Front Matter Page

© 2008 International Monetary Fund

April 2008

IMF Country Report No. 08/134

Republic of Moldova: Selected Issues

This Selected Issues paper for the Republic of Moldova was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on February 27, 2008. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Republic of Moldova or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

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Front Matter Page

INTERNATIONAL MONETARY FUND

REPUBLIC OF MOLDOVA

Selected Issues

Prepared by Nikoloz Gigineishvili, Marcin Piatkowski, Johan Mathisen (all EUR), and Irena Asmundson (PDR)

Approved by European Department

February 27, 2008

Contents

• I. In Search of Monetary Transmission in Moldova

  • A. Introduction

  • B. Interest Rate Channel of Transmission

  • C. Moldova’s Financial Markets

  • D. Model and Data

  • E. Estimation Results

  • F. Conclusions

• Tables

  • 1.1 Pass-Through Coefficient Estimates

• Figures

  • 1.1 Return on Assets and Capital Adequacy Ration

  • 1.2 Interest Rates

  • 1.3 Banking Sector Liquidity in Europe

  • 1.4 Dynamics of Interest Rates, Inflation and Exchange Rate

  • 1.5 Real Interest Rates

  • 1.6 Pass-Through in Selected European Countries

• References

• II. Zero Corporate Income Tax in Moldova: Tax Competition and Its Implications For Eastern Europe

  • A. Introduction

  • B. Do Countries Compete Over Corporate Taxes?

  • C. What Drives Tax Competition?

  • D. Will the Moldovan Zero CIT Intensify Tax Competition in the Region?

  • E. Implications for FDI, Economic Efficiency, Equity, and Welfare

  • F. Conclusions

• Table

  • II.1 Strategic Interaction in CIT Setting in Eastern Europe, 1995-2006

• Figures

  • II.1 CIT Rate in the EU-15 and Eastern Europe

  • II.2 GDP and CIT Rates in Europe, 2007

  • II.3 Ratio of US FDI to GDP for Four Groups of Countries

  • II.4 World Bank Doing Business 2008

  • II.5 Eastern Europe: CIT Rate and Revenue

  • II.6 Statutory and Effective CIT Rates in NMS-8

  • II.7 NMS-10: Gross Operating Surplus and Mixed Income

  • II.8 CIT Revenue Maximizing Rate

  • II.9 Eastern Europe: Average CIT and PIT (unweighted)

  • II.10 Tax Revenue by Source in NMS-10 and CIS (percent of Total Revenue)

• Appendix

• References

• III. Changes and Flexibility in the Moldovan Labor Market

  • A. Introduction

  • B. Some Stylized Facts

  • C. Institutional Framework of the Labor Market

  • D. Flexibility in the Labor Market—Empirical Analysis of Determinants of Real Wages

  • E. Summary and Policy Implications

• Tables

  • III.1 Labor Market Dynamics

  • III.2 Changes in Population and Employment, 2000–06 (In thousands)

  • III.3 Social Benefits, 1999–2006

  • III.4 Employing Workers Indicators, 2008

• Figures

  • III.1 Economic Structure

  • III.2 Population and Overall Labor Market Developments

  • III.3 Labor Market Developments

  • III.4 Labor Productivity and Real Salaries, 2000–06

  • III.5 Difference between Monthly Moldovan and Average Regional Wages, by Sector

  • III.6 Share of 2004 Population Abroad in 2006, by Demograaphic Category

  • III.7 Tax Wedge in Selected Countries

  • III.8 Personal Income Tax Rate (effective), 2006

• Annex III.1 Monthly Wages, Selected Countries 2000–06

• References

• IV. Globalization and Moldova’s Wine Industry

  • A. Global Wine Production and Exports

  • B. Wine Exporters

  • C. Conclusion

• Text Tables

  • IV.1 Competitiveness Indicators

• Tables

  • IV.2 Wine Exporter Rank by Value

  • IV.3 Wine Export Growth to New Destinations, 1984–2000

• Figures

  • IV.1 Hectares of Grapes Planted

  • IV.2 Hectares of Grapes Planted

  • IV.3 Pounds of Grapes per Hectare

  • IV.4 Pounds of Grapes per Hectare

  • IV.5 World Wine Exports

  • IV.6 Total Exports by Country

  • IV.7 Average Price of Exported Wine

  • IV.8 Exports by Argentina

  • IV.9 Exports by Australia

  • IV.10 Exports by Chile

  • IV.11 Exports by New Zealand

  • IV.12 Total Exports by Country

  • IV.13 Average Price of Exported Wine

  • IV.14 Number of Export Markets by Country

• References