Reza Baqir

Political Jurisdictions in Heterogeneous Communities

We investigate whether political jurisdictions form in response to the trade‐off between economies of scale and the costs of a heterogeneous population. We consider heterogeneity in income, race, ethnicity, and religion, and we test the model using American school districts, school attendance areas, municipalities, and special districts. We find strong evidence of a trade‐off between economies of scale and racial heterogeneity; we also find evidence of a trade‐off between economies of scale and income heterogeneity. Conversely, we find little evidence that ethnic or religious heterogeneity shapes jurisdictions. To clarify the direction of causality between heterogeneity and jurisdictions, we exploit shocks to racial heterogeneity generated by the two world wars.

Districting and Government Overspending

Theories of government spending driven by a common‐pool problem in the fiscal revenues pool predict that greater districting of a political jurisdiction raises the scale of government. This paper presents evidence on this and related predictions from a cross section of city governments in the United States. The main finding is that, when other plausible determinants of government spending are controlled for, greater districting leads to a considerably greater scale of government activity. The results also show that at‐large electoral systems do not, and forms of government that concentrate powers in the office of the executive do, break this relationship.

Social Sector Spending in a Panel of Countries

This paper presents evidence on the political and economic determinants of social sector spending from a panel dataset. The principal finding is that democratization in countries, as measured by within-country variation in subjective indices of democracy, is a significant predictor of government spending on education and health. The relationship is robust to controlling for a variety of factors and the estimated magnitudes suggest that an increase from the lowest to the highest rating for democracy for a country is associated with approximately 1 percent more central government spending and 3 percent more general government spending in social sectors, as a percent of GDP.

Investment Incentives and Effective Tax Rates in the Philippines: A Comparison with Neighboring Countries

This paper compares the general tax provisions and investment incentives in the Philippines to six other East Asian economies – Malaysia, Indonesia, Lao, Vietnam, Cambodia and Thailand. It finds that general effective tax rates are relatively high in the Philippines, while investment incentives are comparable to those in neighboring countries. Tax holidays are most attractive for very profitable firms, creating redundancy, and for investment in short-lived assets. Two recently proposed tax reforms would replace tax holidays by a reduced corporate income tax rate or a low tax on gross receipts. The results suggest that this would result in stronger incentives to invest, while government revenue would increase. Alternatively, replacing tax holidays with a general reduction in the corporate tax rate and accelerated depreciation would either not provide the same incentives or be very costly.

IMF Programs and Growth: Is Optimism Defensible?

IMF-supported programs focus on key objectives (such as growth, inflation, and the external current account) and on intermediate policy targets (such as monetary and fiscal policies) needed to achieve these objectives. In this paper we use a new, large data set, with information on 94 programs between 1989 and 2002, to compare programmed objectives and policy targets to actual outcomes. We report two broad sets of results. First, we find that outcomes typically fell short of expectations in growth and inflation but were broadly in line with the programmed external current account objectives. Similarly, programmed intermediate policy targets were generally more ambitious than the intermediate policy outcomes. Second, focusing on growth, we examine the relationship between objectives and policy targets, and find differences in the way ambitious monetary and fiscal targets affected the achievement of the growth objective. On the one hand, more ambitious fiscal targets, even when they were missed, led to better growth performance. On the other hand, more ambitious monetary targets tended to be associated with lower growth performance.