rafmacalaba/datause-encoder-data huggingface dataset:
# 3.2 Alternative Scenarios

In this section, we consider alternative formulations of the main assumptions in the model. This exercise not only provides a robustness check for the baseline results, but also enables a comparison of policy options in terms of their impact on macroeconomic and scal outcomes in the medium and long term. We investigate three classes of scenarios: total factor productivity scenarios, labor force participation scenarios, and school enrollment scenarios.

## Total Factor Productivity Scenarios

Total factor productivity growth is a particularly important determinant of the macro-scal outcomes in a situation where one or both factors of production shrink over time. Therefore, we include a robustness check where TFP growth rates either exceed or remain short of the levels characterized by the baseline. Panel (a) in Figure 8 displays the trajectories of these alternative TFP growth rates in comparison to the baseline.

The low TFP growth series are 0.15 percent smaller than the ones in the baseline case in the long-term. In the medium term, however, the dierences change from 0.8 percent in 2016 at the largest, to 0.18 percent in 2021 at the smallest. The low TFP growth is similar to the averages of EU-27 countries projected by the European Commission (2012), and provides a useful benchmark. Minor dierences between the two mainly lie in medium term dynamics, where the EU study employs a relatively stable TFP growth trajectory, whereas our estimates incorporate the current economic downturn and a projects a recovery in the medium term. These additions are reected as lower TFP growth rates than the EU-27 average in the short term, and higher than those in the medium term.

The high TFP growth scenario assumes a TFP growth rate that is about 0.3 percentage point higher than the baseline scenario in the long term. With the exception of certain short and medium term dynamics as described above, the TFP growth projections in this scenario are similar to the Bulgaria specic projections by the same EC report.

Panel (b) in the same gure shows the associated GDP growth rates. Obviously, higher TFP growth rates translates into higher GDP growth rates as well. However, we should keep in mind that, the dierences cannot be attributed solely to TFP. When TFP increases, marginal productivities of both production factors increase, which increase the real wages and interest earnings. In response, there will be capital inows into an open economy. Therefore, a portion of the additional GDP growth is due to higher investment. As labor supply is assumed to be inelastic in our model, there is no additional contribution from that channel.

21
Notes:<sup>_a_</sup> Survey of the Compania do Metropolitano de Sao Paulo (Metro);<sup>_b_</sup> Millenium Cities Data Base. IAPT (2007);<sup>_c_</sup> The World Bank;<sup>_d_</sup> Public transit trip time, _G_ 2 =0.5(2.10)+0.5(1.5);<sup>_e_</sup> Crude guess.

**TABLE 2: Shares of trips and modes choices by income group**

|Income gro|up|**1**|**2**|**3**|**4**|**5**|**6**|_Total or_<br>_Average_|
|---|---|---|---|---|---|---|---|---|
|Shares of perso<br>per day,<br>_f_<br>_N_|n trips<br> <sup>_a_</sup>|0.17|0.25|0.27|0.19|0.09|0.03|1.00|
|Wage (BRL/hr),|<br>_f_<br>_w_|1.8|3.6|7.2|13.8|27.0|48.0|9.75|
|_a_|||||||||
||_Walk_|_0.600_|_0.500_|_0.400_|_0.250_|_0.170_|_0.150_|0.402|
|Mode shares,|_Public_|_0.300_|_0.345_|_0.330_|_0.300_|_0.207_|_0.102_|0.305|
|_fm_<br>_P_<br>_a_|_Auto_|_0.100_|_0.155_|_0.270_|_0.450_|_0.623_|_0.748_|0.293|
||_Total_|1.000|1.000|1.000|1.000|1.000|1.000|1.000|

(Notes:<sup>_a_</sup> Survey of the Compania do Metropolitano de Sao Paulo (Metro)) To achieve a reasonable calibration of the mode choice probabilities, the dispersion parameters,  _f_ , are all set to 0.25 and the mode-specific constants for the non-motorized mode in the utility function were set to zero ( _E f_ 1  0 ), while _E f_ 2, _E f_ 3 are set to replicate the mode shares for _f_ shown in Table 2. This calibration resulted in car choice demand elasticities with respect to monetary travel cost and travel time that are shown in Table 3. As discussed earlier and now seen from Table 3, the model has been set up in such a way that the elasticity of the probability of choosing the car mode with respect to travel time (equation (3b)) increases with income, while the elasticity with respect to monetary travel cost (equation (3a)) decreases with income.

**TABLE 3: Calibrated own and cross elasticity of mode choice with respect to monetary travel cost and travel time of a trip by car**

|Income g|roup|**1**|**2**|**3**|**4**|**5**|**6**|
|---|---|---|---|---|---|---|---|
|Monetary cost|_Own_|-0.39|-0.36|-0.32|-0.24|-0.16|-0.11|
|(equations 3a)|_Cross-bus/walk_|0.04|0.07|0.12|0.19|0.27|0.32|

12
# **_b. Effective tax rates by sector and sex of owner_**

Next, we examine the effective tax rates by sex of the business owner, which are presented in rows 1 - 4 in Table 6. The gender difference in tax burden is significant using the tax code with the most recent data (row 2) where male-owned businesses bear a larger tax burden (at 3.1%) than female-owned businesses (at 0.5%).

Using self-reported taxes and conditional on positive tax payments (row 3), the effective tax rates are very high for both female businesses and male businesses at 12.4% and 5.0%, respectively, in period 2. Such high rates could be detrimental for business growth and could potentially push them into the informal sector. For example, as a comparison in Ukraine, taxpayers deemed a presumptive tax rate of 6 percent on turnover to be too high, causing discontent in this tax regime (Coolidge and Yilmaz 2016).

The results by sector show that the tax burden is low for: (1) the retail trade sector (in rows 7 and 11), as some low revenue firms in this sector (e.g., trading in fruits and vegetables) are exempt, and (2) enterprises that manufacture or sell local beverages (rows 5 and 9) because most fall below the exemption threshold. However, for food and beverage services – a female-dominated sub-sector, female-businesses’ effective tax rates are high (at 13.9% in period 1 and 5.1% in period 2 using the tax code in row 10). Given that low revenue firms are not exempt from the presumptive tax in this sector, the effective tax rate is particularly high. Similarly, low revenue transit services - a male-dominated sector - are not exempt from tax, and so the effective tax rates for male businesses in the transit service sector are also high (at 16.4% in period 1 and 10.3% in period 2 in row 12). The effective tax rates for these two sectors are much higher than for the retail trade sector, which are only 0.9% for male and 0.1% for female businesses with the most recent data.

Taken together, the results show that the tax burden of the presumptive tax tends to fall more heavily on the middle quartiles using the self-reported method, but the tax burden using the tax code is regressive. The effective tax rates for male businesses in the lowest quartile are high under the imputed method because 38% operate in sectors without a tax-free threshold. The effective tax rates are also high for the femaledominated food and beverage service sector and for businesses in the transit service, which is maledominated, because there is no tax exemption for low revenue firms for these sectors.

**<u>Table 6: Effective tax rates (percentage of turnover), by sector and sex of owner</u>**

||**(1)**|**(2)**|**(3)**|**(4)**||**Number of**|**enterprise**|**s**|
|---|---|---|---|---|---|---|---|---|
||**Per**|**iod 1**|**Per**|**iod 2**|**Per**|**iod 1**|**Per**|**iod 2**|
||Male-<br>owned|Female-<br>owned|Male-<br>owned|Female-<br>owned|Male-<br>owned|Female-<br>owned|Male-<br>owned|Female-<br>owned|
|(1) Effective tax rate (self-reported)|1.4|0.8|0.9|0.9|775|740|703|658|
||(6.0)|(4.6)|(3.4)|(5.0)|||||

17
# **4 Empirical Results**

## **4.1 COVID-19 and economic activity**

Vietnam was relatively successful in controlling the infections early on during the COVID-19 pandemic. It reported only a little over 300 cases and zero COVID-19-related deaths by the end of July 2020, despite sharing a border and trading extensively with China.<sup>20</sup> A subsequent and more severe surge in infections started at the end of July 2020 and was largely contained by September 2020. At the end of October 2020, Vietnam registered a total of 1,200 cases and 35 deaths. Both infection and mortality rates were kept constantly low in the country relative to the rest of the world, until at least the Delta-variant-fueled surge in June 2021. The initial success in curbing the spread of COVID-19 was largely attributed to early and decisive containment measures such as border closures, strict quarantine rules, well-coordinated testing-tracing-isolating strategies, and the nationwide lockdowns imposed (Islamaj et al., 2021).

Figure 1 shows monthly-average plots of four commune-level household business outcomes: number of temporary suspension and closure filings (panels A and B), individual work hours per week (Panel C), and individual monthly income (Panel D). Suspension and closure filings surged immediately after the first cases of COVID-19 infections, peaking right after the government ordered a nationwide lockdown. Suspensions and closures per commune per month increased from 6.7 and 0.5, respectively, before the pandemic to over 37 suspensions in April 2020 and 2.2 closures in May 2020, or by more than 400 percent. Likewise, both household business work hours and income plummeted. Work hours dropped from the pre-pandemic mean of 47 hours/week to 35 hours/week by April 2020, whereas monthly average income dropped by over a quarter, from 5.8 million VND to 4.5 million VND, by May 2020.

## **4.2 Impact of COVID-19: event study analysis**

We estimate 1 and 2 to analyze the impact of the pandemic on household businesses. The results are presented in Table 2. Consistent with graphical evidence in Figure 1, the estimates in Panel A indicate statistically significant increases in the filings for suspension (column 1) and closure (column 2), and reductions in the work hours (column 1) and income (column 2) of household businesses in the period since the first corona-virus cases were discovered in

> 20Vietnam documented the first COVID-19 case as early as January 23, 2020.

9
- (1989a). "Morocco: Poverty and Human Capital: Public Social Expenditure-....

- Priorities." June 21, 1989.

- (1989b). '"President's Report: Mali Education Sector Consolidation Project."

- Report No. P-5010-MLI. May 17, 1989.

- -----(1985b). "Priorities for Public Expenditures, 1986-88: Ghana." Report No. 5824GH. August 13, 1985.

- ----- -- (1983). "Priorities for Public Sector Investment 1981-1985: Morocco." Report No. 4156-MOR. June 15, 1983.

- --(1989c). "Public Expenditure Review: Malawi." Report No. 7281-MAI. February-10, 1989.

- ---------- (1987b). "Public Expenditure Review: Zambia." Report No. 6438-ZA. October 6, 1987.

- --(1989d). "Public Sector Expenditure Review: Costa Rica." Report No. 7877-CR.-September 21, 1989.

- ------- (1988e). "Report on Adjustment Lending." August 1, 1988.

- ---------- (1990c). "Social Development in Africa Statistical Tables." SDA Unit. April, 1990.

- ---------- (1990d). "Social Spending in Latin America: The Story of the 1980s." Report No. 8450-LAC. June 26, 1990.

- ---- (1990e). "Socio-Economic Development Funds: An Operational Guideline." SDA Unit. September, 1990.

- ---------- (1987c). "Staff Appraisal Report: Education Sector Credit, Republic of Malawi." Report No. 6428-MAI. February 24, 1987.

- ---------- (1986c). "Staff Appraisal Report: Senegal Primary Education Development Project." Report No. 6179-SE. September 9, 1986.

- ---------- (1990f). "Structural Adjustment and Poverty: A Conceptual, Empirical and Policy Framework." World Bank. Report No. 8393-AFR. February 9, 1990.

- ---------- (1986d). "Structural Adjustment Lending: A First Review of Experience." Report No. 6409. September 24, 1986.

- ------- (1989e). Sub-Saharan Africa: From Crisis to Sustainable Growth. 1989.

- --..... (1988f). "Targeted Programs for the Poor During Structural Adjustment: A Summary of a Symposium on Poverty and Adjustment." April, 1988.

67
which yield Expressions (8) and (9) provide the equilibrium levels of risk and interest rates (and thus lending volumes) as a function of the parameters of the model. Differentiating (8), and (9) with respect to φ, t, and τ , it is straightforward to verify that<sup>∂</sup> ∂φ<sup><u>q∗</u>>0,∂</sup> ∂t<sup><u>q∗</u><0,∂</sup> ∂τ<sup><u>q∗</u><0;and8</sup><sup><u>∂L</u></sup> ∂φ<sup>∗<0,</sup><sup><u>∂R</u></sup> ∂t<sup>∗<0,</sup> <u>∂R∂τ</u><sup>∗< 0.Wethushavethat:</sup> Result 1 A tightening of macroprudential regulation (through an increase in either minimum capital requirements, reserve requirements, or taxes on credit) leads to a reduction in credit volumes. However, while an increase in capital requirements decreases the riskiness of the bank’s loan portfolio, an increase in reserve requirements or taxes on credit increases it.

The result suggests that, when incentives are taken into account, the equivalence between different macroprudential tools is broken. In particular, an increase in the bank’s external cost of funds, triggered, for instance, by an increase in reserve requirements, increases individual banks’ risk-taking incentives.<sup>9</sup> The reason is that an increase in the cost of the bank’s external liabilities, such as obligations to depositors, only matters if the bank does not fail. This tends to exacerbate moral hazard, and to induce the bank to behave in a less prudent way. Similarly, as long as the demand for loans is not completely inelastic, the introduction of a tax on credit reduces the bank’s returns in the case of success and so its incentive to monitor. On the contrary, the introduction of capital requirements, by increasing the bank’s skin in the game, makes it more liable and decreases risk-taking incentives.

Finally, comparing the effects of reserve requirements and taxes, it is easy to verify that, in the absence of minimum capital requirements, taxes on deposits and taxes on credit are equivalent. In the presence of capital requirements, instead, an increase in the tax on credit will affect credit (negatively) and risk taking (positively) more than a tax on deposits. This follows from the fact that the presence of capital requirements reduces the deposit tax base.

# 3 Conclusions

According to the current wisdom, prudential regulation should be thought of as an additional instrument in the hands of policymakers to avoid the build up of excessive risk along the business cycle. Such a view is supported by many recent contributions that incorporate financial amplification effects in open macro models, and study how ‘macroprudential’taxes can help in coping with externalities.<sup>10</sup>

> 8 Remembering that ∂R∂L<sup>∗∗= −β.</sup>

> 9 According to Aldo Mendes, the Brazil Central Bank’s a central bank director responsible for monetary policy.“Lowering reserve requirements helps financial stability,”Bloomberg, September 20, 2012.

> 10 See, among others, Bianchi et al. (2012), Korinek, (2011), and Benigno et. al. (2011)

5
overall production function (as opposed to the innovation function analyzed here) is positive with respect to I(.).

Third, would the predictions of the model change if the probability of imitation is endogenous with respect to firms’ number of varieties or research costs? Probably not, because any plausible strategic game among firms that would need to be modeled would not change the signs of the predictions. What would come out from such a modeling approach is an optimal dynamic path for the firm in terms of different combinations of research-cost intensity changes and number of varieties, rather than the impact of the probability of imitation imposed by other firms’ strategic behavior.

Thus far the discussion has been interpreting research-cost intensity as referring strictly to R&D expenditures. Since there is a substantial literature on international technology diffusion (e.g. Keller 2004), it is worth asking whether this model would apply to other forms of innovation expenditures. The answer is yes, as the model does not have sufficient structure to distinguish between innovation expenditures to import capital goods or licensing payments to use foreign technologies. Some of the empirical exercises presented later in this paper use data on R&D as well licensing payments as proxies for investments in product innovation.

The simplicity of this setup, however, is attractive for empirical analysis, in spite of the open questions discussed above or many others.<sup>4</sup> An important advantage is that it explicitly models the direct (equation 1) and the reverse (equation 4) models of innovation expenditures. The following section presents the data that are used to explore the partial correlation between firms’ R&D as a share of sales – a proxy for research-cost intensity when product prices are exogenous – and firms’ propensity to introduce a new product in developing countries, as well as to assess the role of the investment climate. The reverse model turns out to be an important tool to estimate the “true” partial correlation between product innovation and research-cost intensity.

# **3. Data**

> 4 One such additional question is whether the average price index in the model should be a relative price, for example, with respect to the price of alternative varieties not produced by the firm. Working with relative prices that are also exogenously given does not change the analysis.

6
responsible did not overlap with the 95 percent confidence interval of the differences in any of the other sensitive or non-sensitive questions in columns (2)-(8).<sup>25</sup> Although it is difficult to make strong inferences from a single question, the potential differences in responses based on the source of that sensitivity is an issue that needs to be further investigated.

Importantly, the results survive an important robustness check. It is important to further illustrate that the differences in the modalities in sensitive questions is not being driven by the observable differences in the internet and mobile phone samples. Table 5 illustrates that when restricting the samples in the internet and mobile phone surveys to be more comparable using all the demographic information available, the sensitive questions continue to have much larger differences between the modalities than the nonsensitive questions.

Specifically, Table 5 illustrates that these results survive restricting the sample to those groups that are underrepresented in the internet survey- to only those with above the median age in the internet survey (above 26), to only female respondents, to only those who do not live in the two largest cities in the country, to those whose subjective income levels are not sufficient to live comfortably, to those who worked less than three weeks in the past month, and to those whose highest school level completed was either primary school or below.<sup>26</sup>

# **Section 6b. Inferring Potential Sources of Sensitivity and Discussion**

Although the results illustrate strong differences between internet and mobile phone surveys in the responses to sensitive questions, the differences between the surveys can potentially be further used to make inferences about the sources of sensitivity, which potentially has implications for the conflict itself and the type of country that Yemenis might want to see emerge from the conflict. Specifically, we investigate differences in the magnitude of the baseline estimates across regions where the sources of sensitivity

> 25See Appendix 1 for a formal specification illustrating the larger difference by adding a triple interaction term to the formal comparison made in Appendix 1.

> 26The lack of a difference in the baseline results when restricting the sample further survives in the more formal comparison in Appendix 1. Furthermore, the results are qualitatively identical when interacting respondent characteristics with the main effect and including the whole sample.

19
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price reforms. In the DSDT scenario, we also assume that Vietnam removes all exports subsidies, but it preserves the Special and Differential Treatment of developing countries. As such, domestic support and tariffs are reduced but not eliminated.

Aggregate comparative static results for these counterfactuals are presented in Table 2. In terms of aggregate growth, these scenarios are generally consistent with intuition. In particular, FL is the biggest stimulus to Vietnam, followed by UL and DSDT. Real GDP rises moderately under UL and FL scenarios, but slightly declines under DSDT scenario. FL also brings about a higher level of real consumption than UL and DSDT do. This is not only a result of greater trade stimulus but also a result of improved terms of trade. At the other extreme, removing export support in the DSDT scenario induces an adverse terms of trade effect, making Viet Nam exporters less competitive and more than offsetting efficiency gains from tariff removal. Given existing distortions elsewhere in the trading system, a piecemeal approach like DSDT would be inferior to even the status quo.

# [Table 2 about here]

Our CGE results show that textiles, technology, and machinery sectors expand significantly, accompanied by construction, and trade and transport services, while the agricultural sector remains prominent as shown in Table 3. More fundamentally, these results begin to reveal the mechanisms by which external liberalization can affect poverty and inequality in Vietnam. Like many developing countries, Vietnam’s poor majority are farmers living at or near the subsistence level. Their assets are generally limited to labor, small land holdings of uncertain quality and livestock. In the Asian context, external liberalization has generally provided the most direct growth impetus to urban populations through expansion of light, intermediate, and heavy industrial activities. The majority of the rural poor have two channels by which they can participate in urban based growth, migration and marketing of food products. The comparative static model used here does not model the former, so we confine our attention to changing income opportunities.

> 6 The policy context for the DSDT scenario is discussed extensively in Hertel and Winters (2006).

19