the criteria in question 12 as closely as possible.<sup>11</sup> The guidepost index is positively and significantly related to question 12 ratings. The IDA dummy coefficient is very small and insignificant in both equations. Based on this finding, the large weight assigned to CPIA governance questions in the IDA allocation formula does not appear to be distorting the ratings.

The ECA coefficient is positive and highly significant in both equations 6.1 and 6.2. Question 12 proposed ratings for ECA countries are more than one-fourth of a point higher than predicted from their incomes and guidepost index scores (equation 6.1). Following the network review, this positive ECA effect is basically unchanged, increasing from .275 to .276.

Equations 6.3 and 6.4 analyze question 14 ratings, on revenue mobilization. The two related regressors are from the “Paying Taxes” component of the Doing Business project. Tax rates paid by a “typical firm” pertain to the first sub-rating in question 14 on tax policy. Number of distinct tax payments that a “typical firm” must pay pertains mostly to the second sub-rating on tax administration. Both variables are significantly and negatively associated with question 14 ratings, as expected. The effects are quantitatively small, however: a two standard deviation increase in both tax rate (equal to 80% of firm profits) and number of tax payments (equal to 40) would be required to increase the question 14 rating by one-half point. Moreover, these two indicators do not address many of the criteria in question 14. Accordingly, the R<sup>2</sup> in equations 6.3 and 6.4 is much lower than in the other regressions reported in Table 6. As in equations 6.1 and 6.2, the IDA coefficient is negative but insignificant.

The ECA coefficient is positive and marginally significant in equations 6.3 and 6.4. Proposed ratings for ECA countries are nearly one-quarter of a point higher than predicted on average. For the final ratings, this effect shrinks to one-fifth of a point. The review process appears to reduce the bias somewhat for question 14.

Question 15’s proposed and final ratings are the dependent variables in equations 6.5 and 6.6, respectively. These regressions control for an index of two related indicators from the Economist Intelligence Unit’s (EIU) country risk ratings. One is on bureaucratic quality (including meritocracy), and the other is on red tape encountered in dealing with the government bureaucracy. This EIU bureaucracy index is very strongly related to question 15 ratings. The IDA dummy coefficient is again very small and insignificant in equations 6.5 and 6.6. The ECA coefficient is positive and significant at the .01 level in both regressions. The average question 15 proposed ratings for ECA countries are more than one-third of a point higher than predicted. The network review process has only a minimal impact on this bias, as the coefficient declines from .363 in equation 6.5 to .355 in equation 6.6.<sup>12</sup> Finally, equations 6.7 and 6.8 test for IDA and regional biases in question 16 ratings. The comparator variable is an index of guidepost indicators, constructed to match as closely as

> 11 The index includes 19 variables from five sources: the World Economic Forum’s (WEF) “Executive Opinion Survey,” the International Country Risk Guide (ICRG), Economist Intelligence Unit (EIU), Freedom House, and the Heritage Foundation.  Data are all from 2012.  The ICRG and EIU ratings are updated monthly, and the others annually.

> 12 Results are very similar if we replicate this exercise substituting the bureaucratic quality indicator from International Country Risk Guide for the EIU indicators.

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