Working Papers
January 1, 0001
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1997
June 1, 1997
Tax Burden and Migration: A Political Economy Perspective
Description: The extent of taxation and redistribution policy is generally determined at a political-economy equilibrium by a balance between those who gain and those who lose from a more extensive tax-transfer policy. In a stylized model of migration and human capital formation, we find, somewhat against conventional wisdom, that low-skill migration may lead to a lower tax burden and less redistribution than no migration, even though the migrants join the pro-tax coalition.
June 1, 1997
Unemployment Persistence and Capital Shortage: The Case of Trinidad and Tobago
Description: This paper examines the link between capital stock and unemployment persistence. An overlapping-generations model with endogenous labor supply and imperfect competition is presented. It is used to interpret the unusual persistence of unemployment in Trinidad and Tobago during the last twenty years. Although real wages are 60 percent lower today than in the mid-1980s, unemployment continues to be very high. The paper argues that an important part of the explanation lies in the decline of capital stock in this country after years of very low savings and investment. Policies to address this capital shortage are discussed.
June 1, 1997
A Model of an Optimum Currency Area
Description: This paper investigates the circumstances under which it is beneficial to participate in a currency area. A two-country monetary model of trade with nominal rigidities encompasses the real and monetary arguments suggested by the optimum currency area literature: correlation of real shocks, international factor mobility, fiscal adjustment, openness, difference in national inflationary biases, correlation of monetary shocks, and benefits of a single currency. The effect of openness on the net benefits is ambiguous, contrary to the usual argument that more open economies are better candidates for a currency area. Countries do not necessarily agree on whether a given currency union should be created.
June 1, 1997
How Long is the Long Run? A Dynamic Analysis of the Spanish Business Cycle
Description: This paper studies the sources of Spanish business cycles. It assumes that Spanish output is affected by two types of shocks. The first one has permanent long-run effects on output and it is identified as a supply shock. The second one has only transitory effects on output and it is identified as a demand shock. Spain seems to have long business cycles, of about 15 years. As restrictive demand policies to control the inflation rate could prove painful and disappointing, supply side policies aimed at reducing rigidities in the product and labor market would be a better way to achieve the same objective.
June 1, 1997
Corruption and the Rate of Temptation: Do Low Wages in the Civil Service Cause Corruption?
Description: This paper develops and tests two efficiency wage models of corruption in the civil service. Under fair wage models, civil service wages are an important determinant of corruption. Under shirking models, the level of wages is of secondary importance, as potential bribes dwarf wage income. The empirical evidence points to a negative relationship between corruption and wages across developing countries. Tests as to the validity of the two different efficiency wage models are inconclusive.
June 1, 1997
External Borrowing by the Baltics, Russia and Other Countries of the Former Soviet Union: Developments and Policy Issues
Description: Many countries among the Baltics, Russia and other CIS states are increasingly borrowing on international capital markets, a development that generally reflects their success in achieving financial stabilization. In view of the low level of domestic saving and large capital requirements, recourse to foreign borrowing may of course generate significant benefits for these economies in transition. However, the rapid increase in external debt suggests that consideration also needs to be given to the risks from too high a dependence on foreign saving, including inter alia risk of the postponement of needed structural reforms.
June 1, 1997
World Commodity Prices as a Forecasting Tool for Retail Prices: Evidence From the United Kingdom
Description: This paper investigates, using cointegration and Granger-causality techniques, whether a stable long-run co-movement exists between world commodity prices and U.K. retail prices, and whether short-run changes in commodity prices convey information about future movements in U.K. retail prices. The results show noncointegration and no unidirectional Granger causality from commodity to retail prices. These findings suggest that little may be gained from using developments in commodity prices to forecast movements in retail prices in the inflation-targeting framework followed by the U.K. monetary authorities.
June 1, 1997
Exchange Rate Regimes and Location
Description: This paper investigates the effects of fixed versus flexible exchange rates on firms’ location choices and on countries’ specialization patterns. In a two-country, two-differentiated-goods monetary model, demand, supply, and monetary (as well as exchange rate) shocks arise after wages are set and prices are optimally chosen. The paper finds that countries are more specialized under flexible than fixed rates, and that the pattern of specialization is not uniquely defined by trade models but depends also on the exchange rate regime. The adoption of fixed exchange rates endogenously increases the desirability of this currency area by reducing the shock asymmetry. These results also shed light on the effects of exchange rate variability on trade.
June 1, 1997
An Analysis of External Debt and Capital Flight in the Severely Indebted Low Income Countries in Sub-Saharan Africa
Description: The general objective of this study is to analyze the external debt and debt burdens of the severely indebted sub-Saharan African countries, estimate the magnitude of capital flight from them, and relate the estimate of capital flight to some macroeconomic aggregates. The study also contains policy implications of international efforts to deal with the high levels of external debt in sub-Saharan Africa in conditions of extreme poverty, and stagnant and declining exports. It questions the theoretical foundation in which the external debt strategy has been based and offers solutions to the external debt problem.