An identity links the rate of economic growth, the speed of poverty reduction and changes in the distribution of income during some time period in a given country. A few authors used that identity to understand the causes for observed changes in poverty and to identify the exact role of economic growth in poverty reduction. Yet, many empirical cross-country studies of the relationship between g...

Physical currency (bills and coins) is being phased out as an important means of exchange both in developed and developing countries. Transactions are increasingly done by debit card, computer, and mobile phone. This technologically driven process opens up some very useful possibilities, among these new and – for society – beneficial roles for the Central Bank. The paper assumes a scenario wher...

Governments in emerging markets often behave like a “tormented insurer,” who would like to smooth government outlays given the randomness of public revenues in an imperfect world where the only public debt instrument is a non-state-contingent bond denominated in units of tradable goods. How can a fiscal authority tell if the stock of public debt is consistent with fiscal solvency in this enviro...

This paper analyzes optimal progressive capital income taxation in the infinite horizon dynastic model. It shows that progressive taxation is a much more powerful and useful tool to redistribute wealth than linear taxation on which previous literature has focused. We consider progressive capital income tax schedules taking a simple two-bracket form with an exemption bracket at the bottom and a ...

Previous studies have found large negative e¤ects of direct democracies on government spending. Since they do not control for preference heterogeneity, these estimates su¤er from omitted variable bias. If citizens in areas with stronger direct democracy have lower tastes for government, the restraining e¤ect of institutions is overstated. Exploiting a unique dataset in Switzerland, we demonstra...

Based on a panel of 24 OECD countries this present paper shows that the total government sector is contracted by Baumol’s cost disease. The most affected government services are education and healthcare. Furthermore, this paper shows that Baumol’s cost disease produces adverse consequences under a balanced budget rule such as a debt brake, which is a key element of the EU Fiscal Compact. Govern...

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. In oil-dependent countries, a major issue is how to stabilize...