Working Papers
2005
July 1, 2005
Treasury System Design: A Value Chain Approach
Description: Treasury systems enable governments to prepare financial plans, implement annual budgets, handle cash resources, provide fiscal accounts, and ensure control and accountability. The design of these systems varies considerably across countries, reflecting differences in priorities, country capacities, and political traditions. The paper develops a generic value chain for a treasury system and discusses the choices that are made in designing that system. The paper provides an indicative set of good practices for treasury design in different groups of countries. The generic model and the proposed good practices are compared to the actual treasury systems in seven countries.
July 1, 2005
An Anatomy of Corporate Bond Markets: Growing Pains and Knowledge Gains
Description: The objective of this paper is to discuss the key issues relating to the development of local corporate bond markets. We examine the requirements for local corporate bond market development, and compare and contrast experiences across both mature and emerging markets. We suggest that core aspects such as benchmarking, corporate governance and disclosure, credit risk pricing, the availability of reliable trading systems, and the development of hedging instruments are fundamental for improving the breadth and depth of corporate debt markets. The demand and supply of corporate bonds are dependent on factors such as the investor base, both local and foreign, and government policies toward the issuance process and associated costs, as well as the taxation regime. The sequencing of reforms is key to market development.
July 1, 2005
Infrastructure Aid, Deindustrialization, and Welfare
Description: This paper investigates the deindustrialization and welfare effects of infrastructure aid in developing countries. In the short run, cost-saving infrastructure aid in the export sector increases the domestic wage rate, whereas the same aid in the import sector lowers it. The cost of nontraded goods rises whether the export or the import sector receives infrastructure aid. Infrastructure aid in the nontraded sector has no effect on domestic factor prices. Laborsaving infrastructure aid causes an expansion of the export sector, while capital-saving infrastructure aid results in a Dutch disease effect in the export sector. If aid is below the optimal level, infrastructure aid increases consumer income and welfare.
July 1, 2005
Growth Dynamics: The Myth of Economic Recovery
Description: Using panel data for a large number of countries, we find that economic contractions are not followed by offsetting fast recoveries. Trend output lost is not regained, on average. Wars, crises, and other negative shocks lead to absolute divergence and lower long-run growth, whereas we find absolute convergence in expansions. The output costs of political and financial crises are permanent on average and long-term growth is negatively linked to volatility. These results also imply that panel data studies can help identify the sources of growth and that economic models should be capable of explaining growth and fluctuations within the same framework.
July 1, 2005
Trade Integration in the East African Community: An Assessment for Kenya
Description: The paper analyses the potential trade impact of the forthcoming East African Community (EAC) customs union. It examines the trade linkages among the member countries of the EAC and the extent to which the introduction of the EAC common external tariff will liberalize their trade regimes. To gauge the potential trade impact of the formation of the customs union, simulations are conducted for Kenya. The empirical results indicate that the customs union will have a beneficial effect on Kenya's trade. The paper does not draw any conclusions on the potential welfare impact of the customs union. Finally, factors other than enhanced trade might influence Kenyan policymakers to pursue regional integration, and these include regional cooperation in "behind the border" reforms and the provision of public goods.
July 1, 2005
Tax Systems Under Fiscal Adjustment: A Dynamic CGE Analysis of the Brazilian Tax Reform
Description: This paper uses a dynamic computable general equilibrium model (CGE) to analyze the macroeconomic and redistributive effects of replacing turnover and financial transaction taxes in Brazil by a consumption tax. In order to approximate Brazil's compliance with its fiscal adjustment targets, the proposed reform is subject to a non increasing path for the level of public debt. Despite an increase in the average consumption tax rate in the first years after the reform, a majority of individuals experienced an increase in their lifetime welfare. This result rejects the hypothesis that the on-going fiscal adjustment effort carried on by the Brazilian government was an obstacle to the implementation of a more efficient tax system.
July 1, 2005
Competition in Indian Banking
Description: It is widely perceived that competition in the Indian banking sector has increased since the inception of the financial sector reforms in 1992. Using annual data on scheduled commercial banks for the period 1996-2004, the paper evaluates the validity of this claim in the Indian context. The empirical evidence reveals that the Indian banking system operates under competitive conditions and earns revenues as if under monopolistic competition.
July 1, 2005
Global Aging and Fiscal Policy with International Labor Mobility: A Political Economy Perspective
Description: This paper uses an overlapping generations model with international labor mobility and a politically responsive fiscal policy to examine aging in developed and developing regions. Migrant workers change the political structure composed of young and elderly voters in both labor-receiving and labor-sending countries. Numerical simulations show that the developed region benefits more from international labor mobility through the contribution of migrant workers as laborers, savers, and voters. The developing region experiences significant growth in all specifications but benefits more under international capital mobility. Restricting political participation of migrant workers in the developed region produces inferior growth results.
July 1, 2005
The Equilibrium Real Exchange Rate in a Commodity Exporting Country: Algeria’s Experience
Description: Drawing on the existing literature, I estimate a long-run equilibrium real exchange rate path for Algeria. I find that the Balassa-Samuelson effect together with real oil prices explain the long-run evolution of the equilibrium real exchange rate in Algeria. The half-life of the deviation of the real exchange rate from the estimated equilibrium level is about nine months, similar to that in other commodity-exporting countries. The general conclusions are that: (i) there is a time-varying long-run equilibrium exchange rate in Algeria as in other commodity-exporting countries; and (ii) the real effective exchange rate of the Algerian dinar at end-2003 was broadly in line with this equilibrium.
July 1, 2005
Slovakia’s 2004 Tax and Welfare Reforms
Description: The paper reviews Slovakia's comprehensive reforms to its taxation and welfare systems in 2004, including the introduction of a flat-rate income tax and single-rate value-added tax (VAT), and linkage of social benefits to participation in labor market programs. Though revenues following the reform are lower as a ratio to GDP, the paper argues that the reforms have helped encourage investment and improved efficiency by broadening the tax base, reducing the administrative burden, and improving work incentives. The paper also looks at some implications of the reforms for income distribution and social protection.