rafmacalaba/datause-encoder-data huggingface dataset:
Policy Research Working Paper 8187

# **Abstract**

There is a strong concern that technology is increasingly replacing routine tasks, displacing lower-skilled workers. Labor market institutions exist to protect workers from shocks but, by increasing labor costs, labor policy may also constrain firms from adjusting the workforce and, hence, from fully benefiting from technology adoption. This paper assesses the link between access to digital technologies and the demand for skills in the largest Latin American country, Brazil. Between 1996 and 2006, the country experienced a period of strong growth in Internet service provision, as well as in the enforcement of labor market regulations at the subnational level. The paper’s empirical strategy exploits administrative data to assess the extent to which the adoption of digital technology affects employment and the skill content of jobs at the local level. In addition, the paper investigates whether the stringency of labor regulations influences this adjustment, by comparing the effect across industries subject to different degrees of enforcement of labor regulations. Using the fact that industries vary in the degree of reliance on digital technologies, the estimates - suggest that digital technology adoption leads to a reduc tion in employment in local labor markets. The decrease in employment is larger for routine tasks, thereby shifting the composition of the workforce toward nonroutine, cognitive skills. However, and in contrast with labor policy intentions, the evidence points to the idea that labor market regulations differentially benefit the skilled workforce, particularly those workers employed in nonroutine, cognitive tasks.

This paper is a product of the Education Global Practice Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The authors may be contacted at poole@ american.edu.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
WPS4158

# **Walking up the down escalator:**

# **Public investment and fiscal stability**

**William Easterly, Timothy Irwin, and Luis Servén***

## **Abstract**

Fiscal adjustment becomes like walking up the down escalator when growth‐promoting spending is cut so much as to lower growth and thus the present value of future tax revenues to a degree that more than offsets the improvement in the cash deficit. Although short‐term cash flows matter, a preponderant focus on them encourages governments to invest too little. Cash flow targets also encourage governments to shift investment spending off budget, by seeking private investment in public projects—irrespective of its real fiscal or economic benefits. To evade the action of cash flow targets, some have suggested excluding from their scope certain investments (such as those undertaken by public enterprises deemed commercial or financed by multilaterals). These stopgap remedies might sometimes help protect investment, but they do not provide a satisfactory solution to the underlying problem. Governments can more effectively reduce the biases created by the focus on short‐term cash flows by developing indicators of the long‐term fiscal effects of their decisions, including accounting and economic measures of net worth, and where appropriate including such measures in fiscal targets or even fiscal rules, replacing the exclusive focus on liquidity and debt.

### JEL codes: O23, E62, H60, H54

### World Bank Policy Research Working Paper 4158, March 2007

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

* This paper was originally prepared for the study on “Fiscal Space in Latin America” developed as part of the World Bank’s LAC Regional Studies Program. We are grateful to Penelope Brook, Antonio Estache, José Luis Irigoyen, Guillermo Perry, Sergio Rebelo, and Augusto de la Torre for helpful comments on previous versions.
in discharges of chemical oxygen demand with respect to its standard gives rise to a 0.04% increase in the levy payment ratio. As explained previously, both results are consistent with expectations regarding the uncertain impact of pollution discharges on the bargaining power of the firmn. Finally, a 1% increase in the number of inspections brings about a 0.04% decrease in the levy payment ratio. This result is of interest. In a previous paper, Dasgupta et al. (2001) have shown that inspections reduce pollution discharges of industrial establishments in China. However, results here indicate that a greater level of inspections is associated with a reduction in the levy payment ratio. While more inspections may improve the enviromnental performance of the plants, more inspections also appear to indicate that the plant is less willing to pay for a pollution charged.

# 5. **Summary and conclusion**

There are two issues associated with the implementation of a national environmental policy at the local level such as the pollution levy system in China: endogeneity of enforcement and incomplete enforcement. With a primary database collected in Zhenjiang, China, this paper has analyzed the issue of incomplete enforcement, which is caused by the relative bargaining power of the industrial establishments. Unlike previous papers which have mainly focused on the impact of socio-economic and environmental conditions, in this paper we have examined more precisely the impact of firms' characteristics (such as financial status, pollution control effort, social impact of pollution emission, magnitude of emission violation, as well as refund of levy paid and number of inspection received on the amount of levy paid relative to the amount that should have been paid if the national system had been strictly applied. With a stronger bargaining power in the hands of the industrial sector, we expect the degree of enforcement to be lower.

The empirical results are consistent with prior expectations. Firms which are privately owned have less bargaining power in levy payment. A bad financial situation entails a higher relative bargaining power and a bigger effort to bargain for less levy payment. A plant which spent more on pollution control is more likely to get waived, the 18
Despite recent efforts to promote biofuels, the current share of biofuels in the global energy mix for transportation is only around 2 percent on energy equivalence basis.<sup>3</sup> One reason for this low market penetration<sup>4</sup> is that the price of fossil fuels does not include its negative external costs (e.g., environmental damage) to society. Particularly in the context of climate change mitigation, this could be addressed by imposing a carbon tax on fossil fuels. However, how much a carbon tax would change the relative economics of biofuels and its penetration in the energy supply mix is an empirical question.

During the last two decades, a plethora of research both on carbon taxation and on biofuels has been produced. This literature spans a wide range of issues, methodologies and disciplines, and a detailed review is beyond the scope of this paper. A number of studies use either general equilibrium or partial equilibrium models that incorporate biofuels, to simulate climate change mitigation policies. For instance, Janssen and de Vries (2000) simulate different GHG mitigation policies, such as a carbon tax in the energy system model TIME that includes biofuels, to estimate the costs of stabilizing the CO2 concentration in the atmosphere at 550 ppmv. However, the partial equilibrium approched employed in the TIME model does not account for economy-wide feedback effects of a carbon tax. Plevin and Mueller (2008) develop a bottom-up model to calculate the effects of a CO2 tax and other emission policies on the costs of producing ethanol from corn, but also their model is partial equilibrium, and the study can therefore not account for the spill-over effects of carbon policies on other sectors of the economy. McCormick and Kåberger (2005) identify the Swedish carbon tax as a facilitating factor for the expansion of bioenergy in the town of Enköping, but such a case study does not

> 3 Authors‘ estimation for year 2008 based on data for global gasoline and diesel consumption in the transport sector from the International Energy Agency and ethanol and biodiesel production data from Timilsina and Shrestha (2010).

> 4 Biofuel penetration in this study is defined as the ratio of biofuels (ethanol and biodiesel) to the total liquid fuel consumption in the road transportation (i.e., biofuels, gasoline and diesel).

3
domestic economy ( _ibid._ , p. 287). This effect works, at least partly, through the disruption which regional political instability causes to trade. Moreno and Trehan (1997) directly examine growth spillovers, making a distinction between gross spillover effects and net spillover effects. Gross (net) spillover effects are associated with the estimated coefficient on neighboring country growth in a cross-sectional growth regression when all other explanatory variables are excluded (included) ( _ibid._ , p. 405). Using data for 1965-1989, they find evidence that both types of spillover are extremely strong.

Other studies which use cross-sectional growth regressions include Abreu _et al_ (2004), and Ertur and Koch (2005, 2007). Abreu _et al_ (2004) find strong and statistically significant spillovers of total factor productivity (TFP) growth over the period 19602000. Ertur and Koch (2007) build technological interdependence directly into a modified version of the Solow model, allowing them to derive a conditional convergence style estimating equation for growth which includes spatial effects. When estimating this equation, they find neighboring growth to have a significant positive impact on domestic growth. Ertur and Koch (2005) obtain similar results, although, in this case, the authors derive their estimating equation from a two-sector model of growth. In both papers, Ertur and Koch further estimate their conditional convergence equations by applying Bayesian methods which allow for parameter heterogeneity, which they find to be important.

Easterly and Levine (1998) adopt a similar approach to the above studies. However, rather than using purely cross-sectional data, they use average growth rates for three 7
# Figure 4 8

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fall depends on the relative bargaining power of firms and workers in the economy. In the long term, the following happens: If workers have low bargaining power, increased product market competition causes real wages to rise. In contrast, if LMR is high, more competition can cause real wages to fall. In related work, Ebell and Haefke (2009) show that product market deregulation can decrease unemployment and increase real wages. As in Spector (2004), they clearly show how these effects depend on the semi-elasticity of wages with respect to firm surplus.

Fang and Rogerson (2011) propose a model, that highlights the endogeneity of workers’ labor supply decisions, which are characterized by a trade-off between consumption and leisure time. When product markets are deregulated, i.e., entry costs for firms are reduced, the employment effects of the reform are determined by whether the net returns to market work increase. This, in turn, depends on the precise implementation of the reform (for example, does the government redistribute the additional revenue obtained due to the charged firm registration costs?). How strong the increase or reduction in aggregate employment then depends on whether the substitution effect or the income effect dominates.

# Infobox: The OECD PMR Indicators

Since 1998, the Organisation for Economic Co-Operation and Development (OECD) has produced the Product Market Regulation (PMR) indicators. These are a comprehensive and internationally comparable set of measures for the degree to which policies promote or inhibit competition in the product market. The indicators are based on an extensive database, which is compiled by the OECD and relies on time-specific answers to a questionnaire that is sent to national authorities.

The information is quantified in a large series of individual indicators whereby the most competition-friendly value is zero and the least 6. Through a bottom-up approach, these indicators comprise the basis for broader PMR indicators at a sector-specific and economy-wide level. It should be noted that the OECD’s PMR indicators are comparable across countries due to their _de jure_ nature. However, their comparability is limited due to the various _de facto_ implementations of these laws across countries.

In a recent summary of the empirical competition literature, Hong (2022) reviews the effects of competition policy on three key macroeconomic outcomes. He concludes that pro-competitive policies lead to productivity growth, a positive effect on total employment and real wages in the medium to long term, and reduced income inequality. A working paper by Causa et al. (2015), reaffirms the inequality-reducing effects of product market deregulation, highlighting the positive effects on households’ disposable income.

14
# **Making Services Work**

**Indicators, Assessments, and Benchmarking of the Quality and Governance of Public Service Delivery in the Human Development Sectors**

Ariel Fiszbein, Dena Ringold, and F. Halsey Rogers<sup>1</sup>

**JEL Codes:** H51, H52, I15, I18, I25, I28

**Keywords:** Governance, service delivery, indicators, public sector performance, education, health, education finance, health care finance, information, teacher motivation and management, health worker motivation and management

> 1 Chief Economist, Senior Economist, and Lead Economist, Human Development Network, the World Bank.
in equilibrium under the reciprocity rule, while Gp = 0 under GSP. This implies that _PREC_ and _PREC_ are lower than _PGsp_ and _PGSP,_ respectively, since G is a concave function of p, and _pZ_ is the same under the two regimes. The next statement summarizes this result.

**Conjecture 1** _Suppose the reczprocity rule leads to the same world pmces for the export good x (i.e., yielding the same tamffs from the United States) as the GSP regzme. Then the equilibrium tamff implemented under the reczprocsty rule zs lower than the one implemented under GSP._

This conjecture states that removing a developing country's eligibility for GSP, and thus giving market access only in exchange for reciprocal tariff reductions, indeed induces the developing country to reduce its import barriers. The reciprocity rule compounds the costs - by lowering export prices - of the developing country's decision to maintain higher tariffs. This increase in the marginal cost of tariffs lowers their equilibrium level. In other words, if a developed country liberalizes its trade policies reciprocally, within the scope of the GATT/WTO regime, it will induce more liberalization by developing countries than if it had liberalized unilaterally, as under GSP. Removing a beneficiary from GSP should thus cause it to adopt more liberal trade policies.

# 4 Data and Variables

This section tests the hypothesis that countries dropped from the GSP program adopt more liberal import policies than those remaining on GSP. We construct a dataset with one observation per year per independent developing country, from its first year as a United States GSP beneficiary (minimum 1976, the start of the program) through 2000. Our definition of "independent" follows the official US GSP manuals (e.g., USTR [19991).14 This yields a total of 154 countries and 3210 country-years in the panel.

We previously noted that most developed countries maintain their own versions of GSP. If our hypothesis is correct, all of these programs should have an impact on developing country trade policies, weighted perhaps by the significance of the industrialized nation's market for the exports of the country in question. However, we have data on only the United States' GSP program. This is no great loss, because the overall margin of preference conferred by the US GSP program is by most accounts fundamentally comparable to the preferences of the European Union and other developed countries (GAO [2001], UNCTAD [1999]). Furthermore, the US GSP-authorizing law stipulates that the President may base GSP eligibility

> 1'Following the US GSP program guidelines cited earlier, most OPEC members and members of the communist bloc were never granted GSP eligibility (until they experienced a regime change), with some exceptions, namely, Angola, Ethiopia, Grenada, Laos, Madagascar, Mozambique, Nicaragua, Romania, and Yugoslavia (communist regimes) and Indonesia, Nigeria, and Venezuela (OPEC members). The others are thus not in our sample, which only includes a state from its first year on the GSP program.

10
**Appendix Table C: Log Value of Yield Within-Estimator (Including Jointly Managed Plots)**

||**(1)**|**(2)**<br>|**(3)**|**(4)**|**(5)**|**(6)**|
|---|---|---|---|---|---|---|
||**Raw Gap**|**Fixed**<br>**Effects**<br>**Only**|**Plot**<br>**Characteristics**|**Plot Manager**<br>**Characteristics**|**Cropping**<br>**Choices**|**Inputs**<br>**Applied**|
|Managed by Female|-0.179***|-0.240***|-0.402***|-0.428***|-0.392***|-0.342***|
||(0.027)|(0.040)|(0.038)|(0.054)|(0.050)|(0.049)|
|Managed by Male and Female|0.574***|0.368***|0.480***|0.466***|0.277***|0.245***|
|Jointly|(0.043)|(0.047)|(0.046)|(0.052)|(0.048)|(0.046)|
|15 Min - 30 Min|||-0.026|-0.023|0.005|-0.008|
||||(0.048)|(0.048)|(0.046)|(0.043)|
|30 Min - 60 Min|||0.003|0.004|0.039|0.008|
||||(0.052)|(0.052)|(0.051)|(0.049)|
|1 Hour - 2 Hours|||<br>-0.014|<br>-0.012|<br>0.013|<br>-0.019|
||||(0.081)|(0.080)|(0.078)|(0.076)|
|Over 2 Hours|||0.075|0.078|0.131|0.145|
||||(0.133)|(0.134)|(0.141)|(0.134)|
|Soil Quality: Fair|||-0.096***|-0.095***|-0.105***|-0.076**|
||||(0.037)|(0.037)|(0.036)|(0.036)|
|Soil Quality: Poor|||-0.080|-0.085|-0.126*|-0.099|
||||(0.073)|(0.073)|(0.070)|(0.070)|
|Hilly Parcel|||0.042|0.045|0.074|0.056|
||||(0.069)|(0.068)|(0.066)|(0.065)|
|Valley Parcel|||-0.071|-0.069|-0.032|-0.036|
||||(0.109)|(0.110)|(0.104)|(0.097)|
|Gentle Slope Parcel|||0.143***|0.144***|0.151***|0.118***|
||||(0.042)|(0.042)|(0.040)|(0.040)|
|Steep Slope Parcel|||0.061|0.066|0.104|0.052|
||||(0.144)|(0.143)|(0.126)|(0.119)|
|Irrigated Parcel|||-0.343***|-0.343***|-0.278***|-0.299***|
||||(0.105)|(0.108)|(0.104)|(0.097)|
|Swamp/Wetland Parcel|||0.310***|0.304***|0.367***|0.313***|
||||(0.115)|(0.116)|(0.120)|(0.111)|
|Planted Acres (log)|||-0.447***|-0.447***|-0.458***|-0.288***|
||||(0.020)|(0.020)|(0.020)|(0.025)|
|Rented Parcel|||0.065|0.063|0.136***|0.127***|
||||(0.045)|(0.045)|(0.046)|(0.044)|
|Manager Is Under 30 Years of||||0.235|0.231|0.226|
|Age||||(0.209)|(0.200)|(0.193)|
|Manager Is 30-40 Years of Age||||0.190|0.194|0.188|
|||||(0.178)|(0.170)|(0.163)|
|Manager Is 40-50 Years of Age||||0.199|0.230*|0.205|
|||||(0.143)|(0.138)|(0.132)|
|Manager Is 50-60 Years of Age||||0.110|0.151|0.134|
|||||(0.104)|(0.100)|(0.097)|
|Manager Received NAADS||||0.115**|0.104**|0.100**|
|Extension Services||||(0.052)|(0.051)|(0.049)|
|Manager Received Other||||0.101|0.097|0.069|
|Extension Services||||(0.064)|(0.066)|(0.064)|

27
to 2009-2018 and 2014-2018. The IMF data transparency ‘subscription’ improves from 1995-2008 to 2009-2018 and 2014-2018 for SSA compared with non-SSA.

Figures 2.a and 2.b compare the averages of WB data transparency and IMF data transparency (standard compliance) among sub-groups such as SSA, non-SSA, East Asia and South Asia for the periods 1995-2008, 2009-18 and 2014-18. For instance, there is not much improvement in WB data transparency according to Figure 2.a among those sample periods. The average score for WB data transparency in SSA is about 63 in three periods while there is little improvement from 76 to 78, from 73 to 76 and from 73 to 75 for non-SSA, EA and SA respectively from 1995-2008 to 2014-2018. Averages of IMF data transparency (standard compliance) in Figure 2.b, on the other hand, show more significant improvement for all sample groups: from 0.04 to 0.38 in SSA, from 0.22 to 0.6 in non-SSA, from 0.27 to 0.51 in EA and from 0.2 to 0.56 in SA from the period of 1995-2008 to the period of 2014-18. Figure 3 decomposes WB data transparency into three components: methodology, periodicity and timeliness, and data source indicators. There are small changes in those composition indicators for all the sample groups among sample periods. Figure 3 shows, for example, small changes in methodology, periodicity and timeliness, and data source indicators from the period of 1995-2008 to the period of 2014-18. Consequently, the overall progress in WB data transparency is minimal between the period of 1995-2008 and the period of 2014-18.

Figure 4 shows average sovereign bond spreads among the country groups of SSA, non-SSA, EA and SA. If we compare the period 1995-2008 with 2014-18, sovereign bond spreads have decreased for most of the sample groups except EA while bond spreads in EA are the lowest. For instance, the lowest average spread among the different country groups is 240 for EA in the periods of 1995-2008 and 239 of 2014-18. The highest average sovereign spread is 999 for SSA in the period of 1995-2008 although SSA successfully reduces its spread by 561points in the period of 2014-18.

# **4. Empirical Evidence**

This section analyzes the empirical results from the fixed effects and instrumental variable estimations. Our results from fixed effects robustly show that improving data transparency benefits a domestic economy by reducing sovereign bond spreads when the country has a higher institutional quality.

# **4.1 Fixed Effect Results**

# _Baseline Specifications_

Table 2 presents the regressions of sovereign bond spreads on domestic and global factors using fixed effects estimation. We find that lower GDP per capita and lower economic growth are associated with widened sovereign bond spreads in developing countries. For instance, in Table 2 a one-point increase in GDP per capita would reduce sovereign spreads by 0.64 point in regression [1] of Table 2 when controlling for WB data transparency (SCI) and they decline by 0.753 point 9