/external/pubs/cat/shortres.aspx?TITLE=&auth_ed=&subject=&ser_note=Working+Paper&datecritThe IMF Working Papers series describes research in progress by the author(s) and is published to elicit comments and to further debate. Imf.Org RSS Feed GeneratorENhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40552Using data from three household surveys, we review whether growth in Mauritius was inclusive and discuss the incidence of public expenditures and taxes. Generally, Mauritius enjoys an even income distribution and low rates of poverty. Nevertheless, over the 2000s, despite overall progress, the benefits of growth appear to have become more skewed. Employment income is the main contributor to inequality in Mauritius. Social protection expenditures reduce poverty and inequality, but could be better targeted, particularly for pensions. Income taxes are progressive, though given their small relative weight they have a negligible impact on income distribution. The VAT appears relatively progressive compared to other developing countries, although its impact on the overall distribution is also small. With better targeting of the sizable social spending, significant further progress in poverty alleviation could be achieved.17 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40552http://www.imf.org/external/pubs/cat/longres.aspx?sk=40551The G-20 Data Gaps Initiative has called for the IMF to develop standard measures of tail risk, which we identify in this paper with systemic risk. To understand the conditions under which tail risk is present, it is first necessary to develop a measure of what constitutes a systemic stress, or tail, event. We develop such a measure and uses it to assess the performance of eleven near-term systemic risk indicators as ‘early’ warning of distress among top financial institutions in the United States and the euro area. Two indicators perform particularly well in both regions, and a couple of other simple indicators do well across a number of criteria. We also find that the sizes of institutions do not necessarily correspond with their contribution to spillover risk. Some practical guidance for policies is provided.17 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40551http://www.imf.org/external/pubs/cat/longres.aspx?sk=40550How should monetary policy respond to large fluctuations in world food prices? We study this question in an open economy model in which imported food has a larger weight in domestic consumption than abroad and international risk sharing can be imperfect. A key novelty is that the real exchange rate and the terms of trade can move in opposite directions in response to world food price shocks. This exacerbates the policy trade-off between stabilizing output prices vis a vis the real exchange rate, to an extent that depends on risk sharing and the price elasticity of exports. Under perfect risk sharing, targeting the headline CPI welfare-dominates targeting the PPI if the variance of food price shocks is not too small and the export price elasticity is realistically high. In such a case, however, targeting forecast CPI is a superior choice. With incomplete risk sharing, PPI targeting is clearly a winner.17 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40550http://www.imf.org/external/pubs/cat/longres.aspx?sk=40545We examine the determinants of external crises, focusing on the role of foreign liabilities and their composition. Using a variety of statistical tools and comprehensive data spanning 1970-2011, we find that the ratio of net foreign liabilities (NFL) to GDP is a significant crisis predictor, and the more so when it exceeds 50 percent in absolute terms and 20 percent of the country-specific historical mean. This is primarily due to net external debt--the effect of net equity liabilities is weaker and net FDI liabilities seem if anything an offset factor. We also find that: i) breaking down net external debt into its gross asset and liability counterparts does not add significant explanatory power to crisis prediction; ii) the current account is a powerful predictor, either measured unconditionally or as deviations from conventionally estimated “norms”; iii) foreign exchange reserves reduce the likelihood of crisis more than other foreign asset holdings; iv) a parsimonious probit containing those and a handful of other variables has good predictive performance in- and out-of-sample. The latter result stems largely from our focus on external crises stricto sensu.16 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40545http://www.imf.org/external/pubs/cat/longres.aspx?sk=40544The economic and environmental implications of energy subsidies have received renewed attention from policymakers and economists in recent years. Nevertheless there remains significant uncertainty regarding the magnitude of the impact of energy subsidies on energy consumption. In this paper we analyze a panel of cross-country data to explore the responsiveness of energy consumption to changes in energy prices and the implications of our findings for the debate on energy subsidy reform. Our findings indicate a long-term price elasticity of energy demand between -0.3 and -0.5, which suggests that countries can reap significant long-term benefits from the reform of energy subsidies. Our findings also indicate that short-term gains from subsidy reform are likely to be much smaller, which suggests the need for either a gradual approach to subsidy reform or for more generous safety nets in the short term.16 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40544http://www.imf.org/external/pubs/cat/longres.aspx?sk=40543This paper sets out some tools for understanding the performance of the value added tax (VAT). Applying a decomposition of VAT revenues (as a share of GDP) to the universe of VATs over the last twenty years, it emerges that developments have been driven much less by changes in standard rates than by changes in ‘C-efficiency’ (an indicator of the departure of the VAT from a perfectly enforced tax levied at a uniform rate on all consumption). Decomposing C-efficiency into a ‘policy gap’ (in turn divided into effects of rate differentiation and exemption) and a ‘compliance’ gap (reflecting imperfect implementation), results pieced together for EU members suggest that the former are in almost all cases far larger than the latter, with rate differentiation and exemptions playing roles that differ quite widely across countries.16 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40543http://www.imf.org/external/pubs/cat/longres.aspx?sk=40541We propose an integrated method based on a two-sector small open economy dynamic and stochastic general equilibrium model to estimate non-tariff barriers and quantify the impact of services liberalization. The major component of trade barriers is explicitly modeled through the introduction of entry-sunk costs. Hence, liberalization is treated assuming a government's policy decision aimed at reducing those costs. Then, we estimate the model using Bayesian techniques for Tunisia and the Euro Area. The paper presents a precise quantitative evaluation of services trade barriers as the difference between entry-sunk costs in Tunisia versus the Euro Area. We find significant welfare benefits in addition to aggregate and sectoral growth gains the Tunisian economy could attain following services liberalization. Surprisingly, the goods sector is the one that benefits the most from services liberalization in the short- and long-term horizons.15 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40541http://www.imf.org/external/pubs/cat/longres.aspx?sk=40537A favorable external environment coupled with prudent policies fostered output growth in most of Latin America during the last decade. But, what were the drivers of this strong growth performance from the supply side and will this momentum be sustainable in the years ahead? We address these questions by identifying the proximate causes of the recent high GDP growth and estimating potential growth rates for the period ahead for a large group of Latin American countries based on standard (Solow-style) growth accounting methodologies. We find that factor accumulation (especially labor), rather than growth in total factor productivity (TFP), remains the main driver of GDP growth. Moving forward, given the expected moderation of capital accumulation and some natural constraints on labor, the strong growth momentum is unlikely to be sustainable unless TFP performance improves significantly.15 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40537http://www.imf.org/external/pubs/cat/longres.aspx?sk=40536This paper develops new, far more extensive estimates of export quality, covering 178 countries and hundreds of products over 1962–2010. Quality upgrading is particularly rapid during the early stages of development, with quality convergence largely completed as a country reaches upper middle-income status. There is significant cross-country heterogeneity in quality growth rates. Within any given product line, quality converges both conditionally and unconditionally to the world frontier; increases in institutional quality and human capital are associated with faster quality upgrading. In turn, faster growth in quality is associated with more rapid output growth. The evidence suggests that quality upgrading is best encouraged through a broadly conducive domestic environment, rather than sector-specific policies. Diversification is important to create new upgrading opportunities.15 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40536http://www.imf.org/external/pubs/cat/longres.aspx?sk=40535This paper recounts Chile’s experience with capital account policies since the 1990s. We present how two external shocks were confronted under very different macroeconomic and capital account frameworks. We show that during the 1997-98 Asian-LTCM-Russia crisis, a closed capital account and relatively rigid exchange rate severely constrained the monetary policy response to the shock, aggravating the fall in domestic demand. During the 2008-09 crisis, a full-fledged inflation targeting framework allowed the authorities to implement a significant countercyclical response. We argue that domestic stability considerations lay behind the policy regime switch toward capital account liberalization from 1999 onwards.14 May 2013 09:00:00 ESTWorking Paperhttp://www.imf.org/external/pubs/cat/longres.aspx?sk=40535