Working Papers
1997
March 1, 1997
The Effect of Increasing Government Employment on Growth: Some Evidence from Africa
Description: In contrast to the experience in industrial countries, government sectors in a number of African countries grew rapidly in relative size through the 1980s and early 1990s, implying a differential between measured GDP growth and growth of private sector activity. In these countries, the government sector was also an important source of employment growth. Leaving aside issues of crowding out, boosting growth in this way raises questions of fiscal sustainability. It also urges caution in interpreting growth performance.
March 1, 1997
Bank Credit in Argentina in the Aftermath of the Mexican Crisis: Supply or Demand Constrained?
Description: Liquidity in the banking sector in Argentina reached new heights in early 1996 with the sharp reflow of deposits in the aftermath of the 1995 banking crisis. Yet, this did not translate into a similar recovery of credit to the private sector. Two hypotheses have been raised to explain this mismatch. One is that credit to the private sector was supply constrained because of adverse selection mechanisms exacerbated by the crisis. An alternative hypothesis is that credit was demand constrained, as unemployment remained high and the debt stock adjustment unwound only slowly through the first half of 1996. This paper examines these hypotheses.
March 1, 1997
Designing a Tax Administration Reform Strategy: Experiences and Guidelines
Description: Building on previous FAD work in the tax administration field, this paper defines broad criteria for diagnosing the problems in a country’s tax administration and formulating an appropriate reform strategy. To be effective, this strategy should be based on the size of the tax gap and the country’s particular circumstances. This paper discusses some guiding principles which have provided the basis for successful reforms, including: reducing the tax system’s complexity, encouraging taxpayers’ voluntary compliance, differentiating the treatment of taxpayers by their revenue potential, and ensuring the reform’s effective management. Also discussed are specific bottlenecks that hinder the effectiveness of the tax administration’s operations.
March 1, 1997
International Currencies and Endogenous Enforcement: An Empirical Analysis
Description: This paper investigates the determinants of the international role of a currency. It argues that standard determinants such as monetary performance and financial openness are at best imperfect indicators of a currency’s stability prospects, because the issuer’s promise of stability is not exogenously enforceable. The paper advocates an enforcement approach to international currencies that make explicit the underlying incentive incompatibilities. Additional enforcement determinants of currency internationalization are identified. The model is estimated using time-series cross-sectional analysis for three data sets. Monetary performance-related standard determinants fail to exhibit explanatory power, whereas the enforcement determinants are strongly significant and robust.
March 1, 1997
Market Information and Signaling in Central Bank Operations, or, How Often Should a Central Bank Intervene?
Description: A central bank must decide on the frequency with which it will conduct open market operations and the variability in short-term money market that it will allow. It is shown how the optimal operating procedure balances the value of attaining an immediate target and broadcasting the central bank’s intentions against the informational advantages to the central bank of allowing the free play of market forces to reveal more of the information available to market participants.
Notes: Also published in Staff Papers, Vol. 44, No. 4, December 1997.
March 1, 1997
Recent Export Credit Market Developments
Description: Export credit agencies (ECAs) have played a critical role in financing for developing countries in recent years, and officially supported export credits have been growing in volume. The current export credit exposure to developing countries and economies in transition has reached almost half a trillion dollars. This paper reviews developments in export credit markets affecting exposure, new commitments, and cover policy for developing countries and economies in transition and discusses three key issues affecting export credit markets: a more widespread involvement of ECAs in project financing transactions, a strong presence of ECAs in the market for investment insurance, and a deepening of the forfeiting market.
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1997
February 1, 1997
Phillips Curves, Phillips Lines and the Unemplyment Costs of Overheating
Description: Most empirical work on the U.S. Phillips curve has had a strong tendency to impose global linearity on the data. The basic objective of this paper is to reconsider the issue of nonlinearity and to underscore its importance for policymaking. After briefly reviewing the history of the Phillips curve and the basis for convexity, we derive it explicitly using standard models of wage and price determination. We provide some empirical estimates of Phillips curves and Phillips lines for the United States and use some illustrative simulations to contrast the policy implications of the two models.
February 1, 1997
Policy Implications of "Second-Generation" Crisis Models
Description: After the speculative attacks on government-controlled exchange rates in Europe and in Mexico, economists began to develop models of currency crises with multiple solutions. In these models, a currency crisis occurs when the economy suddenly jumps from one solution to another. This paper examines one of the new models, finding that raising the cost of devaluation may make a crisis more likely. Consequently, slow convergence to a monetary union, which increases the cost to the government of reneging on an exchange rate peg, may be counterproductive. This conclusion is exactly the opposite of that obtained from earlier models.