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Ernesto Crivelli, Ruud A. de Mooij, J. E. J. De Vrijer, Mr. Shafik Hebous, and Mr. Alexander D Klemm
This paper aims to contribute to the European policy debate on corporate income tax reform in three ways. First, it takes a step back to review the performance of the CIT in Europe over the past several decades and the important role played by MNEs in European economies. Second, it analyses corporate tax spillovers in Europe with a focus on the channels and magnitudes of both profit shifting and CIT competition. Third, the paper examines the progress made in European CIT coordination and discusses reforms to strengthen the harmonization of corporate tax policies, in order to effectively reduce both tax competition and profit shifting.
Dyna Heng, Serey Chea, and Bomakara Heng
Interest rate caps, despite their intended objective of broadening financial inclusion, can have undesirable effects on financial inclusion under certain conditions. This paper examines the effect of microfinance-loan interest rate caps on financial inclusion in Cambodia. Based on a difference-in-difference analysis on bank and microfinance supervisory data, results show some unintended impact on financial inclusion. The cap led to a significant increase in non-interest fees charged on new loans following the introduction of an annual cap. Microfinance borrowers declined immediately, amid an increase in credit growth, as microfinance institutions targeted larger borrowers at the expense of smaller ones. Microfinance institutions, responded differently to the cap, considering their own operation and funding costs, and client base. Two years after the cap, institutions resumed lending to a wider group of borrowers with lower funding and operation costs brought by mobile payment development.
Ms. Dora Benedek, Mr. Edward R Gemayel, Mr. Abdelhak S Senhadji, and Alexander F. Tieman
The COVID-19 pandemic hit countries’ development agendas hard. The ensuing recession has pushed millions into extreme poverty and has shrunk government resources available for spending on achieving the United Nations Sustainable Development Goals (SDGs). This Staff Discussion Note assesses the current state of play on funding SDGs in five key development areas: education, health, roads, electricity, and water and sanitation, using a newly developed dynamic macroeconomic framework.
Mr. Philip Barrett and Christopher Johns
This paper examines ways to summarize the maturity structure of public debts using a small number of parameters. We compile a novel dataset of all promised future payments for US and UK government debt from every month since 1869, and more recently for Peru, Poland, Egypt, and Nigeria. We show that there is a unique parametric form which does not arbitrarily restrict debt issuance – portfolios of bonds with exponential coupons. Compared to the most popular alternative, this form 1) more accurately describes changes in debt maturity for these six countries and 2) gives a quite different interpretation of historical debt maturity. Our work can be applied not just to analyze past debt movements, but – because parameter estimates are relatively similar across countries – also for monitoring changes in debt maturity, including in countries where data are partial or incomplete.
Mr. Damien Capelle
This paper develops a model where large financial intermediaries subject to systemic runs internalize the effect of their leverage on aggregate risk, returns and asset prices. Near the steady-state, they restrict leverage to avoid the risk of a run which gives rise to an accelerator effect. For large adverse shocks, the system enters a zone with high leverage and possibly runs. The length of time the system remains in this zone depends on the degree of concentration through a franchise value, price-drop and recapitalization channels. The speed of entry of new banks after a collapse has a stabilizing effect.
Mr. Anil Ari and Gabor Pula
Ukraine’s economic performance has been anemic since the early 1990s. A major impediment to productivity growth has been low investment, held back by lack of strong and independent institutions. This paper aims to assess the major areas of institutional weakness in Ukraine and quantify the long-term growth impact of catching-up to Poland in terms of the quality of major economic institutions and market development. Our analysis identifies the legal system as the area where the institutional quality is weakest compared to Poland, followed distantly by market competition, openness to trade and financial depth. Using a methodology that accounts for positive spillovers between the structural reform areas, we estimate that even under the most optimistic scenario, where institutional gaps are fully addressed, Ukraine would need 15 years to catch up to Poland’s current income level.
Gongpil Choi, Federico Ortega, and Mr. Manmohan Singh
What are the constraints that have stalled EMs efforts to reuse their securities in international financial centers? We discuss the economics of collateral re-use and the present institutional structure in Asian and Latin American countries. Our empirical investigation suggests pledgeability enhances financial stability and reduces dollar funding risk. We also explain the Eurozone collateral pool to incentivize EMs, and why many securities (e.g., BTPs, Italy) are acceptable in London but not EM securities. Looking forward, EMs liaison with International Central Securities Depositories (ICSDs), and global banks’ balance sheet capacity to intermediate cross-border collateral will be crucial for this market to develop.