To finance the transition to low-carbon economies required to mitigate climate change, countries are increasingly using a combination of carbon pricing and green bonds.
... See More + This paper studies the reasoning behind such policy mixes and the economic interaction effects that result from these different policy instruments. The paper models these interactions using an inter-temporal model that proposes burden sharing between current and future generations. The issuance of green bonds helps to enable immediate investment in climate change mitigation and adaptation, and the bonds would be repaid by future generations in such a way that those who benefit from reduced future environmental damage share in the burden of financing the mitigation efforts undertaken today. The paper examines the effects of combining green bonds and carbon pricing in a three-phase model and uses a numerical solution procedure that allows for finite-horizon solutions and phase changes. The paper shows that green bonds perform better when they are combined with carbon pricing. The proposed policy option appears to be politically more feasible than a green transition based only on carbon pricing, and it is more prudent for debt sustainability than a green transition that relies overly on green bonds.
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Policy Research Working Paper WPS8991 AUG 20, 2019
Social scientists frequently rely on the cardinal comparability of test scores to assess achievement gaps between population subgroups and their evolution over time.
... See More + This approach has been criticized due to the ordinal nature of test scores and the sensibility of results to order-preserving transformations, which are theoretically plausible. Bond and Lang (2013) document the sensitivity of measured ability to scaling choices and develop a method to assess the robustness of changes in ability over time to scaling choices. This paper presents the scale transformation command, which expands the Bond and Lang method to more general cases and optimizes their algorithm to work with large data sets. The program assesses the robustness of an achievement gap between two subgroups to any arbitrary choice of scale by finding bounds for the original gap estimation. Additionally, the program finds scale transformations that are very likely and unlikely to benchmark against the results obtained. Finally, the program also allows the user to measure how much gap growth coefficients change when including controls in their specifications.
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Policy Research Working Paper WPS8986 AUG 19, 2019
This paper investigates to what extent media impacts political decisions. A viable practical approach to test the relationship between mass media and political actions is through the use of the World Bank’s Doing Business data, specifically, by assessing local media coverage of Doing Business and implementation of business regulatory reforms.
... See More + The tested hypothesis is that countries with higher media coverage of Doing Business tend to carry out more business regulatory reforms, assuming one- and two-year lags between media coverage and reform implementation. To achieve this objective, the study put together a comprehensive data set that encompasses country-specific local media coverage of the Doing Business report in 190 economies. The study finds that local media coverage of Doing Business has a significant influence on regulators’ actions. First, the analysis shows that the number of local media articles tends to increase the probability of whether a country does any reform. Second, countries with greater media coverage of Doing Business indicators tend to have higher numbers of implemented reforms.
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Policy Research Working Paper WPS8984 AUG 16, 2019
Important progress toward gender equality has been made in the past decades, but inequalities linked to gender norms, stereotypes, and the unequal distribution of housework and childcare responsibilities persist.
... See More + Lifetime events such as marriage and parenthood bring substantial changes in time use among women and men. This paper updates and reinforces the findings of previous studies by analyzing gender differences in the allocation of time among market work and unpaid domestic work. Results from the analysis of time use patterns in 19 countries of different income levels and from various regions suggest that women specialize in unpaid domestic and care work and men specialize in market work. The paper employs propensity score matching to assess the marriage and parenthood "penalty" on time use patterns over the lifecycle. The findings indicate that women of prime working age are the most penalized on a host of measures, including labor market participation, unpaid domestic work, and leisure time. Men are not necessarily penalized for, and sometimes benefit from, marriage or parenthood.
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Policy Research Working Paper WPS8981 AUG 14, 2019
This paper analyzes whether taxation can be successfully used to reduce the incidence of labor informality and achieve higher equality in a globalized economy.
... See More + To this purpose, it develops a two-area model: a developed country and an emerging country. The two areas differ according to the size of the informal sector, which is characterized by a more flexible labor market and lower productivity. To illustrate the potential role of taxation in achieving a more fair income distribution, the paper introduces a trade shock to simulate the effects of trade liberalization. Trade expansion has often been blamed for leading to an expansion of the informal sector and a widening of wage income disparities. In this context, the paper analyzes whether a budget-neutral tax reform -- switching the tax burden from payroll taxes paid by firms operating in the formal sector to a consumption tax -- can mitigate possible adverse effects of trade liberalization and support labor formalization. The effects of taxation are seen in the context of the trade-offs between growth, labor formality and equity. The analysis suggests that small improvements in formalization, resulting from the tax reform, come at the cost of widening income inequality. To reduce the incidence of low-quality jobs, tax policy interventions should go hand in hand with more effective social protection systems and labor laws.
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Policy Research Working Paper WPS8975 AUG 12, 2019
Despite the literature on rural land property rights, studies on urban land property rights are rare. This paper studies the impact of an urban land titling program on firm investment.
... See More + It finds that the program leads to increased investment rate for titling firms, and the positive effect holds only for politically connected firms. The effects are likely causal, because they are more pronounced for firms that are more likely to benefit from strengthened property rights. Connected titling firms experienced fewer disputes than nonconnected titling firms after the program, and the results remain robust when using instrumental variable estimation.
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Policy Research Working Paper WPS8973 AUG 12, 2019
This paper studies whether budget rigidities affect the probability of countries getting into fiscal distress and reduce the likelihood of governments performing fiscal adjustments.
... See More + Budget rigidities are constraints that limit the ability of the government to change the size and structure of the public budget in the short term. Budget rigidities stem from different institutional arrangements and therefore can take different forms. To build an indicator of rigid spending that is comparable across a large set of countries, this paper employs a simple definition based on budget components that are naturally inflexible: the sum of public wages, pensions, and debt service. It decomposes this measure into a structural component and a nonstructural component. Then, the paper applies a linear probability model to a panel of 182 advanced and developing countries. A key finding is that relatively high shares of rigid (observed) components of public spending contribute to countries getting into fiscal distress and are a constraint for fiscal consolidation. The paper finds evidence that a relatively high share of nonstructural rigid spending contributes to the probability of fiscal distress and reduces the probability of fiscal consolidation. Moreover, the effect of rigid expenditure seems to be more relevant for economies with high inequality, governments with lower margins of majority, and countries with lower institutional quality. In addition, when looking at the composition of the measure of rigid expenditure, there is also some evidence that higher expenditure on pensions reduces the probability of fiscal adjustment more robustly than higher expenditure on wages.
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Policy Research Working Paper WPS8957 AUG 06, 2019
This paper examines whether political connections ease financial constraints faced by firms. Using firm-level data from six Central and Eastern European economies, the paper shows that politically connected firms: (i) have high levels of leverage, (ii) have low levels of profitability, (iii) are less capitalized, (iv) have low marginal productivity of capital, and (v) do not invest more than unconnected firms.
... See More + Next, the paper shows that connected firms borrow more because they have easier access to credit and that political connections lead to a misallocation of capital. The results are consistent with the idea that political connections distort capital allocation and may have welfare costs.
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Policy Research Working Paper WPS8956 AUG 06, 2019
Bussolo,Maurizio; De Nicola,Francesca; Panizza,Ugo G.; Varghese,RichardDisclosed
This paper analyzes the procyclicality of fiscal policy on the tax and spending sides in a sample of 116 developing countries between 2000 and 2016.
... See More + About 20 percent of the countries in the sample switched from procyclical to countercyclical policy stance. In Sub-Saharan Africa, 30 of 39 countries remained caught in the procyclicality trap and the region has the highest degree of procyclicality. The Middle East and North Africa region switched from a countercyclical policy stance to a procyclical one over time. The Europe and Central Asia and Latin America and the Caribbean regions significantly reduced the degree of procyclicality. The main economic variables that affect procyclicality are financial depth, tax base variability, and natural resource dependence. In line with the political economy literature, the perception of corruption, social fragmentation, and inequality in resource distribution are positively associated with procyclicality. The findings also show that the quality of fiscal institutions is associated with procyclicality; countries with fiscal rules have smaller procyclical bias, but the effect is not homogeneous; and higher degrees of expenditure rigidity are associated with lower procyclical bias. The study finds asymmetric policy stances along the business cycle, with procyclicality being more pronounced during recessions. Similarly, the political cycle affects procyclicality, as procyclical bias increases in electoral years. From the tax management perspective, procyclical bias is still present, but there are significant changes: most of the political economy variables lose significance; the resource-dependence variable is not significant; external credit availability reduces procyclicality; tax base variability increases procyclical bias; and expenditure rigidity is no longer significant, but fiscal space becomes determinant of procyclical bias.
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Policy Research Working Paper WPS8963 AUG 06, 2019
Housing is the largest durable good consumed by households. As such, any consumption-based measure of welfare, to be comprehensive, must include the value of the flow of services households derive from their dwellings, the so-called imputed rent.
... See More + However, estimating imputed rents is a daunting task, which researchers and practitioners tend to overlook. This paper is the first attempt to assess the distributional impact of including housing in the welfare aggregate; the paper tests two estimation methods and analyzes four developing countries. The distributional impact cannot be predicted a priori, and evidence suggests it is context and method specific. Although changes in poverty and inequality are always statistically significant, they are only occasionally larger than one percentage point. By contrast, shared prosperity exhibits sizable changes, which might also determine international re-rankings. Albeit the inclusion of imputed rents reshuffles the set of poor households, observed changes in the socioeconomic profiling of the poor are unlikely to affect pro-poor policy design.
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Policy Research Working Paper WPS8955 AUG 06, 2019
This paper outlines the structure and economic foundation of the World Bank's macroeconomic and fiscal model (MFMod). MFMod consists of individual country models for 181 countries.
... See More + The models are used by country economists within the World Bank's Macroeconomics, Trade and Investment Global Practice to (i) generate country forecasts and (ii) simulate various policies. Each model has a similar structure and functional form, with variation reflecting data availability and economic specialization (notably for oil exporters). Although the functional forms are similar, the parameters are country specific and estimated at the country level. Forecasts across countries are live-linked, with the export market growth of each country calculated as a trade-weighted average of imports of each of its trading partners. Remittance inflows and outflows are balanced across countries through a similar mechanism. Other cross-country linkages come through the real effective exchange rate and export and import prices, which are a function of world commodity prices and local cost considerations.
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Policy Research Working Paper WPS8965 AUG 06, 2019
Burns,Andrew; Campagne,Benoit Philippe Marcel; Jooste,Charl; Stephan,David Andrew; Bui,Thi ThanhDisclosed
This paper explores the determinants of public employment across the world and finds that it is negatively associated with country size (by population) and positively associated with the income level.
... See More + The findings show that a country's openness to trade is positively associated with public employment in low- and middle-income countries, but inversely related in high-income countries. The estimated models are used to predict the expected public employment for a country given its income, population, and openness to trade, and to compare the actual levels with the predicted ones. In general, public employment in Latin American countries is below the predicted levels, except for Argentina, Brazil, Ecuador, Mexico, Suriname, Trinidad and Tobago, and the República Bolivariana de Venezuela. Public employment in the Middle East and North Africa is above the predicted levels, particularly in the Arab Republic of Egypt and the Islamic Republic of Iran. East Asian and Pacific countries' public employment is significantly below the predicted levels, particularly in Hong Kong SAR, China; Japan; the Republic of Korea; and Mongolia. Countries in Europe and Central Asia show higher than predicted public employment, mostly in Romania, Denmark, Sweden, Armenia, and Belorussia. Public employment in Sub-Saharan Africa appears to be below the predicted levels, with the notable exceptions of Botswana and South Africa. The deviations from predicted levels are positively correlated with the union density rate, which is negatively associated with private employment rates. Finally, the study finds no statistical association between public and private employment, suggesting the absence of crowding-out in the employment levels.
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Policy Research Working Paper WPS8961 AUG 06, 2019
This paper examines how fiscal rules, exchange rate regimes, and institutional quality affect the cyclical behavior of fiscal policy (how government spending responds to fluctuations in gross domestic product).
... See More + The analysis is performed on a panel of 153 advanced, emerging, and developing countries over 1993-2015 using local Gaussian-weighted ordinary least squares and two-stage least squares estimators. The findings show that the adoption of fiscal rules alone is not sufficient to promote countercyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality, especially in countries with flexible exchange rate regimes rather than in countries with fixed exchange rates. The analysis also finds that the disciplining effect of fiscal rules depends on the type of rule.
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Policy Research Working Paper WPS8964 AUG 06, 2019
How does law change society? In the rational actor model, law affects behavior only by changing incentives and information -- the command and coordination function of law.
... See More + Under the view that humans are social animals, law is also a guidepost for social norms that regulate behavior -- the expressive function of law. This paper proposes a third function of law—the schematizing function -- based on cognitive research that shows that individuals cannot think without categories. Law makes possible new kinds of exemplars, role models, and social interactions that give people prototypes that transform the categories they use, thereby reframing their options and influencing their behavior. This paper illustrates the schematizing power of law with examples from field and natural experiments. Like the one-two punch in a boxing match, the command and schematizing functions of law together can change society in situations where the command function alone would be ineffective or backfire.
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Policy Research Working Paper WPS8954 AUG 06, 2019
Housing is the largest durable good consumed by households. As such, any consumption-based measure of welfare, to be comprehensive, must include the value of the flow of services households derive from their dwellings, the so-called imputed rent.
... See More + However, estimating imputed rents is a daunting task, which researchers and practitioners tend to overlook. This paper is the first attempt to assess the distributional impact of including housing in the welfare aggregate; the paper tests two estimation methods and analyzes four developing countries. The distributional impact cannot be predicted a priori, and evidence suggests it is context and method specific. Although changes in poverty and inequality are always statistically significant, they are only occasionally larger than one percentage point. By contrast, shared prosperity exhibits sizable changes, which might also determine international re-rankings. Albeit the inclusion of imputed rents reshuffles the setof poor households, observed changes in the socioeconomic profiling of the poor are unlikely to affect pro-poor policy design.
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Working Paper (Numbered Series) 140352 AUG 06, 2019
During the 2019 Spring Meetings, the World Bank hosted the first Human Capital Project (HCP) Ministers' Conclave in Washington, DC. The event was attended by Ministers and other high-ranking government officials from over 60 countries.
... See More + Other key development partners and champions for human capital were also represented. The event allowed HCP members to take stock of their efforts to accelerate human capital outcomes and encouraged the sharing of experiences, ideas, good practices, and challenges.
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