rafmacalaba/datause-encoder-data huggingface dataset:
these papers have provided us with very valuable analyses of the labor market impact of trade policy reforms, they do not focus _directly_ on income risk, which is the primary topic of interest to the current paper. Specifically, none of the existing studies estimates an individual income process that allows one to gauge the severity and persistence of shocks to individual income (resulting, for instance, from job displacement following trade policy reform), which, as we have argued above, is crucial when thinking about the welfare consequences of trade reform. In a similar vein, while several scholars have commented upon the potential importance of the link between openness and aggregate volatility in the presence of market incompleteness,<sup>12</sup> empirical studies of the relationship between openness and _aggregate_ volatility (Rodrik (1998)) have the drawback that the welfare effects of aggregate fluctuations are often found to be quite small (Lucas (2003)). In short, none of the previous studies has analyzed the link between openness and income risk in the manner and detail that we do here.

# **II. Income Risk**

The first stage of our analysis concerns the estimation of individual income risk. Our estimation strategy follows earlier approaches in the literature estimating US labor income risk (Carroll and Samwick (1997), Hubbard et al (1994), Gourinchas and Parker (2002), Meghir and Pistaferri (2004), and Storesletten et al. (2004)) with some important differences which we discuss in detail below. As in these papers, we define income risk as the variance of (unpredictable) changes in individual income, and carefully distinguish between transitory and persistent income shocks. From a welfare point of view, this separation is essential for

> 12Early theoretical analyses of trade patterns and optimal trade policy with aggregate risk and incomplete markets include Eaton and Grossman (1985) and Helpman and Razin (1980), among others. An interesting and somewhat related theoretical literature on international production and trade patterns with incomplete _contracting_ has been developed recently (see Antras (2004) and Helpman and Grossman (2002)), but it has not (yet) considered explicitly either aggregate or idiosyncratic risk in the economic environment.

7
8 13. The broad conclusion that emerges from<sup>the above is that interest rate parity</sup> theory is found to be increasingly applicable<sup>to developing countries as they undertake</sup> signifizant financial liberalization and<sup>opening up of their capital accounts. However, other</sup> factors continue to play a prominent role<sup>in the determination of domestic interest rates.</sup> Covered interest rate parity (CIP) is<sup>the primary test applied. Nevertheless, a full</sup> generalization is not possible, partly<sup>because the work done so far has concentrated on a</sup> limited sample of developing wountries.

# C. A Model and Test For Interest<sup>Rate</sup> etermination In Relatively Open Economies

14 As disc.aised "r. r th:eOw interest rate parity (UIP) test<sup>of capital</sup> market integration is imprecise, because<sup>of the difficulty in measuring expected exchange rate</sup> depreclatior, nstetl attert..n t_s<sup>foc</sup><sup>_z:esl_n tne covered interest parity theory as the</sup> main test fo. ipital -,ket integration.<sup>The CIP test is precise. But it L also a narrower</sup> definition of capital market integration:<sup>it posits that international arbitrage is taking place to</sup> profit from virtually riskless profit opportunities<sup>(ignoring transaction costs). It is virtually</sup> riskless by definition: arbitrage<sup>on the differential between interest rates and the differential</sup> between the forward and spot rates.<sup>The failure of the CIP test would require stringent</sup> conditions not to hold: capital controls<sup>(i.e. severe restraints on private trading in foreign</sup> exchange), or high country risks (i.e.<sup>limited availability of foreign currency), or high</sup> transaction costs. There are additional<sup>problems with the CIP test in developing countries.</sup> The main difficulty is that most<sup>develoring countries do not operate market- determined and</sup> floating spot exchange rate systems;<sup>instead exchange rates are mostly officially (although</sup> increasingly flexibly) managed.<sup>Consequently, forward exchange markets that have</sup> developed often have significant restrictions<sup>and regulations on access.2For example,</sup> 2 See IMF (1988) for a discussion of<sup>**tne**issues and country survey of forward exchange markets and</sup> policies.
# **Figure 1: The Age-Grade Distribution in post-primary grades**

<!-- Start of picture text --> Age Distribution in Post-Primary Grades<br>Girls in rural Attock, Faisalabad and Rahim Yar Khan<br> Class 6<br>12.6 17.9 31.6 10.5 12.6 8.4 2.1 3.2 1.1<br> Class 7 3.4 5.7 28.7 24.1 20.7 9.2 4.6 2.3 1.1<br> Class 8<br>4.5 10.4 29.9 23.9 9.0 14.9 6.0 1.5<br> Class 9 8.3 10.4 14.6 22.9 27.1 8.3 4.2 4.2<br> Class 10<br>3.9 17.6 27.5 27.5 5.9 11.8 2.0 3.9<br> 10 11 12 13 14 15 16 17 18 19 20+<br>Age (Years)<br>Current class<br><!-- End of picture text --> Source: Pakistan Social and Living Standards Measurement Survey 2004-2005 Each row is a different post-primary grade. Each histogram is the percent of class enrollment that belongs to a particular age category. Thus the figure suggests that 31.6 percent of all the girls in class 6 in the rural areas of Attock, Faisalabad (comparison) and Rahim Yar Khan (treatment) are 12 years old. Similarly 52.8 percent (28.7+24.1) of the enrollment in class 7 is made up of girls who are 12 and 13 years old.

26
33 its offer for sale of capacity along with the name of the buying shipper on the electronic network. The buying shipper approves this transaction by confirming the trade. The selling shipper must notify BGT of the capacity trade to make a change in allocation. It also remains responsible for payment of capacity charges to BGT.

The auctioning of capacity, which takes place through the electronic network, has five ' stages (figure 8).

- A shipper with spare capacity posts a capacity offer specifying the quantity, location, duration, and suggested price of capacity.

- Shippers seeking capacity can view available bids in the network and post their bids for part or all of the offered capacity. They can also view the bids already posted, but not the names of shippers. Once a bid is posted, it cannot be amended, but it can be withdrawn. Shippers can post more than one bid against an offer.

- The selling shipper reviews the posted bids and selects one of them.

- The selling shipper notifies BGT of the new owner of the capacity. Payment of the capacity charge remains the responsibility of the selling shipper.

- The selling and buying shippers settle the trade financially. BGT does not participate in the financial settlement.

- 4 This description of capacity auctioning is based on BGT 1996.
<!-- Start of picture text --> Construction Wholesale and retail trade<br>Metropolitan Area Area -023023 0.0<br>other Urban Urban 020 024<br>Rural 0.035~_~_ 0.043<br>. . .<br>Other low-end low-end services Tradables and and High-end services<br>Metropolitan Area Area aa0.1380.138 -0.120==<br>Other Urban: Urban: —_0.0860.086 ——0.1220.122<br>Rural 0.114__ _—-0.2110.211<br>0.200 ° Paint etry ana Paint etry ana etry ana ana 02% c 200 c 200 200 0.000 0.200<br>mest<br><!-- End of picture text --> <!-- Start of picture text --> Public & NGOs Private Informal Construction Wholesale and retail trade<br>Metropolitan Area ——0.085 ——-0.095 Metropolitan Area Area -023023 0.0<br>Other Urban —+0.086 —+——_.-0.078 other Urban Urban 020 024<br>Rural —_—+—0.076 —_+—-0.078 Rural 0.035~_~_ 0.043<br>0.100 = -0.050 0.000 0.050 0.100 . . .<br>|<br>Private Formal Other low-end low-end services Tradables and and High-end services<br>Metropolitan Area 007 Metropolitan Area Area aa0.1380.138 -0.120==<br>Other Urban -0.007 Other Urban: Urban: —_0.0860.086 ——0.1220.122<br>Rural -0.g02 Rural 0.114__ _—-0.2110.211<br>0.100 = -0.050 0.000 0.050 0.100 0.200 ° Paint etry ana Paint etry ana etry ana ana 02% c 200 c 200 200 0.000 0.200<br>Point estimate and 95% Cl mest<br><!-- End of picture text -->
**On the Use of Transparent Formulae to Allocate Federal Education Transfers**

Vicente Paqueo, Gladys Lopez-Acevedo, and Suhas Parandekarπ

# Abstract

One of the key questions that naturally arise in discussions of education decentralization is how Federal education resources should be allocated among the various states and within states among communities or schools. In general, there are two approaches: (a) bilateral negotiations between the Federal government and states with little transparency as to the rules; and (b) formula-based distribution. This paper shows that, based on econometric analysis on Federal education transfers data in Mexico, the former approach can lead to allocation results that appear contrary to stated policy objectives like equity improvement and greater social inclusion in education.

This paper then argues that contrary to common belief the use of capitation or per student allocation can improve not only efficiency but also equity. In this regard, a theoretical model is presented to analyze this hypothesis. Several variations of the capitation formula are discussed and analysis of the characteristics of the winners and losers of their application are presented, using Mexico as an illustration.

# World Bank Policy Research Working Paper 3171, December 2003

_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._

> π Vicente Paqueo is lead economist, HD, Gladys Lopez is Economist, PREM, and Suhas Parendekar is Economist, HD. World Bank.

1
shows that childhood stunting in Ethiopia is still as high as 37%, which makes it among the highest in the world (EPHI and ICF 2021).

This study investigates the effects of public transfers, services, and taxes on children’s wellbeing in the context of a Sub-Saharan African country and simulates the impact of potential policy choices aimed at alleviating child poverty. Specifically, the study answers the following questions:

1. How do the burdens of taxation and the benefits from government transfers and spending differ between children living in rural and urban settings, boys and girls, as well as between poorer and richer children?

2. What do government transfers, spending, and taxes contribute to the reduction of child monetary and multidimensional poverty and inequality?

3. What impact do potential changes to the social transfer system have on poverty and inequality among children?

The study applies the Commitment to Equity for Children (CEQ4C) methodology, which is an extension of the Commitment to Equity approach (Cuesta, Jellema, and Ferrone 2021). The methodology compares welfare indicators before (pre-fiscal) and after (post-fiscal) taxes and/or transfers, and ultimately evaluates the distributional effects of fiscal policy (Inchauste et al. 2017; Lustig 2018). This study specifically examines how children in Ethiopia are affected by fiscal actions following a recent cohort of studies that extended the CEQ4C method to children (Cuesta, Jellema, and Ferrone 2021; Save the Children 2021; Bornukova et al. 2020; Save the Children 2022). As a result, in this study, individual children, rather than households (as is often the case in fiscal incidence analyses), are the unit of analysis. The study primarily employs data from the Ethiopia Socioeconomics Survey (ESS) 2018/19, an LSMS-ISA survey which also collected data on certain taxes including business taxes, land use fees, and agricultural income taxes. We also integrate these survey data with administrative data obtained from various ministries and their subsidiary agencies.

The study finds that the fiscal system is progressive, poverty-reducing and equalizing. However, those results vary when the available information is further disaggregated. An analysis by tax type shows that direct taxes are progressive while indirect taxes are regressive. Moreover, indirect taxes account for more than two-thirds of taxes relevant to children. On the transfer side, direct and indirect in-kind transfers are progressive. Transfers are predominantly indirect in-kind transfers, with education spending being by far the largest in-kind transfer. Primary education spending is progressive, while secondary education spending is regressive across levels of child deprivation. Public spending on health is progressive as well. The study does not find significant differences in incidence by gender, however in rural areas, primary education and health spending are neutral, and do not show the progressivity seen in urban areas or overall.

3
# Inflation in Low-Income Countries

Jongrim Ha, Anna Ivanova, Peter Montiel, and Peter Pedroni<sup>*</sup> Keywords: Core inflation, low income country, heterogeneous panel VAR model, monetary policy. JEL Classification: E31, E42, E52

> * J. Ha: World Bank; jongrimha@worldbank.org. A. Ivanova: International Monetary Fund; aivanova@imf.org. P. Montiel; pmontiel@williams.edu. P. Pedroni: William College; ppedroni@williams.edu. We appreciate M. Ayhan Kose, Franziska Ohnsorge, Carlos Arteta, John Baffes, Kevin Clinton, Graham Hacche, Gerard Kambou, Gene KindbergHanlon, Wee Chian Koh, Christopher Towe, Stephen O’Connell, Franz Ruch, and seminar participants at many institutions for their comments. Xingyue Wang and Heqing Zhao provided excellent research assistance. We gratefully acknowledge financial support from the PHRD fund. The findings, interpretations and conclusions expressed in this paper will be entirely those of the authors and should not be attributed to the World Bank, its Executive Directors, or the countries they represent.
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<!-- Start of picture text --> Measured Water Level at Hiron Point [m] ————<br>Simulated Water Level atHiron Point(m] « #<br>Simulated Water Level at Hiron Point during Cyclone SIDR (2007)<br>2.6<br>24<br>2.2<br>2.0 iv<br>1.8 ;<br>8 1.6<br>£ 1.4<br>=z 12<br>8 1.0<br>5 08<br>kj<br>= 06<br>0.4<br>0.2 1<br>0.0<br>-0.20.4 }'<br>00:00 00:00 00:00 00:00 00:00<br>2007-11-13 41-14 11-15 Time 11-16 11-17<br><!-- End of picture text -->
- 11 -

27. In addition to fiscal policy, there are also other factors that may have contributed to the observed portfolio composition, particularly the high share of Government bonds. Firstly, alternative financial instruments have not been developed, with the exception of the very recent and promising development of the mortgage bond market. The lack of development of financial instruments such as corporate bonds, infrastructure bonds and private equity has been due in part to the expansion of lending by a very competitive banking sector, after a period of contraction in the 1990s due to restructuring and privatization. However, some residual regulatory obstacles may also have hindered the development of these markets, as discussed in Section VII.

28. Secondly, asset managers may have become wary of equity investments, as a result of the very poor performance of equity markets in the early years of the reform. As shown in Figure 3, the second pillar started operating in 1998, the year when the Hungarian equity market (measured by the BUX index) was severely hit by the Russian crisis. Equity prices recovered in 1999 but declined sharply again in 2000 and 2001, in line with the overall decline in international equity markets. During this whole period bond returns (measured by the MAX index) were higher and less volatile. The situation only reverted in 2003, when equity prices initiated a steady recovery, and bond prices faltered due to an increase in interest rates (Figure 4).

**Figure 3: Performance of Bonds and Stocks in Hungary, 1997 – 2004**

<!-- Start of picture text --> 2.2<br>2<br>1.8<br>1.6<br>1.4<br>1.2<br>1<br>0.8<br>0.6<br>0.4<br>BUX MAX VP(2-8)<br>Dec-97 Mar-98 Jun-98 Sep-98 Dec-98 Mar-99 Jun-99 Sep-99 Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04<br><!-- End of picture text --> Source: AKK and MNB data.

29. Thirdly, there is a prevalent view among market participants and regulators that pension fund portfolios in Hungary are conservative because most asset management companies are subsidiaries of mother companies in Continental Europe, i.e., from countries that do not have an “equity culture”. According to this view, the presence of a larger number of subsidiaries of Anglo-Saxon companies in Poland would also explain the larger holdings of equity in the Polish second pillar, relatively to Hungary’s. Finally, members of the few voluntary pension funds that provide portfolio choices have favored more conservative portfolios, made up almost exclusively of Government bonds (OECD 2005). Although the experience with multiple portfolios is very recent and limited (only 5
PHBK arrears are probably approximately equal to it. The other three programs have arrears rates that are likely somewhat above this standard.

**PHBK** and P4K do not reliably track annual defaults. For BKK, LKP, and BKD the programs' information on defaults occasionally contradicts other data or is inconsistent across years. Thus the default rates in Table 7 should be viewed as indicative figures. BKK experienced defaults of about 23 percenouts anding loan volume **t** of **in** percent or outstandmg loan volume m 1993. However, defaults accounted for only 3 percent of loan volume in 1994 and 1995. For LKP, defaults were 12

**Table** 7 **Default Rates (Percent)**

|**BKK**|_<br>NA<br>NA<br>23<br>3<br>3|
|---|---|
|<br>**(Dompu**<br>**District)**|<br> <br> <br> <br><br>|
|**PHBK**<br>**PK**<br>**P4K**|Estimated by Program Managemen**t**o be a cumulative<br>rate of 2-3 percent since program inception<br>Eid b P M b li|
||stmate y rogram anagement to e a cumuatve<br>rate of 2-3 percent sinceprograminception|
|**BKD**|1NA<br>41<br>2<br>3|

percent of outstanding loan volume in 1993, and about 6 percent in 1995. Program managers for PHBK and P4K, placed their cumulative default rates at 2 to 3 percent. BKD's default rate was 6 percent in 1992 and 2 to 4 percent from 1993 to 1995. The Committee of Donor Agencies for Small Enterprise Development states that microfinance lenders should have annual losses from defaults of 4 percent or less of outstanding loan volume. Over the last two years, all of the programs except LKP have achieved this standard. BRI Unit Desa had a bad loan write-off rate of 4 percent in 1993 (Christen et al., 1995).

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Figure H.1. Socioeconomic Well-being – Fuzzy RD Plots with Local-quadratic Fitted Polynomial <!-- Start of picture text --> Well-being (Index) Consumption per Capita (log)<br>-200 -150 -100 -50 0 50 100 150 200 -200 -150 -100 -50 0 50 100 150 200<br>Arrival (days from June 8, 2018) Arrival (days from June 8, 2018)<br>Sample average within bin Polynomial fit of order 2 Sample average within bin Polynomial fit of order 2<br>Labor Income (log) Employed<br>-200 -150 -100 -50 0 50 100 150 200 -200 -150 -100 -50 0 50 100 150 200<br>Arrival (days from June 8, 2018) Arrival (days from June 8, 2018)<br>Sample average within bin Polynomial fit of order 2 Sample average within bin Polynomial fit of order 2<br>.6 1.6<br>.5 1.55<br>.4 1.5<br>.3 1.45<br>.2 1.4<br>Well-being (Index) .1<br>1.35<br>0 Consumption per Capita (log)<br>1.3<br>-.1 1.25<br>.5 .75<br>.7<br>.45<br>.65<br>.6<br>.4<br>Employed .55<br>Labor Income (log) .35 .5<br>.45<br>.3 .4<br><!-- End of picture text --> _Notes:_ Each graph depicts the bias-corrected estimator 200 days around June 8, 2018, when the RAMV census closed, and the mean squared error (MSERD) optimal bandwidths. Confidence intervals are at the 95% significance level.

86
own allocation to sooner” excluding the choices under the implemented interest rate.

Indeed, the coefficient on “Fraction Present Bias” in column 4 is small and insignificant albeit with a rather large confidence interval. This small coefficient stands in contrast with that of column 3, replicating column 6 of Table 6.

Columns 5 to 8 study the relationship between future bias and revision behavior. As expected, column 6 displays the mechanical negative relationship between “Fraction Future Biased”, computed using all interest rates and the change in the allocation to sooner. However, this relationship disappears in column 8 when the choices under the implemented interest rate are excluded.

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