the case of China, the empirical results indicate that government spending and taxation have opposing effects on income inequality. While government spending appears to have a worsening impact, taxation improves income distribution. Even though the redistributive effect of fiscal policy in China appears to be stronger than what we identify in the BRIC+ panel, it is not large enough to compensate for the adverse impact of other influential factors.
Mr. Ruben V Atoyan and Jesmin Rahman
The Western Balkan countries have some of the lowest female labor force participation and employment rates across Europe. Almost two-thirds of working age women in the region are either inactive or unemployed: a huge bite into human capital for a region that endures high emigration and faces declining working age population. The paper uses both macro- and micro-level data to explore what explains low participation and employment rates among women in the region. Our findings show that improving educational attainment, having a more balanced family leave policy, and reducing tax wedge help improve participation of women in the labor force. However, these measures are not enough to notably improve employability of women, which require stronger growth supported by robust institutions.
Mr. Arye L. Hillman
This paper is concerned with economic consequences of unethical governance. A framework is set out, based on principles of Friedrich Nietzsche, that ties poverty and inequality to unethical behavior of the strong toward the weak. The paper contributes to an understanding of why poverty and inequality have remained entrenched in some societies in spite of repeated programs intended to improve living standards. The purpose is to include ethics of governance, and, in particular, unethical behavior of the strong toward the weak, in preconditions for economic development.
Mr. Damiano Sandri
This paper shows that the behavior of entrepreneurs facing incomplete financial markets and risky investment can explain why growth accelerations in developing countries tend to be associated with current account improvements. The uninsurable risk of losing invested capital forces entrepreneurs to rely on self-financing, so that when business opportunities open up entrepreneurs increase saving to finance the investment that produces growth. The key insight is that saving has to rise more than investment to allow also for the accumulation of precautionary assets. Plausibly calibrated simulations show that this net saving increase can sustain large and persistent net capital outflows.
Mr. Henry Mooney and Constance de Soyres
This paper develops new error assessment methods to evaluate the performance of debt sustainability analyses (DSAs) for low-income countries (LICs) from 2005-2015. We find some evidence of a bias towards optimism for public and external debt projections, which was most appreciable for LICs with the highest incomes, prospects for market access, and at ‘moderate’ risk of debt distress. This was often driven by overly-ambitious fiscal and/or growth forecasts, and projected ‘residuals’. When we control for unanticipated shocks, we find that biases remain evident, driven in part by optimism regarding government fiscal reaction functions and expected growth dividends from investment.