nep-lam New Economics Papers
on Central and South America
Issue of 2022‒02‒14
five papers chosen by
Maximo Rossi
Universidad de la República

  1. Trade and informality in the presence of labor market frictions and regulations By Rafael Dix-Carneiro; Pinelopi Koujianou Goldberg; Costas Meghir; Gabriel Ulyssea
  2. Bringing back the state: understanding varieties of re-reforms in Latin America By Carrera, Leandro; Angelaki, Marina
  3. Economic hardship, institutions and subjective well-being in Latin America By Y.|info:eu-repo/dai/nl/073586358 Grift; Annette|info:eu-repo/dai/nl/079405169 van den Berg; Tina Dulam
  4. How Accurate is the Kakwani Index in Predicting Whether a Tax or a Transfer is Equalizing? An Empirical Analysis By Ali Enami; Patricio Larroulet; Nora Lustig
  5. Peaceful Entry: Entrepreneurship Dynamics During Colombia’s Peace Agreement By Bernal, C; Ortiz, M; Prem, M; Vargas, J. F

  1. By: Rafael Dix-Carneiro (Institute for Fiscal Studies and Duke University); Pinelopi Koujianou Goldberg (Institute for Fiscal Studies and Yale University); Costas Meghir (Institute for Fiscal Studies and Yale University); Gabriel Ulyssea (Institute for Fiscal Studies)
    Abstract: We build an equilibrium model of a small open economy with labor market frictions and imperfectly enforced regulations. Heterogeneous firms sort into the formal or informal sector. We estimate the model using data from Brazil, and use counterfactual simulations to understand how trade affects economic outcomes in the presence of informality. We show that: (1) Trade openness unambiguously decreases informality in the tradable sector, but has ambiguous effects on aggregate informality. (2) The productivity gains from trade are understated when the informal sector is omitted. (3) Trade openness results in large welfare gains even when informality is repressed. (4) Repressing informality increases productivity, but at the expense of employment and welfare. (5) The effects of trade on wage inequality are reversed when the informal sector is incorporated in the analysis. (6) The informal sector works as an “unemployment," but not a “welfare buffer" in the event of negative economic shocks.
    Date: 2021–01–21
  2. By: Carrera, Leandro; Angelaki, Marina
    Abstract: Pension policy is a highly political issue across Latin America. Since the mid-2000s, several countries have re-reformed their pension systems with a general trend toward more state involvement, yet with significant variation. This article contends that policy legacies and the institutional political setting are key to understanding such variation. Analyzing the cases of Argentina, Bolivia, and Chile, this article shows that where a weak legacy, characterized by low coverage and savings rates, a weakly organized pension industry, and strong societal groups that oppose the private system, combines with a strong institutional setting, characterized by a government with large support in Congress and where the president concentrates decisionmaking, re-reform outcomes may lead to the outright elimination of the private pillar. Conversely, where a strong legacy combines with a weak institutional setting, re-reform outcomes will tend to maintain the private pillar and expand only the role of the public one.
    Keywords: Pension reform; policy change; Latin America; institutions; policy legacy; CUP
    JEL: R14 J01
    Date: 2021–12–21
  3. By: Y.|info:eu-repo/dai/nl/073586358 Grift; Annette|info:eu-repo/dai/nl/079405169 van den Berg; Tina Dulam
    Abstract: We use the 2016-17 wave of the LAPOP AmericasBarometer survey to investigate the relationship between economic hardship and subjective well-being (SWB) for Latin America. In addition, we analyze whether the negative effect of economic hardship on SWB can be mitigated by immaterial resources rather than material resources. Analogous to Reeskens and Vandecasteele (2017) regarding Europe, we compare the impact of the institutions social trust, religiosity, and confidence in politics with the impact of welfare state expenditures in Latin America. Our results also show that economic hardship has a negative effect on subjective wellbeing. In contrast to the findings for Europe, the negative effect of economic hardship can be strengthened or attenuated depending on the degree of religiosity and trustworthiness of the community. The moderating effect of confidence in politics was not found. Concerning the moderating influence of welfare state expenditure, our findings are partly in line with the results for Europe. In Europe a larger social welfare state suppresses the informal institutions social contacts and confidence in politics whereas in Latin America a larger social welfare state overturns interpersonal trust (as a proxy for social contacts) and religiosity. Hence, we also find evidence for the crowding out hypothesis, namely that in more generous welfare states one is less dependent on their immaterial resources for finding happiness.
    Keywords: subjective well-being, life satisfaction, hapiness, economic hardship, institutions
    Date: 2021–03
  4. By: Ali Enami (The University of Akron); Patricio Larroulet (Center for the Study of the State and Society (CEDES)); Nora Lustig (Tulane University)
    Abstract: The Kakwani index of progressivity is commonly used to establish whether the effect of a specific tax or transfer is equalizing. However, in the presence of reranking or the Lambert conundrum, a progressive tax could be unequalizing. While it is mathematically possible for counterintuitive results to occur, how common are they in actual fiscal systems? Using a novel dataset that includes fiscal incidence results for 39 countries, we find that the likelihood of the Kakwani index to be progressive (regressive) while the tax or transfer is unequalizing (equalizing) is minimal, except in the case of indirect taxes: in roughly 25 percent of our sample, regressive indirect taxes are equalizing (sign-inconsistent cases). Additionally, the likelihood that the index ranks the magnitude of the impact of a tax or a transfer wrongly exists but is also small. Finally, using regression analysis, we find that increasing the size or progressivity of a progressive tax (transfer) is equalizing and statistically robust for sign-consistent cases. For sign-inconsistent cases, the coefficient for the Kakwani index is not statistically significant. In sum, although the Kakwani index could yield interpretations that are inaccurate in actual fiscal systems, the risk seems small except for indirect taxes.
    Keywords: Kakwani index, fiscal redistribution, reranking, progressivity, marginal contribution, taxes, transfers, Lambert
    JEL: D31 D63 H22 H23
    Date: 2022–02
  5. By: Bernal, C; Ortiz, M; Prem, M; Vargas, J. F
    Abstract: While there is a large literature on how conflict affects entrepreneurship and private investment, much less is known about how the end of a conflict affects businesses and firms’ creation. A priory, the direction of the effect is not obvious, as conflicts bequest poverty traps and inequality that reduce the returns of investment, and the territorial vacuum of power that is inherent to most post-conflict situations may trigger new violent cycles. Studying Colombia’s recent peace agreement and using a difference-in-differences empirical strategy, we document that dynamics of entrepreneurship in traditionally violent areas closely mapped the politics that surrounded the peace agreement. When the agreement was imminent after a 5-decade conflict and violence had plummeted, local investors from all economic sectors established new firms and created more jobs. Instead, when the agreement was rejected by a tiny vote margin in a referendum and the party that promoted this rejection raised to power, the rate of firms’ creation rapidly reversed.
    Keywords: Firm entry, Conflict, Peace agreement, Colombia
    JEL: D74 D22
    Date: 2022–01–20

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