Political regimes, trade, and labor policies in developing countries

What, if any, is the link between labor market policies that benefit insiders - for example, regulations guaranteeing high minimum wages and strict job security - and political regimes. Is it true that in a democracy outsiders vote and impose limits on what insiders can achieve, whereas in a dictatorship the government need worry only about insiders who have real power? Or are democratic governments more likely to succumb to trade union pressure and use labor policies to give them special privileges? To test these competing hypotheses, the authors designed a two-sector political economy model that demonstrates that labor market distortions depend directly on the trade regime: the more open the trade regime, the fewer distortions in the labor market. They use cross-country regressions to test the relationship between political and civil liberties and trade and labor policies. Using data for 90 developing countries, they apply existing indices of openness and political freedom and two different constructed measures of labor market distortion. Their conclusions, based on the regression results: authoritarian systems that repress labor are more likely than democratic systems to adopt inefficient labor policies inimical to development.Economic Theory&Research,Environmental Economics&Policies,Labor Policies,Health Economics&Finance,Banks&Banking Reform,Environmental Economics&Policies,Health Economics&Finance,Banks&Banking Reform,Labor Standards,Economic Theory&Research

Poverty and economic growth in Egypt, 1995-2000

After a decade of slow economic growth Egypt's rate of growth recovered in the late 1990s, averaging more than five percent a year. But the effect of this growth on poverty patterns has not been systematically examined using consistent, comparable household datasets. In this paper, the authors use the rich set of unit-level data from the most recent Egyptian household surveys (1995-96 and 1999-2000) to assess changes in poverty and inequality between 1995 and 2000. Their analysis is based on household-specific poverty lines that account for the differences in regional prices, as well as differences in the consumption preferences and size and age composition of poor households. The results show that average household expenditures rose in the second half of the 1990s and the poverty rate fell from 20 percent to less than 17 percent. But, in addition to the ongoing divide in the urban-rural standard of living, a new geographical/regional divide emerged in the late 1990s. Poverty was found predominantly among less-educated individuals, particularly those working in agriculture and construction, and among seasonal and occasional workers. These groups could suffer the most from the slowing economic growth evident after 1999-2000.Services&Transfers to Poor,Public Health Promotion,Health Monitoring&Evaluation,Environmental Economics&Policies,Poverty Reduction Strategies,Achieving Shared Growth,Poverty Lines,Environmental Economics&Policies,Rural Poverty Reduction,Poverty Assessment

The political economy of formal sector pay and employment in developing countries

Domestic labor market outcomes influence the direction and magnitude of the flow of international migration. When wages are low and jobs are scarce, workers tend to migrate to environments where jobs are available at higher wages. But as labor demand grows, a labor-exporting country may become a net labor importer. Such a"migration transition"- already much in evidence in East and Southeast Asian countries and beginning for skilled workers in India - is analogous to the demographic transition. The process of political economy described by the authors affects the level and growth of wages and of formal sector emmployment. So it is important for policymakers concerned about migration to high-income countries to take it into account. An efficient, flexible, responsive labormarket contributes to growth by creating an appropriate economic environment. In this respect, labor policy is like macroeconomic and trade policy. Unlike the accumulation of physical and human capital and technical progress, a well-functioning labor market is not itself a source of economic growth. Yet labor market pathologies, like macroeconomic mismanagement, can be extremely costly, severely constraining growth of output and employment and increasing inequality. Similarly, failure to adequately address the labor-market aspects of policy reform can result in the failure of other dimensions of reform. The smooth functioning of the labor market feeds on itself, enhancing the credibility of both workers and the elite. Conversely, poor labor market performance can also be self-reinforcing. Attempts to reform the labor market feeds on itself, enhancing the credibility of both workers and the elite. The payoff on labor reform can be high for both groups. The challenge is to find mechanisms whereby the credibility of both groups can be bolstered.Labor Policies,Environmental Economics&Policies,Banks&Banking Reform,Municipal Financial Management,Health Economics&Finance,Environmental Economics&Policies,Banks&Banking Reform,Municipal Financial Management,Health Economics&Finance,Labor Standards

Tax evasion, enforcement and intertemporal choice

Tax evasion is a widespread phenomenon in all economies, and assumes great significance in developing countries. Theoretical analyses of tax evasion, however, have concentrated on simplistic models which are static and have fixed audit probabilities. This overlooks two important issues: that all evaders are not audited with the same frequency, and the interaction between evasion and saving decisions. The dissertation investigates these issues. Its first paper looks at enforcing compliance and truth-telling in a simple principal-agent framework. The second paper examines the broader issue of saving and portfolio decisions with an endogenous return to the risky asset. The focus in the final paper is the intertemporal behavior of the evader in a dynamic overlapping-generations setting. The investigation finds that endogenous audit probability plays a major role in affecting evasion behavior. Firstly, the degree of enforcement activity by the tax authority is now found to depend on the degree of the progressivity of the tax structure. In the second paper, the behavior of consumption and speculation (holding risky assets) when the endogenous risk increases is found to be determined by three effects: in addition to the standard income and substitution effects, there is a third endogeneity effect which tends to increase saving and speculation over the levels that are determined in simpler models. In the final paper, it is shown that the savings behavior evaders, even when they are risk-neutral, would depend on the degree of evasion in the economy as a whole. Northern evaders (in a low-evasion economy) would increase saving when tax rates fall, but the savings of evaders in the high-evasion South would be lowered as they adjust for possibly lower penalties from lower evasion. Lowering tax rates during a tax reform may therefore decrease a Southern economy\u27s stock of savings and capital for long-term growth. The issues raised by a more detailed analysis of tax evasion are therefore significant, and can make significant differences to deciding on appropriate policy mixes for authorities in high-evasion economies

Uzbekistan and Kazakhstan - a tale of two transition paths

Asad Alam; Arup Banerj