rafmacalaba/datause-encoder-data huggingface dataset:
Although ENTEL’s long distance charges increased by 50% between 1996/98, they began to decline gradually towards the end of the exclusivity period. Following market liberalization in December 2000, they fell steeply reaching a third of levels prevailing in 1996 within a few months of the advent of competition.

In contrast, liberalization of the cellular market led to substantial tariff reductions from 1997 (Barja and Urquiola, 2001). As a result of aggressive competition between Telecel and ENTEL Movil, consumers benefited from a number of tariff reductions. First, the fixed monthly charge of US$30 (without any ‘free’ minutes) was cut back. Second, the practice of charging $0.41 per minute for both incoming and outgoing calls was replaced by a ‘calling party pays’ tariff of $0.45 per minute for outgoing calls only. Taking a weighed average of in-coming and out-going calls<sup>13</sup> , this implies that the cost of using a cellular telephone fell by 68% as a result of this change, and subsequent reductions in the price of out-going calls from $0.45 to $0.39 per minute. Third, the option of prepaid cellular telephones was introduced with card denominations as low as $5, making the service more attractive to small consumers. Although matching all of these changes introduced by ENTEL Movil, Telecel also made formal complaints to the regulator that ENTEL was engaging in anti-competitive practices by cross-subsidizing between its cellular and long distance businesses.

**Figure 4.4: Changes in tariff structure for fixed telephony**

<!-- Start of picture text --> 35<br>30<br>25<br>20<br>15<br>10<br>5 Pre-reform<br>0 Post-reform miembro<br>(Residencial A)<br>Post-reform miembro<br>Monthly usage (minutes) (Residencial B)Post-reform socio<br>Monthly bill (US$)<br>0 50 100 200 250 300 350 400 450 500<br><!-- End of picture text --> _Source:_ COTEL, 2000.

Finally, it is interesting to compare the relative attractiveness of fixed line versus cellular telephony for lower income customers. As noted above, in 1996 COTEL made it possible for customers to obtain a connection to fixed line service much more cheaply than before, by becoming ‘socios’ (associates) as opposed to members of the cooperative. However, customers taking this route face high fixed charges of $23 per month. Comparing these rates with those available for cellular service suggests that this type of fixed line connection is only attractive to those making more than about 90 minutes of local

> 13 SITTEL informs that on average two thirds of traffic to cellular telephones in in-coming and one third is out-going. These weights have been applied to the corresponding tariffs to come-up with the average value presented above.

24
in the computation of regulatory capital ratio, Demirguc-Kunt et al. (2013) find that stock returns of banks during the financial crisis were more sensitive to simple leverage ratios using common equity rather than regulatory risk-based ratios.

The recent Global Financial Development Report (GFDR) also highlights the importance of defining capital more narrowly. GFDR (2019/2020) shows that there was a relaxation in the definition of the elements that enter the computation of Tier 1 capital, with an increase in the number of countries now allowing hybrid debt capital instruments, asset revaluation gains and subordinated debt to be used in the computation of Tier 1 capital. Although there has been an increase in regulatory capital ratios after the crisis, GFDR (2019/2020) shows that these were largely driven by declines in risk-weighted assets. Improvements in simple leverage ratios were more limited especially for larger banks located in highincome countries.

The definition of the capital elements that constitute Tier 1 capital has also become less stringent in the ECA region.<sup>8</sup> Figure 7 below shows the changes in an index that captures the stringency of the Tier 1 capital definition. The index ranges between 0 and 8, and is based on the number of components that are allowed as part of Tier 1 regulatory capital (less stringent) and those that are not allowed as part of Tier 1 regulatory capital (more stringent).<sup>9</sup> The capital instruments that may be allowed into the definition of Tier 1 capital are: a) hybrid debt capital instruments, b) asset revaluation gains, and c) subordinated debt. The instruments that might be deducted from Tier 1 capital are: a) goodwill, b) deferred tax assets, c) intangibles, d) unrealized losses in fair valued exposures, and e) investment in the capital of certain financial intermediaries. Overall, in most of the ECA sub-regions the definition of Tier 1 capital was less stringent in 2016 than in 2010, except for Western Balkans, South Caucasus and Russia.

# **Figure 7: Tier 1 Stringency Index (equally weighted)**

> 8 One of the intended goals of the Basel III capital framework was to improve the quality of bank regulatory capital. To this end, the proportion of Tier 1 capital in the total regulatory capital has been increased. The additional items that are included in the Tier 1 capital are also now subject to more stringent eligibility criteria. Nonetheless, the quality of Tier 1 capital gets diluted when additional instruments other than common equity are allowed in its computation.

> 9 For an in-depth explanation on how the Tier 1 stringency index is computed, see Anginer et al. (2019).

8
[19711, which formalized the behavior of government bureaus in organizing the production of goods and services. According to his analysis, bureaucrats have no incentives in running an efficient operation, since they cannot keep the "profits" that accrue to their own bureaus. **_C_ i** the other hand, the prestige and often money income itself are positively associated with the size of the bureau. Based on such considerations, Niskanen argues, bureau heads try to maximize the size of the organization which they control, usually at the expense of efficiency considerations. Such behavior, if actually descriptive of reality, may imply spending a much larger amount than necessary to provide a given amount of output, since bureaus intend to maximize revenue, rather than profits from their sales.

# 3. Waste in Government: The principal-agent relationship

This reasoning of bureaucratic behavior, which in its earlier form was described by Niskanen, was given a new thrust under the approach known as the **principal-2gent** relation in the literature of economic theory. In its simplest form, the agency relationship involves the presence of two individuals, of whom one depends on the action of another. The individual taking the action is called the _agent._ The affected party is the _principal._ The principal determines a rule that specifies a pay-off for the agent as a function of the latter's action. The problem acquires interest when there is uncertainty about the outcome of the agent's action and when the information available to the two participants is costly and unequal.<sup>3</sup> Information asymmetries play a pervasive role in the principal-agernt relation and its implications for economic efficiency. Agents typically know more about their .r ;ks than their principals and, therefore, may have an incentive to hide or distort information so as to serve their interests best. For instance, if the decision to contain government spendir.g centers on specific programs, it is usually the bureaucratic experts supplying the program themselves who can define the cost of obtaining a given level of output. If the Bureau has (collectively or individually) a vested interest in retaining a high level of cost, its monopoly nature would help it achieve its goal, because the legislature usually has no other supplier of the goods and services with which to compare costs.

At a more findamental level, it is possible to conceive of principal-agent relationships where agents favor difierent principals from thc3e whose interests are supposed to serve ! If the government is the agent and the citizens are the principal, the agency relation may produce detrimental results for the _intended_ principal, if the agent actually caters to the _wrong_ principal: regulatory agencies may cater to their industries instead of consumers, Ministries of Defense to their contractors instead of citizens. Along the same lines, if the _citizen-principal_ is unable to devise and implement appropriate incentives for the 3/ The concepts of the principal-agent approach, as well as some specific examples used in this section, are drawn from Pratt and Zeckhauser [19851.
## **3.4.2 Comparison with other studies**

With respect to studies of the impact of fiscal policy in Canada, the rise of private consumption in response to a government spending shock is consistent with the findings of Ravn et al. (2007) and Perotti (2004). The decline of private investment in response to a government spending shock is also consistent with Perotti (2004) findings. With respect to the effect of a government spending shock on net exports, results of this study are consistent with the twin deficits suggested by Corsetti and Müller (2006) and Monacelli and Perotti (2010).

With regard to studies on the U.S. economy, the findings of this paper on the effects of both tax and spending increases on consumption and investment are similar to the results of Blanchard and Perotti (2002) and Mountford and Uhlig (2009). Consumption rises in response to a government spending shock while private investment declines; consumption and private investment both decline in response to tax revenue increases. However, as an open economy, the size of the impact of fiscal shocks in this study is lower than the size in the Blanchard and Perotti and Mountford and Uhlig papers.

# **3.5 Policy implications: Spending increases vs. tax cuts**

Table 7 reports the cumulative multiplier associated with spending increases and tax cuts over the whole sample and over each sub-period. The results suggest that (i) regardless of the period, the multiplier associated with a cut in net tax revenue varies between $0.21 and $0.51, while that associated with spending increases ranges between $0.21 and $1.09; (ii) taxes tend to have a larger multiplier over the whole sample and during the first sub-period than during the second sub-period, but the difference with the multiplier associated with spending is not large enough (in absolute value); and (iii) over the second sub-period, the spending multiplier tends to be larger than the net tax revenue multiplier.

Table 7: Cumulative multiplier associated with spending increases and cut in tax revenue

|Quarters after shock|1|4|8|12|20|Peak|
|---|---|---|---|---|---|---|
|**_Whole sample_**|||||||
|Spending|0.21*|0.11|0.01|-0.04|-0.03|0.21*(1)|
|Net taxes|0.32*|0.33*|0.34*|0.33*|0.24*|0.34*(9)|
|**_Sub-period1_**|||||||
|Spending|0.44*|0.10|0.12|0.23*|0.52|0.66(30)|
|Net taxes|0.38*|0.40*|0.45*|0.51*|0.36|0.51*(13)|
|**_Sub-period2_**|||||||
|Spending|0.70*|0.80*|0.82*|0.91*|1.08*|1.09*(24)|
|Net taxes|0.21*|0.10|0.17|0.28*|0.43*|0.44*(22)|

Notes: This table compares the cumulative multiplier associated with spending increases and cut in tax revenue. Since the effects are assumed symmetric in the linear VAR model, the multiplier associated with net tax increases has been multiplied by -1 to be interpreted as response to tax revenue cuts.

17
Table 1: Design for the minimum return guarantee

|**Country**|**Reference**<br>**Portfolio**<br>**and Boundaries**|**Evaluation**<br>**Period**|**Evaluation**<br>**Frequency**|**Portfolio**<br>**Disclosure**|
|---|---|---|---|---|
|Argentina<br>(2008)|Min<br>(70%<br>of<br>the<br>PPRS, PPRS - 2%)|12 months|Monthly|--|
|Colombia|A<br>70%<br>of<br>the<br>PPRS<br> <br>|36 months|Monthly|30 days|
||B<br>70%<br>of<br>the<br>RPS||||
||70%<br>of<br>the<br>BVC<br>index<br>return<br>70%<br>of<br>the<br>S&P<br>500<br>return||||
||Minimum Return =<br>(A+B)/2||||
|Chile|High Risk Funds =<br>Min (50% of PPRS,<br>PPRS - 4%)<br>Conservative Funds =<br>Min<br>(50%<br>of<br>the<br>PPRS, PPRS - 2%)|36 months|Monthly|10 days|
|El|Min<br>(80%PPRS,|12 months|Monthly||
|Salvador|PPRS-3%)||||
|Uruguay|Min (PPRS-2% , 2%<br>real)|12 months|Monthly||
|Bulgaria|Min (60 % of the<br>PPRS, PPRS -3 %)|24 months|Quarterly|quarterly|
|Croatia|If PPRS>0, Min (1/3<br>PPRS, TD),<br>If PPRS<0, Min ( 3<br>PPRS)|12 months|Quarterly||
|Poland|Min<br>(50%<br>of<br>the<br>PPRS, PPRS - 4%)*|36 months|Bi-<br>Annually|bi-annually|
|Romania|Min (PPRS-4%, 50%<br>PPRS)|24 months|||
|Slovakia|Conservative Fund =<br>Min<br>(90%<br>ARS1,<br>ARS1 - 1%)<br>Balanced Fund =<br>Min (70% ARS1,<br>ARS1 - 3%)<br>Growing Fund =<br>Min (50% of ARS1,<br>ARS1 - 5%)|24 months|Daily|bi-annually|

Sources: SBC, SP, KNF, NBS, PPSSC, CFSSA, CSSPP, HANFA.

* The weights are capped at 15% and shares of the remaining funds are increased proportionally until they reach 100%.

PPRS: Weighted Average of the returns of the system; ARS1 is the arithmetic mean of the average annual moving of changes in the daily values of competing pension funds, RPS: Synthetic Portfolio Performance; BVC Index: Colombian Stock Market Index; TD: Central Bank discount rate 126. As shown in Table 1, the minimum return guarantee system of the individual capitalization system in Colombia is in many ways more restrictive than other countries with similar systems. In particular, monthly evaluations are required by 33
amount of time it should take to get these things done according to the Doing Business indicators.<sup>8</sup> A striking feature of the data is the tremendous variability in policy implementation times, which is only loosely correlated with the amount of time it should take to get these things done. Interestingly, within-country variability appears to dominate cross-country variability (see also Hallward-Driemeier and Pritchett, 2011).

# <FIGURE 2 HERE>

That this heterogeneity is related to the incidence of demands for bribes is demonstrated in Figures 3a-3c, which plot kernel density estimates of the amount of time it takes to get various things done, demeaned by the country-sector-average in the relevant year, separately for firms that report being asked for bribes and ones that do not.<sup>9</sup> While there is substantial overlap across these distributions, the distribution for the firms that indicated being confronted with bribes tends to lie to the right of that of firms that were not. Bribe requests thus appear to be associated with protracted policy implementation on average. Also note that the kernel density graphs for firms reporting bribes are unimodal;<sup>10</sup> If corruption benefitted a few privileged firms, but not others, one might expect to see a bimodal distribution.

# <FIGURE 3 HERE>

> 8 A certain degree of divergence between the de facto policy implementation times documented in the Enterprise Surveys and the de jure times recorded in the Doing Business database is to be expected since the latter are based on specific assumptions about a hypothetical firm. For example, in the case of getting a construction permit, it is inter alia assumed that the hypothetical firm is based in the largest city, is fully domestically and privately owned, has 5 owners and has 60 employees. Yet, vast variability in policy implementation times remains even after we confine the sample to a subset of firms very similar to this hypothetical firms (These results are not presented here to conserve space, but available from the authors upon request).

> 9 These patterns also persist if we demean by sector-country-year averages. Results are not presented here to conserve space, but available from the authors upon request.

> 10 The only exception is the graph for the time it takes to clear customs when exporting, but note that this may in part reflect the fact that there are far fewer observations.

15
**Table** **<u>8. Livestock score with scorecard information treatment for additional balance test</u>**

||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|
|---|---|---|---|---|---|---|---|---|
||Livestock<br>Score|Livestock<br>Quality<br>Score|Livestock<br>Quantity<br>Score|Bought at<br>The Correct<br>Age (0/1)|Animal Is<br>Improved<br>Breed (0/1)|Animal Is<br>Productive<br>(0/1)|Animal Health|Fraction of<br>Animals Dead,<br>Stolen or Sold|
|Training|0.004|-0.065|0.117|-0.006|0.024|0.117**|-0.009|-0.018|
||[0.120]|[0.119]|[0.096]|[0.060]|[0.024]|[0.059]|[0.029]|[0.024]|
|Scorecard|0.054|-0.124|0.172|0.024|-0.025|-0.095|-0.061|0.023|
||[0.141]|[0.137]|[0.122]|[0.072]|[0.021]|[0.072]|[0.042]|[0.029]|
|Training x scorecard|0.072|0.141|0.006|-0.027|0.001|0.161*|0.067|-0.022|
||[0.175]|[0.168]|[0.168]|[0.087]|[0.028]|[0.089]|[0.046]|[0.034]|
|Control Mean|0.052|0.101|-0.061|0.323|0.188|0.442|0.917|0.155|
|N|3,486|3,517|3,753|3,775|3,769|3,517|3,517|3,775|
|R-squared|0.402|0.459|0.357|0.337|0.826|0.351|0.246|0.380|

Notes: This table reports the OLS regression results for the treatment effect on household-level outcomes for livestock projects only at the first endline survey. In this table, we have included the scorecard interaction. As the scorecard treatment was not conducted until after this data collection, this analysis is presented as a balance test for the scorecard treatment. Note that the scorecard was conducted on a subsample of the livestock projects. Standard errors are reported in brackets below the coefficients. Regressions include region controls. All analysis is clustered at the project level. *** p< 0.01, ** p< 0.05, *p< 0.1.

44
Reluctance of authorities to reduce their deficit induces them to look for internal sources of financing. If those are not found, they end up imposing import controls as a way to control the otherwise unavoidable trade deficit resulting from the increased spending.

The solution to this problem is to reduce the fiscal deficit, or develop alternative ways of internal financing and allow the increase in the real exchange rate required to attain market equilibrium.

The second reason may be that authorities are fearsome of the income distribution effects of allowing a rise in either the import or export exchange rates. In that case we feel the first step should be exchange rate unification at the equilibrium level and to duplicate the desired relative price structure through trade taxes or subsidies. We do not feel that multiple exchange rates and quantity controls should be used as substitute for commercial policy instruments in the context of structural adjustment programs. Here again we favor measures aiming at market transparency as a first step in the design of<sup>structural</sup> adjustment.

IV.3 Trade Surplus Determination with Functioning Markets Given a reasonable degree of capital mobility and price flexibility in foreign trade, the trade surplus should be readily explained by the variables determining income and absorption to which we made reference above.

Obtaining a general structural equation form for determining the trade surplus exceeds the scope of this work and most likely it would not prove to be successful as some variables will be relevant in some countries and not in others. Furthermore, the specific values of the coefficients will depend highly on the situation in the country being analyzed, in particular the degree of openness of the economy to goods and assets trade.

For illustrative purposes only, we include the following regression explaining the Trade Surplus in Colombia using annual data for the period 1970-86. The dependent variable is the<sup>ratio</sup> of the Trade Surplus to GDP and the explanatory variables are just two: the external terms of trade and the Fiscal Surplus to GDP ratio. The results are as follows: 47
10

- -

level of their non-tax revenues. Certainly, the upper limit of taxation could be considered to be that level beyond which taxation would tend to reduce economic growth. It is not possible to state when that ratio would be reached in Central America, but comparative ratios indicate that Guatemala and El Salvador could increase their tax ratios in a significant way without reaching that limit in the next couple of years.

Table I: Central America: Tax Ratios, 1983-86 (Tax Revenues/GDP)

||1983|1984|1985|1986|
|---|---|---|---|---|
|Costa Rica|15.9|15.7|16.2|14.0|
|Honduras|12.1|14.0|14.7|13.7|
|El Salvador|10.6|11.6|11.3|12.1|
|Guatemala|6.1|5.6|6.1|7.1|

# Source: IMF.

30. Various factors play an important role in determining the tax ratio: political willingness to raise revenues as a stabilization tool, the magnitide of the taxable base, the number of exemptions, forcefulness of tax administrations, the rate structure, changes in economic activity, the degree of urbanization, the level of monetization of the economy, per capita incomes, and the degree of openness of the economy. Given the diversity of the economies and differences in some of the above-noted variables--along with similarities such as inadequate tax administration in all the countries--the large range of the tax ratios in the Region is understandable. No effort is made in this report to explain the different tax ratios by changes in the above mentioned variables. It is important to note, however, that given the different degrees of the need for stabilization and development in each country, harmonization of taxes will likely lead to less than a smooth path of transition and it should be consistent with the different levels of tax ratios in each country.

# B. Overall Recommendations to Reform the Tax Systems in Central America

31. This report suggests that the taxation systems in Central America should be restructured along the lines discussed below. First, there is a need for rationalizing tax systems by converting specific to ad-valorem base and phasing out exemptions--except for imported inputs used for nontraditional exports outside the CACM. Second, distortion costs should be minimized and taxation should be used to strengthen allocative efficiency by encouraging the growth of sectors in which Central American countries