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Compensatory financing may be considered as an insurance scheme allowing members to borrow at low interest rates when their export earnings fall below trend and to repay when their export earnings rise above trend. An insurance company can forecast the sum of the claims likely to be presented by all its customers during a given year although it may not be able to predict which of its customers will present a claim. The Fund is in a similar position regarding drawings made under the compensatory financing facility.


The basic approaches to the taxation of corporate profits by developing countries are modeled on those of developed countries, and are subject to evaluation on similar grounds. As is true of industrial countries, the issues involved have never been satisfactorily resolved, and shifts continue to be made from one system to another. There is, therefore, an abundance of experience with different forms of corporation tax, even within particular countries, and a voluminous literature exists on the comparative merits and limitations of each.1 Differences in the economic environment and in the relationships between shareholders and corporations in different stages of economic development, however, call for a re-examination of the tax treatment of corporations that is most appropriate for developing countries.

International Monetary Fund. European Dept.
This Selected Issues paper analyzes the impact of the adoption of inflation targeting (IT) on exchange rate volatility in Russian Federation. Russia has seen an increase in exchange rate volatility during the past few years compared with the period before the global financial crisis, as the authorities have chosen to allow a higher degree of ruble exchange rate flexibility in preparation for the adoption of IT. The average of the 12-month coefficient of variation of the ruble/dollar exchange rate has also increased from 2.2 percent in December 2005–September 2008 to about 3.7 percent in March 2010–June 2013.
Jiaxiong Yao
Past studies on the relationship between electricity consumption and temperature have primarily focused on individual countries. Many regions are understudied as a result of data constraint. This paper studies the relationship on a global scale, overcoming the data constraint by using grid-level night light and temperature data. Mostly generated by electricity and recorded by satellites, night light has a strong linear relationship with electricity consumption and is correlated with both its extensive and intensive margins. Using night light as a proxy for electricity consumption at the grid level, we find: (1) there is a U-shaped relationship between electricity consumption and temperature; (2) the critical point of temperature for minimum electricity consumption is around 14.6°C for the world and it is higher in urban and more industrial areas; and (3) the impact of temperature on electricity consumption is persistent. Sub-Saharan African countries, while facing a large electricity deficit already, are particularly vulnerable to climate change: a 1°C increase in temperature is estimated to increase their electricity demand by 6.7% on average.
Mr. Francesco Grigoli and Mr. Eduardo Ley
It is generally acknowledged that the government’s output is difficult to define and its value is hard to measure. The practical solution, adopted by national accounts systems, is to equate output to input costs. However, several studies estimate significant inefficiencies in government activities (i.e., same output could be achieved with less inputs), implying that inputs are not a good approximation for outputs. If taken seriously, the next logical step is to purge from GDP the fraction of government inputs that is wasted. As differences in the quality of the public sector have a direct impact on citizens’ effective consumption of public and private goods and services, we must take them into account when computing a measure of living standards. We illustrate such a correction computing corrected per capita GDPs on the basis of two studies that estimate efficiency scores for several dimensions of government activities. We show that the correction could be significant, and rankings of living standards could be re-ordered as a result.