Does Tariff Liberalization Increase Wage Inequality? Some Empirical Evidence

The objective of the paper is to answer an often-asked question : if tariff rates are reduced, what will happen to wage inequality ? We consider two types of wage inequality : between occupations (skills premium), and between industries. We use two large data bases of wage inequality that have become recently available and a large dataset of average tariff rates all covering the period between 1980 and 2000. We find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. The results for inter-occupational inequality though must be treated with caution.

A New Data Set Measuring Income Inequality

This article presents a new data set on inequality in the distribution of income. The authors explain the criteria they applied in selecting data on Gini coefficients and on individual quintile groups' income shares. Comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage, although differences in the definition of the underlying data might still affect intertemporal and international comparability. Based on this new data set, the authors do not find a systematic link between growth and changes in aggregate inequality. They do find a strong positive relationship between growth and reduction of poverty.

Does tariff liberalization increase wage inequality ? - Some empirical evidence

The objective of the paper is to answer an often asked question: If tariff rates are reduced, what will happen to wage inequality? The authors consider two types of wage inequality: between occupations (skills premium) and between industries. They use two large databases of wage inequality that have recently become available and a large data set of average tariff rates covering the period between 1980 and 2000. The authors find that tariff reduction is associated with higher inter-occupational and inter-industry inequality in poorer countries (those below the world median income) and the reverse in richer countries. However, the results for inter-occupational inequality must be treated with caution.Inequality,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Poverty Impact Evaluation,Economic Theory&Research

The impact of labor market regulations

The authors investigate the impact of labor market regulations in settings where compliance is incomplete. They review some stylized facts about labor market behavior, present an analytical model that may explain such behavior, and provide a checklist for assessing the distortionary impact of a regulation such as the minimum wage. They take as their starting point the limited evidence about the distortionary effects of such regulations and argue that there may be natural limits on the efficiency losses engendered by labor market regulations. First, the regulations may not be binding at market equilibrium. For example, minimum wages may be set so low that they are ineffective. Second, even if they are binding, the relevant elasticities of supply and demand may be so low that the regulations have little impact on efficiency. Third, even if the regulations are binding and elasticities are sizable, compliance may be low. The authors argue that the likelihood of compliance will be greatest when the regulations are binding and the relevant elasticities are sizable. That is, if the distortionary costs of regulations are not rendered insignificant by the first two reasons, then the returns to noncompliance will be high and, other things being equal, employers will evade or avoid the regulations, thereby minimizing the imact on efficiency. The argument rests on profit maximization subject to a hard budget constraint. Public enterprises, which are not concerned only with profit maximization and often have softer budget constraints than the private sector, may be more willing to conform to profit-reducing regulations, but in this case the authors argue that compliance may reduce already-existing efficiency losses.Environmental Economics&Policies,Health Monitoring&Evaluation,Labor Policies,Public Health Promotion,Banks&Banking Reform,Health Monitoring&Evaluation,Banks&Banking Reform,Municipal Financial Management,Poverty Assessment,Environmental Economics&Policies

Equity and growth in developing countries : old and new perspectives on the policy issues

The"stylized fact"that distribution must get worse with economic growth in poor countries before it can get better turns out not to be a fact at all. Growth's effects on inequality can go either way and are contingent on several other factors. The authors found no sign in the new cross-country data they assembled that growth has any systematic impact on inequality. Possibly measurement errors confound the true relationship, but they think it more likely that the relationship between growth and distribution is not as simple as some theories have held. Since distribution does not worsen, growth reduces absolute poverty. Indeed, absolute poverty measures typically respond quite elastically to growth, and the benefits are certainly not confined to those near typical poverty lines. Of course, one cannot say that growth always benefits the poor or that none of the poor lose from pro-growth policy reform. Only aggregate effects are studied. But for 17 of the 20 countries for which they assemble quite good data (from at least two surveys since the mid-1980s), the mean and the proportion of people living below $1 a day moved in opposite directions. The gains to poor people from a distribution-neutral growth process will tend to be lower, the higher the extent of initial inequality. A smaller share of total income must imply a smaller absolute gain from a given increment to total income. Compensatory direct interventions can be important, provided they are integrated into a framework of fiscal and monetary discipline. The evidence does not suggest that growth is always distribution-neutral, and it would be wrong to conclude that changes in distribution are of little consequence. The point is not that distribution is irrelevant or that it never changes, but that its changes are roughly uncorrelated with economic growth. There is no intrinsic tradeoff between long-run aggregate efficiency and overall equity. Policies aimed at helping the poor accumulate productive assets--especially policies to improve schooling, health, and nutrition--when adopted in a relatively nondistorted framework, are important instruments for achieving higher growth.Services&Transfers to Poor,Environmental Economics&Policies,Economic Conditions and Volatility,Health Monitoring&Evaluation,Public Health Promotion,Achieving Shared Growth,Inequality,Governance Indicators,Safety Nets and Transfers,Rural Poverty Reduction

Evaluating Innovative Health Programs: Lessons for Health Policy

The Global Development Network’s (GDN) project “Evaluating Innovative Health Programs” (EIHP), funded by the Bill & Melinda Gates Foundation, seeks to inform policy on the effectiveness of health solutions that have the potential to improve health outcomes in developing countries. It evaluates the impact of nineteen programs from across developing and transition countries that focus on the health-related Millennium Development Goals (MDGs) of reducing child and maternal mortality, and halting and reversing the trend of communicable diseases such as HIV/AIDS, malaria and other diseases. The policy implications of the diverse set of interventions are distinguished between programs that involved earmarking resources, changing incentives, and developing innovative methods of health care delivery.Millennium Development Goals; child and maternal health; communicable diseases; impact evaluation; capacity building; Asia; Africa; Latin America

Methods for Evaluating Innovative Health Programs (EIHP): A Multi-Country Study

Designed as a global research initiative, the EIHP project aims at adding to the evidence base of health interventions that have the potential to improve health outcomes in Africa and Asia. The project focuses on rigorous, quantitative evaluations of innovative local initiatives that address the Millennium Development Goals for health: reductions in child and maternal mortality and communicable diseases. This overview brings together the outcomes and lessons from the project for evaluation methods. It draws together the methodological implications of carrying out impact evaluations under very different settings and emphasizes the need to build in evaluations in project designs.Millennium Development Goals; child and maternal health; communicable diseases; impact evaluation; capacity building; Asia; Africa; Latin America

Reviving project appraisal at the World Bank

The authors focus on two broad questions: 1) what is the proper role for project evaluation in today's world, where countries have reduced major economic distortions and are reconsidering the role of the state? and 2) besides project evaluation, how else can economic analysis ensure high-quality projects? The authors argue for a shift in the emphasis of project evaluation away from a concern with precise rate of return calculations to a broader examination of the rationale for public provision. In this context, three areas critical for proper project appraisal are the counterfactual private sector supply response, the fiscal impact, and the fungibility of lending. (1) Counterfactual private sector supply response. Any type of cost-benefit analysis - be it in the public or the private sector - requires the project evaluator to specify the counterfactual: what wouldthe world have looked like in the absence of the project? Since World Bank projects are public sector projects, the relevant counterfactual involves assessing what the private sector would have otherwise provided, and the relevant magnitude for evaluation purposes is the net contribution of the public project. Failure to consider explicitly the private sector counterfactual during evaluation biases the lending mix of the Bank away from projects with strong public good characteristics toward projects with private good characteristics. (2) Fiscal impact. Applying the private sector couterfactual would lead the Bank to undertake projects with a reasonable case for public intervention, such as basic infrastructure, primary education, and rural health. These projects typically share the characteristics that costs are borne by the public sector while benefits are enjoyed by the private sector. But in the absence of nondistortionary, lump sum taxes, there is likely to be a positive marginal cost of taxation and a premium on public income. Since the Bank has not used such a premium and treats public costs and private benefits equally, it has systematically overestimated the net benefits of these projects. (3) Fungibility of lending. Project-specific appraisal can at best assess only the rate of return and the acceptability of the project being appraised. This limitation is problematic because the project might have been undertaken even without Bank financing. If that is the case, the Bank is actually financing some other project - one not subject to appraisal by the Bank - that would not have been in the investment program without Bank financing. This problem arises because financial resources are fungible to some extent. One way to alleviate this concern is to conduct public expenditure reviews before embarking on the appraisal and financing of specific projects. Furthermore, financing a portion of the government's sectoral investment program may be more effective than project-specific lending.Decentralization,Health Economics&Finance,Public Health Promotion,Poverty Monitoring&Analysis,Environmental Economics&Policies,Health Economics&Finance,Environmental Economics&Policies,Poverty Monitoring&Analysis,Economic Theory&Research,Health Monitoring&Evaluation

Explaining International and Intertemporal Variations in Income Inequality

This paper explores the propositions that, income inequality is relatively stable within countries; and that it varies significantly among countries. A new and expanded data set provides broad support for both propositions. Drawing on a political economy and capital market imperfection arguments to explain the intertemporal and international variation in inequality, the empirical analysis shows that the predicted variables associated with the first argument (a measure of civil liberties and the initial level of secondary schooling) and the second argument (a measure of financial depth and the initial distribution of land) are indeed important determinants of inequality.