rafmacalaba/datause-encoder-data huggingface dataset:
**FIGURt** 3

<!-- Start of picture text --> PRIMARY DEFICIT OF THE CPS AS PERCENTAGE OF GDP<br>15.9 . . . . . .<br>12.5 2 .5 . . . . . . . . . . . . . . . . . . . I I . . . . . .<br>18.0 . . . . . . . . . . . . . .. . .A .<br>7.5 J .. . . . .<br>5.0 . . . . .<br>2.5 .<br>U. I - . . . . . . .<br>1969 1965 1979 1975 1989 19(5<br><!-- End of picture text --> The tendency to melt down the existing stock of debt by means of implementing unexpected devaluations was eventually discounted by the market and in recent years the market has demanded, and obtained, an increasing degree of indexation of the public debt by either the price level or the price of foreign exchange. As this happened, the government could not melt down any longer the stock of real debt and had to facc --he critical problem of a growing real debt in the face of a p.sistent tendency to run primary deficits.

The primary deficit starts falling since 1983 as a result of reduced spending and higher revenues. This late effort, however, is not enough to reverse the increasing reluctance of the public to hold the internal government debt as well as the domestic currency. The government must resort increasingly to the use of .orced investments of the banking system (depositos indisponibles). The fall in demand for domestic-currency denominated assets induces real interest rates that are inconsistent with the real equilibrium of the economy. The shift out of the domestic currency results in an increasing degree of dollarization of the economy and a tendency for recurrent currency runs that result in frequent macro devaluations. At this 5
**Policy Research Working Paper Series**

|**Title**|**Author**|**Date**|**Contact**<br>**for paper**|
|---|---|---|---|
|WPS2442 A Firms's-Eye View of Policy and<br>Fiscal Reforms in Cameroon|Bernard Gauthier<br>Isidro Soloaga<br>James Tybout|September 2000|L. Tabada<br>36896|
|WPS2443 The Politics of Economic Policy<br>Reform in Developing Countries|Richard H. Adams Jr.|September 2000|M. Coleridge-Taylor<br>33704|
|WPS2444 Seize the State, Seize the Day:<br>State Capture, Corruption, and<br>Influence in Transition|Joel S. Hellman<br>Geraint Jones<br>Daniel Kaufmann|September 2000|D. Billups<br>35818|
|WPS2445 Subsidies in Chilean Public Utilities|Pablo Serra|September 2000|G. Chenet-Smith<br>36370|
|WPS2446 Forecasting the Demand for<br>Privatized Transport: What Economic<br>Regulators Should Know, and Why|Lourdes Trujillo<br>Emile Quinet<br>Antonio Estache|September 2000|G. Chenet-Smith<br>36370|
|WPS2447 Attrition in Longitudinal Household<br>Survey Data: Some Tests for Three<br>Developing-Country Samples|Harold Alderman<br>Jere R. Behrman<br>Hans-Peter Kohler<br>John A. Maluccio<br>Susan Cotts Watkins|September 2000|P. Sader<br>33902|
|WPS2448 On "Good" Politicians and "Bad"<br>Policies: Social Cohesion,<br>Institutions, and Growth|Jo Ritzen<br>William Easterly<br>Michael Woolcock|September 2000|A. Kibutu<br>34047|
|WPS2449 Pricing Irrigation Water: A Literature<br>Survey|Robert C. Johansson|September 2000|M. Williams<br>87297|
|WPS2450 Which Firms Do Foreigners Buy?<br>Evidence from the Republic of<br>Korea|Caroline Freund<br>Simeon Djankov|September 2000|R. Vo<br>33722|
|WPS2451 Can There Be Growth with Equity?<br>An Initial Assessment of Land Reform<br>in South Africa|Klaus Deininger<br>Julian May|September 2000|33766|
|WPS2452 Trends in Private Sector Development<br>in World Bank Education Projects|Shobhana Sosale|September 2000|S. Sosale<br>36490|
|WPS2453 Designing Financial Safety Nets<br>to Fit Country Circumstances|Edward J. Kane|September 2000|K. Labrie<br>31001|
The rest of the paper is organized as follows. Section I explains the combination of survey and administrative data we use in the analysis. Section II estimates the changes in quantity (enrollment) and fees (prices) associated with Free Primary Education, presenting evidence of a shift in demand in favor of private primary education in response to fee abolition. The remainder of the paper seeks to explain this shift. Section III measures changes in funding per pupil in public schools under FPE, focusing on the heterogeneous effects of the policy, which disproportionately benefitted poorer households. Section IV estimates the effect that increased public school enrollment by poorer students had on ‘exit’ to the private sector by more affluent households. Section V concludes.

# **I Background and Data**

## **Policy background**

Prior to the introduction of FPE, all non-salary expenditure for schools was obtained via two avenues: fees levied on students and local fund-raising events known as _harambee_ , which aimed to raise financial and in-kind contributions from local communities. There was large variation – – of fees across Kenyan primary schools though fees were uniform for students within a school with one study reporting levies ranging from KSh 500 ($7) to KSh 10,000 ($138) per parent per year (World Bank 2009). While participation in harambees was in principle voluntary, in practice school boards often levied harambee fees and children whose parents had not made any harambee contributions were suspended from school (Mary Kay Gugerty & Edward Miguel 2005).

The FPE policy came into force in January 2003. Under the FPE policy, government primary schools previously responsible for raising funds locally to pay for classroom maintenance, desks, books and other non-salary expenditures, were prohibited from collecting revenue. Instead, each school now receives a central government grant twice per year to cover these non-salary costs. The grant is calculated as a capitation grant of KSh 1020 ($14) per pupil.

In contrast to the changes that occurred in the financing of non-salary education expenditure, the system of teacher employment and local school governance has remained the same. All teachers 6
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* significant at 85% level of confidence.

** significant at the 80% level of confidence.

Decentralizing administration results in a reduction of resource costs initially, followed by an increase (but at a slower rate) as the coefficient for the second order effect is negative and significant while that of the third order effect is positive and significant but smaller than the second order effect. So the subsequent increase in resource costs does not totally offset the initial gains, and the overall effect of decentralization is to reduce resource costs. Tests on the shape of the function (convex and then concave) are accepted at a 99% level of significance. The optimal degree of decentralization of administration functions, defined as the point achieving the least unit costs of administration, is found to be between more than 50 and less than 90 percent local government contribution to financing administration functions (see figure 7).

The opposite is true with respect to maintenance where decentralization was found to result in a slight initial increase in unit costs of maintenance. The subsequent decrease in maintenance costs with increasing levels of decentralization (second order effect) was found to be larger but significant only at the 85% level of confidence. It may be that decentralized units of government undertake more expensive maintenance technologies to provide better quality of roads. This conclusion cannot be made from the model specification in table 5a and we need to compare the findings of other model specifications as shown in figure 8.

Using the results of the cross-country panel and the assumption that resource costs and preference costs are independently determined (i.e., decisions to maintain a road or constuct a new link are mode independently of the decision to allocate a specific expenditure budget for that activity), we find decentralization to be neutral with respect to unit costs of construction.

From Table 5b we see that the country-specific fixed effects are jointly and independently (for most countries) significant. These effects are relative to the USA which is used as a normalizing country for comparison purposes. Korea is the only country whose unit costs of construction are significantly higher than those in the USA. Countries which have similar unit costs of construction as the USA measured in $ per km are Japan, Canada, and Saudi Arabia. All other countries have unit costs significantly lower than those in the USA with respect to construction. These results suggest that the majority of countries are spending significantly less per km of road on construction than the USA.

With respect to maintenance, there are fewer countries with significant differences relative to the USA. The notable exceptions are Japan, Denmark, Finland, UK, Netherlands, Sweden, Austria, and Switzerland which spend considerably more than the USA and Hungary and Poland which spend considerably less than the USA.

17
to reflect the financial stress incurred by the death, with the out-migration largely attributed to marriage. An earlier version of this work made a more direct connection with the financial gains to households from marriage of daughters; this out-migration was said to “...reflect a coping mechanism to acquire resources through bride dowries.” In earlier work using the same data from Tanzania as this study (rounds 1991-1994), Ainsworth _et al._ (1995) document large changes in household composition over a two-year window observed as a consequence of an adult death in households. The nature of changes in household composition has not been studied more specifically. For example, these changes could reflect prime-age deaths (and morbidities associated with them) causing more out or in-migration, changes in marriage patterns, differential child fostering behaviors, or other types of restructuring among extended families.<sup>5</sup> This study focuses on whether marriage patterns among young adults in households affected by adult mortality differ from those in unaffected households. Although we are not directly measuring deaths caused by HIV/AIDS, which is not ascertained in these data, we expect that a large share of parental and prime-age adult deaths that we focus on are attributed to HIV/AIDS (see Ngom and Clark, 2003). We measure whether a young person was affected by HIV/AIDS using two proxy indicators: whether a child became an orphan before age 15 (regardless of whether the parent resided with the child at time of death) and whether the child lived in a household in which a non-parent prime-age adult mortality event occurred after the baseline and before the child turned 15. Although the objective of this work is not to evaluate the outcomes that marriage yields for those who marry, the work is motivated by the perception that the age of marriage can have significant impacts on the future lives of women and their children. Marriage at a younger age increases health risks for women, as well as potentially resulting in “worse” marriage matches. Younger mothers are more likely to suffer from micronutrient deficiencies and be unaware of the health risks associated with pregnancy; they are also more likely to have children soon after marriage which increases the risk of maternal and infant mortality (World Bank, 2007). Younger ages at first marriage may also be associated with curtailed education among girls, although it is difficult to

> 5 In-migration might actually be the AIDS-affected person. In the 4 rounds of baseline data used in this study, about one-third of prime-age deaths in the baseline survey reflect adult members moving into households less than six months before dying.

3
-8-

# Tab 4: Nonfwa Wlloy nt Density by Size of Settement kdla, 1971

|Size of Locality|Nonfarm<br>Agricultural<br>Employment<br>Employment|
|---|---|
||(Employment per 1,000 Population)|
|100,000 phls|284<br>14|
|50,000-99,999|243<br>39|
|20,000-4P,000|224<br>61|
|10,000-19,999|1 99<br>93|
|5,000- 9,999|198<br>96|
|Under 5,000|51<br>287|

Ss.us Ihndia (1971a-b)

# C. Compodton

**13.** The composition of nonfarm activity differs considerably across locality sizes. in rural areas, services and household manufacturing dominate nonagricultural pursuits (Table 5). But In the move to rural towns, commerce and services lead the dramatic surge In nonfarm activity. Similarly, factory manufacturing and transport Increase substantlally. Even the prevalence of household manufacturing Increases In rural towns, although It declines In Importance In large urban centers. In the largest urban localities, factory manufacturing emerges as the dominant nonfarm activity.<sup>4</sup>

4 **The date** In **Table** 6 co_ froe 1971 **because the** 1961 **breakdown** of **rural** towns is not **yot available.**
_Second_ , we deal with the concern that we may have omitted local village-level labor market conditions in our baseline regressions. The youth’s education decisions are usually made jointly with their labor supply decision, so their pursuit of education may be influenced by local labor market conditions, such as wage rates or job vacancies. In the baseline regressions, we control for county-year dummies which capture the overall labor market conditions at the county level, but we ignore labor market variables at the village level. Whether this omission can bias the estimates of the treatment effects depends on whether these variables are correlated with Water Plant. In its community-level survey, CHNS contains some basic facts of the local labor market, including daily wages for male, female and construction workers, respectively, and the major occupations that the local residents are engaged in. In order to measure village-level real wages, we normalize all nominal wages by the prices of commodities mostly consumed daily.<sup>35</sup> Table 5 presents regression results of village wage rates (normalized by the local rice price index) on Water Plant.<sup>36</sup> The local real wage rates do not have statistically significant correlations with the water program. In separate regressions, we also control for the travel costs (proxied by the road conditions around villages), which may affect the relative attractiveness of local jobs and thus affect the work-school choice. Even after we control for the proxies of travel costs, there remains no correlations between Water Plant and local real wages. Omitted timevarying village-level labor market conditions thus cannot affect our estimate of the treatment effect.

_Third_ , we control for village fixed effects. The inclusion of village fixed effects has two adverse consequences: (i) it results in a dramatic drop in the useful sample for identification, and (ii) the 45 treatment-status-changing villages experienced a shorter history with treated water, which makes it harder for a new water plant to leave a mark on education. This is likely problematic in light of our findings presented later: the most pronounced effect of water treatment is observed for those youth who had their first exposure to water treatment between age zero and two. Relying exclusively on the treatment-status-changing villages would force us

> 35 Since we do not have the village-level price index, using the price of commodities mostly consumed daily in the village is the best alternative.  Since we have already controlled for county-year dummies, all county level price variations have been controlled for.

> 36 In addition to local rice price, we have also tried employing the prices of flour, oil, pork, peanut oil, and eggs to adjust the normal wages. All such adjusted wages are not statistically significantly correlated to the water improvement program.

21
labor markets and their integration into regional and world markets; privatization of state owned enterprises; and the formation of new institutions to serve the market economy, has invariably led to a significant shift in the distribution of income.

Mitra and Yemtsov (2006) provide a summary of the findings of many studies. After careful review of the existing literature, they conclude that all the countries in Eastern Europe and the former Soviet Union experienced an increase in inequality, but with considerable variations. A rapid increase in inequality took place in the middleincome and low-income CIS (Commonwealth of Independent States)<sup>2</sup> countries, whereas the new member states of the European Union appear to have experienced a smaller and a more gradual increase in inequality. For example, in Russia, Gini increased from 25.9 in 1989-90 to 40.9 in 1994, showing a very rapid increase immediately after dismantling of the old Communist system. In contrast, in Poland, despite a similar level of inequality in 1989-90 (Gini of 25.5), the level of inequality increased to only 32 by 1995.

Milanovic (1999) argues that the observed increase in inequality in transition countries is driven mainly by higher inequality in wage distribution following the dismantling of the state sector with compressed wage structure, and its replacement by the newly-emerging private sector with much broader wage distribution. He also finds the effects of social transfers to have varied widely, in some cases halting further increases in inequality (Poland), and in others (e.g., Russia during the early years of transition) having a perverse effects of contributing to inequality. Ivaschenko’s (2002) looks at the determinants of changes in income inequality using a panel of inequality estimates for 24 Eastern European and former Soviet Union countries for the period 1989-1998. His is the first panel analysis of inequality during transition. Ivaschenko’s main conclusion is that increases in inequality are associated with privatization and “deindustrialization” (often the two facets of the same phenomenon). He also finds out that there was no significant impact of unemployment rate and the size of government spending on income distribution. Another interesting finding of the study was the contrast between Eastern

> 2 It includes all republics of the former Soviet Union expect the three Baltic republics, and since September 2008, Georgia.

3
debt, placing a greater burden on supervisory authorities that may lack the necessary knowledge and skills to review banks’ capital calculations.

**Figure 4: Definition of Tier 1 regulatory bank capital**

<!-- Start of picture text --> a. Hybrid Debt Capital Instruments allowed into<br>Tier 1 capital (% of respondents answering Yes)<br><!-- End of picture text --> <!-- Start of picture text --> b. Asset Revaluation Gains allowed into Tier 1<br>capital (% of respondents answering Yes)<br><!-- End of picture text --> <!-- Start of picture text --> c. Subordinated Debt allowed into Tier 1 capital (% of<br>respondents answering Yes)<br><!-- End of picture text --> Source: Waves 4 and 5, BRSS. Note: Off-shore financial centers are excluded from the calculations. DEV are developing countries. The number of countries for which we have a response for the specific item/question for both rounds appears in parentheses. * next to the number of countries represents a statistically significant difference in the mean values for a regional group in the two reference years at the 10% level using a two-tailed test.

Capital regulations also specify the resources needed to capitalize banks initially. Data from round 5 show that some elements used to define the quality of bank capital have been relaxed since round 4, especially for developing regions. For example, 44% of countries in Sub-Saharan Africa answered that the initial disbursement or subsequent injections of capital cannot be done with assets other than cash or 10
Shapiro, Jesse M. 2005. "Smart Cities: Quality of Life, Productivity, and the Growth Effects of Human Capital." NBER Working Paper 11615. Cambridge, MA: National Bureau of Economic Research.

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Snowden, Frank M. 2006. _The Conquest of Malaria in Italy, 1900-1962_ . New Haven, CT: Yale University Press.

Soares, Rodrigo R. 2007. "On the Determinants of Mortality Reductions in the Developing World." NBER Working Paper 12837. Cambridge, MA: National Bureau of Economic Research.

Specter, Michael. 2006. "The Last Drop." _New Yorker_ 82(34): 61.

Stephens, Carolyn. 2000. "Achieving Urban Food and Nutrition Security in the Developing World: Threats to Urban Health." 2020 Vision for Food, Agriculture, and, the Environment Focus 3, Brief 9 of 10. Washington, DC: International Food Policy Research Institute.

Strong, Kathleen, Colin Mathers, Stephen Leeder, and Robert Beaglehole. October 2005. "Preventing Chronic Diseases: How Many Lives Can We Save?" _The Lancet_ 366 1578-1582.

Szreter, Simon. 1988. "The Importance of Social Intervention in Britain's Mortality Decline, C. 1850-1914: A Reinterpretation of the Role of Public Health." _Social History of Medicine_ 1(1): 1-37.

-----. 2004. "Industrialization and Health." _British Medical Bulletin_ 69(1): 75-86.

Tacoli, Cecilia. 2000. "Achieving Urban Food and Nutrition Security in the Developing World: Rural-Urban Interdependence." 2020 Vision for Food, Agriculture, and, the Environment Focus 3, Brief 3 of 10. Washington, DC: International Food Policy Research Institute.

Temple, Jonathan. 2001. "Growth Effects of Education and Social Capital in the OECD Countries." CEPR Discussion Paper 2875. London: Centre for Economic Policy Research.

55
13

## Two Measures of Benefits for Local Public Goods

Several researchers have estimated a deinand curve for local public goods through evidence on voter behavior or property values.<sup>12</sup> The resulting demand curves can then be used to derive consumer surplus measures of public good benefits. In one recent exnample, MartinezVasquez (1982) estimates a demand function for local public goods in St. Louis using crosssection data for the State of Missouri. From the demand function, he derives the marginal benefits of local public goods, matches them with tax shares paid by individuals, and derives a measure of the net fiscal incidence of local public goods across income and other population groups.

Chaudry-Shah (1989) uses the capitalization of expenditures and taxes into property values as another vehicle to measure fiscal benefits. He sets up hedonic equations and measures the irnpact of expenditure benefits and taxes on property values in the Edmonton, Canada metropolitan area.

Both the demand curve and capitalization methodologies have only been applied using cross-sectional data; as the application of the methods requires that the expenditures on the good vaty systematically with the location of the recipient. The hedonic or capitalization approach has some further limitations in that the methodology assumes that both benefits and tax burdens are fully capitalized into property values. Yinger (1982) using bid-rent theory has shown that benefits will not be totaUy capitalized into property values. The less than total capitalization of benefits implies that the hedonic method does not offer much promise for accurate estimation of local net fiscal benefits.<sup>13</sup>

# **mL.** Methodological Issues Specific to Developing Countries

In addition to the general methodological points discussed in section II above, benefit incidence studies for developing countries encounter a number of special considerations. These include the large role that state enterprises may play in the delivery of specific public goods, disparity in services provision between urban and rural areas and within urban and rural areas, resalability of specific public goods, the expanded role for agricultural subsidies, as well as the