Simulating the Impact of the Global Economic Crisis and Policy Responses on Children in Ghana

Like many countries in sub-Saharan Africa, Ghana is experiencing the impact of the global crisis and the uncertain economic outlook. Indeed, as Ghana’s economy is among the most open in Africa, it is expected that the country has been and will continue to be severely affected by the crisis, although strong export prices of its main exports (gold and cocoa) may at least partially counteract the effects associated with the crisis. The main goal of this paper is to understand the potential impacts of the 2008/9 global crisis on different dimensions of child poverty (monetary, hunger, school participation, child labour and access to health services) in Ghana and to support the policy-maker in designing the most appropriate policy response to counteract the negative effects of the crisis. As timely data are not available, a combined macro-micro economic model to predict the impact of the global crisis on children was developed. Simulations suggest that the financial crisis would increase monetary poverty and hunger across all regions of Ghana, eroding many of the gains made over the past few years. Indeed, in comparison with the year preceding the crisis, instead of a reduction of four percentage points in child monetary poverty in 2011 predicted in the absence of crisis, the simulations indicate a 6.6 percentage point increase, with a continuous increasing pattern over the period of study. The global crisis is also predicted to severely deepen hunger among children, which is simulated to increase up to 6.6 percentage points in 2011 beginning with a sharp increase already in 2009. For both monetary poverty and hunger, the impact of the crisis differs across all regions, with the Eastern, Volta and Greater Accra regions predicted to be the most affected. Children’s participation in schooling and labour, as well as their access to health services, are forecast to be much less affected by the crisis, although it is found to reverse predicted increases in enrolment and health access (with substitution toward more modern types of health services) and forecasted reductions in child labour. Finally, alternative policy options have been simulated: a cash transfer programme targeted to poor children is found to be generally more effective in protecting children than food subsidies. Indeed, with a total budget equivalent to 1% of 2008 GDP, a cash transfer – equivalent to an individual annual amount of 19.8 Cedis – would cut the predicted increase in monetary poverty by over two percentage points in 2011. Although Ghana might be in a position to rapidly implement a cash transfer programme building on the existing Livelihood Empowerment against Poverty (LEAP) programme, other interventions (or mix of policies) might be more cost-effective in the short run. A combination of a universal or regionally targeted cash transfer programmes for children aged 0 to 5 years old, together with a school-feeding programme in poorer regions, might represent an effective way to intervene quickly to improve child well-being.Global economic crisis, child poverty, hunger, education, child labour, health, West and Central Africa, Ghana, social protection

From IRAP to CBIT: tax distortions and redistributive effects

The paper explores the differences between IRAP (the Regional Tax on Productive Activities) and CBIT (the Comprehensive Business Income Tax), which approximately corresponds to allow the deduction of labor cost from the taxable base of IRAP. By developing a DSGE model that ncorporates business taxes, like IRAP or CBIT, we find that tax distortions due to IRAP are more contractionary than those caused by the presence of CBIT. Empirically, tax revenues and redistributive effects are more carefully analyzed. We implement a microsimulation model (MSM) based on a dataset of more than 150,000 incorporated firms. We show that small incorporated firms are particularly harmed by IRAP, especially when business run a loss instead of a profit. This is due to the fact that IRAP is a business tax on value added, which does not allow for the deduction of labor cost. For this purpose, we focus on the introduction of a reform based on the CBIT principle. Our result is that CBIT is particularly costly and more able to enhance the profitability for larger enterprises. Moreover, the tax design of CBIT is more regressive compared to the IRAP including tax allowances. Consequently, an efficiency-equity trade-off between IRAP and CBIT might be emphasizedbusiness cycles, tax distortions, micro-simulations models, distributive effects, Italy.

Expectations, employment and prices: a suggested interpretation of the new 'farmerian' economics

This paper aims at providing a critical assessment of the new ‘Farmerian’ economics, i.e. the recent Farmer’s attempt to provide a new micro-foundation of the General Theory grounded on modern search and business cycle theories. Specifically, I develop a theoretical model that summarizes the main arguments of the suggested approach by showing that a special importance has to be attached to the search mechanism, the choice of units and ‘animal spirits’ modelling. Thereafter, referring to self-made real-business-cycle experiments, I discuss the main empirical implications of the resulting framework. Finally, I consider its policy implications by stressing the problematic nature of demand management interventions and the advisability of extending the role of the central bank in preventing financial bubbles and crashes.Old Keynesian Economics; search; demand constrained equilibrium; Shimer puzzle; economic policy.

QUEST II. A multi country business cycle and growth model. Economic Papers No. 123, October 1997. II/509/97-EN

From the Introduction. QUEST was designed to analyse the economies in the member states of the European Union and their interactions with the rest of the world, especially with the United States and Japan. The focus of the model is on the transmission of the effects of economic policy both on the domestic and the international economy. The model was primarily constructed to serve as a tool for policy simulation; less emphasis was put on its ability to serve as a forecasting tool. Given the wide coverage of the model it must necessarily be highly aggregated. A high degree of aggregation and foundation of the specification in current macroeconomic theory also helps in interpreting and understanding the results of the simulations. Finally simplicity also facilitates the solution of the model and reduces the time and memory requirements of the computer-simulations. The new model contains structural models for the EU member states, the US and Japan and distinguishes 10 additional countries/regions in trade feedback models in order to model trade interactions with the rest of the world

Procyclicality in the banking industry: causes, consequences and response

Procyclicality is an inherent feature of the real and especially the financial sector of an economy, which has been highlighted by the recent crisis. Due to procyclicality, banks are transformed from mitigation mechanisms to amplifiers of changes in economic activity potentially affecting financial stability. The causes of procyclicality can be attributed to market imperfections and deviations from the efficient market hypothesis, while other factors -including Basel II and accounting standards- may have exacerbated it. To attenuate procyclicality, a number of suggestions have been made in the form of rules and discretion and are presented according to the factors they aim to alleviate. Some of the suggestions have been adopted under the Basel III framework, including the countercyclical capital buffer. Although these Basel III proposals seem able to address the procyclicality issue, they will lead to higher minimum capital adequacy ratios, which are expected to increase lending costs and the provision of loans by banks, and reduce economic activity. However, the cost of the new proposals is expected to be lower than the estimated cost of financial crisis.Banking; procyclicality; demand and supply of loans; capital requirements; BasII and III

Fiscal forecasting: lessons from the literature and challenges

While fiscal forecasting and monitoring has its roots in the accountability of governments for the use of public funds in democracies, the Stability and Growth Pact has significantly increased interest in budgetary forecasts in Europe, where they play a key role in the EU multilateral budgetary surveillance. In view of the increased prominence and sensitivity of budgetary forecasts, which may lead to them being influenced by strategic and political factors, this paper discusses the main issues and challenges in the field of fiscal forecasting from a practitioner’s perspective and places them in the context of the related literature. JEL Classification: H6, E62, C53Fiscal policies, forecasting, government budget, monitoring

Models for Stress Testing Czech Banks' Liquidity Risk

We provide a macro stress-testing model for banks' market and funding liquidity risks with a survival period of one and three months. The model takes into account the impact of both bank-specific and market-wide scenarios and considers both the first- and second-round effects of shocks. The testing model has three phases; (i) the formation of a balance-sheet liquidity shortfall, (ii) the reaction by banks, and (iii) the feedback effects of shocks. During each phase we re-count the liquidity buffer and examine whether banks hold a sufficiently large amount of liquid assets to be able to survive the liquidity tension in their balance sheets. An application to Czech banks illustrates which bank business models are sensitive to liquidity tensions. Overall, we confirm that the Czech banking system is resilient to a scenario mimicking the international liquidity crisis of 2008-2009.Banking, financial stability, liquidity risk, stress testing.