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Paola Giuliano
and
Antonio Spilimbergo
A growing body of work has shown that aggregate shocks affect the formation of preferences and beliefs. This article reviews evidence from sociology, social psychology, and economics to assess the relevance of aggregate shocks, whether the period in which they are experienced matters, and whether they alter preferences and beliefs permanently. We review the literature on recessions, inflation experiences, trade shocks, and aggregate non-economic shocks including migrations, wars, terrorist attacks, pandemics, and natural disasters. For each aggregate shock, we discuss the main empirical methodologies, their limitations, and their comparability across studies, outlining possible mechanisms whenever available. A few conclusions emerge consistently across the reviewed papers. First, aggregate shocks impact many preferences and beliefs, including political preferences, risk attitudes, and trust in institutions. Second, the effect of shocks experienced during young adulthood is stronger and longer lasting. Third, negative aggregate economic shocks generally move preferences and beliefs to the right of the political spectrum, while the effects of non-economic adverse shocks are more heterogeneous and depend on the context.
International Monetary Fund. African Dept.
This Selected Issues paper revisits Rwanda’s options to create fiscal space to meet long-term development challenges. It examines strategies and options for a credible and comprehensive domestic revenue mobilization. The paper analyzes the driving factors of past reform successes and use an original dataset to highlight the benefits of implementing comprehensive tax reforms over selective reforms. The paper concludes that selective measures tend to yield protracted loss of revenue while measures implemented comprehensively lead to increases in revenue in the medium term. This stresses the need for an integrated approach to fiscal policy reform coordination to maximize long-term revenue benefits. For Rwanda, a comprehensive strategy for increasing tax revenues by adjusting rates, broadening the domestic tax base, improving tax compliance, and curbing tax evasion is the way forward. The strategy should shift higher tax burden from low-income households to higher income wealth cohorts with the view to advancing distributional fairness against growing inequality.
Alain N. Kabundi
,
Mr. Montfort Mlachila
, and
Jiaxiong Yao
Climate change is likely to lead to more frequent and more severe supply and demand shocks that will present a challenge to monetary policy formulation. The main objective of the paper is to investigate how climate shocks affect consumer prices in a broad range of countries over a long period using local projection methods. It finds that the impact of climate shocks on inflation depends on the type and intensity of shocks, country income level, and monetary policy regime. Specifically, droughts tend to have the highest overall positive impact on inflation, reflecting rising food prices. Interestingly, floods tend to have a dampening impact on inflation, pointing to the predominance of demand shocks in this case. Over the long run, the dominant monetary policy paradigm of flexible inflation targeting faced with supply-induced climate shocks may become increasingly ineffective, especially in LIDCs. More research is needed to find viable alternative monetary policy frameworks.
International Monetary Fund. African Dept.

Abstract

Sub-Saharan Africa is facing an unprecedented health and economic crisis that threatens to throw the region off its stride, reversing the encouraging development progress of recent years. Furthermore, by exacting a heavy human toll, upending livelihoods, and damaging business and government balance sheets, the crisis threatens to retard the region’s growth prospects in the years to come. Previous crises tended to impact affect countries in the region differentially, but no country will be spared this time.

International Monetary Fund. African Dept.

Abstract

To come when report is received.

International Monetary Fund. African Dept.

Abstract

The intrinsic links between climate change and the COVID-19 pandemic have elevated global calls for policymakers to take immediate action on both fronts. Fiscal stimulus supporting recovery from the pandemic can be designed to simultaneously address climate change. In turn, this could help reduce the spread of future pandemics as climate change is a threat multiplier for pandemics. Destruction of the environment and biodiversity makes pandemics more likely while pollution and other man-made factors driving climate change weaken the health of human beings, raising their vulnerability to viruses and other diseases.

International Monetary Fund. African Dept.

Abstract

Every second, the region has averaged 106 new internet users.1 This fast-paced digital revolution holds the promise of transforming economies and people’s lives. It takes on added importance as countries across the region grapple with the unprecedented health and socio-economic fallout of the COVID-19 pandemic. All policy levers are being deployed to protect lives and livelihoods. Digital solutions have helped to provide more resilience and allowed for rapid, flexible, and inclusive policy responses to the pandemic.