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Given that public spending will have a positive impact on GDP if the benefits exceed the marginal cost of public funds, the present paper deals with measuring costs and benefits of public spending. The paper discusses one cost seldom considered in the literature and in policy debates, namely, the volatility derived from additional public spending. The paper identifies a relationship between public spending volatility and consumption volatility, which implies a direct welfare loss to society. This loss is substantial in developing countries, estimated at 8 percent of consumption. If welfare losses due to volatility are this sizeable, then measuring the benefits of public spending is critical. Gauging benefits based on macro aggregate data requires three caveats: a) considering of the impact of the funding (taxation) required for the additional public spending; b) differentiating between investment and capital formation; c) allowing for heterogeneous response of output to different types of capital and differences in network development. It is essential to go beyond country-specificity to project-level evaluation of the benefits and costs of public projects. From the micro viewpoint, the rate of return of a project must exceed the marginal cost of public funds, determined by tax levels and structure. Credible evaluations require microeconomic evidence and careful specification of counterfactuals. On this, the impact evaluation literature and methods play a critical role. From individual project evaluation, the analyst must contemplate the general equilibrium impacts. In general, the paper advocates for project evaluation as a central piece of any development platform. By increasing the efficiency of public spending, the government can permanently increase the rate of productivity growth and, hence, affect the growth rate of GDP.

Access to Finance --- Debt Markets --- Economic efficiency --- Economic Theory and Research --- Finance and Financial Sector Development --- Macroeconomics and Economic Growth --- Public --- Public debt --- Public debt management --- Public Expenditure --- Public expenditure management --- Public funds --- Public Sector Economics and Finance --- Public Sector Expenditure Analysis and Management --- Public spending --- Tax --- Taxation

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Attempts to raise a significant percentage of gross domestic product in revenue from a broad-based financial transactions tax are likely to fail both by raising much less revenue than expected and by generating far-reaching changes in economic behavior. Although the side-effects would include a sizable restructuring of financial sector activity, this would not occur in ways corrective of the particular forms of financial overtrading that were most conspicuous in contributing to the crisis.

Banking assets --- Banks & Banking Reform --- Currency --- Debt Markets --- Derivative --- Derivative transactions --- Economic efficiency --- Economic Theory & Research --- Emerging Markets --- Equities --- Finance and Financial Sector Development --- Financial assets --- Financial system --- Fiscal deficits --- Government policy --- Gross domestic product --- International bank --- Macroeconomics and Economic Growth --- Market failures --- Private Sector Development --- Reserve --- Reserve requirements --- Securities --- Securities transactions --- Tax --- Taxation & Subsidies --- Transaction --- Transparency

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The measurement of inequality of opportunity has hitherto not been attempted in a number of countries because of data limitations. This paper proposes two alternative approaches to circumventing the missing data problems in countries where a demographic and health survey and an ancillary household expenditure survey are available. One method relies only on the demographic and health survey, and constructs a wealth index as a measure of economic advantage. The alternative method imputes consumption from the ancillary survey into the demographic and health survey. In both cases, the between-type share of overall inequality is computed as a lower bound estimator of inequality of opportunity. Parametric and non-parametric estimates are calculated for both methods, and the parametric approach is shown to yield preferable lower-bound measures. In an application to the sample of ever-married women aged 30-49 in Turkey, inequality of opportunity accounts for at least 26 percent (31 percent) of overall inequality in imputed consumption (the wealth index).

Consumption --- Consumption expenditures --- Data set --- Data sets --- Decreasing function --- Economic efficiency --- Economic growth --- Economic Theory & Research --- Empirical analysis --- Empirical studies --- Equity and Development --- Gini coefficient --- Health, Nutrition and Population --- Household income --- Income --- Income differentials --- Income inequality --- Inequality --- Inequality index --- Macroeconomics and Economic Growth --- Measuring inequality --- Per capita consumption --- Policy research --- Population Policies --- Poverty Reduction --- Product --- Rural Poverty Reduction --- Social policy

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Capital productivity --- Costs, Industrial --- Industrial management --- Labor productivity --- Technological innovations --- 65.011.4 --- 658.112 --- Breakthroughs, Technological --- Innovations, Industrial --- Innovations, Technological --- Technical innovations --- Technological breakthroughs --- Technological change --- Creative ability in technology --- Inventions --- Domestication of technology --- Innovation relay centers --- Research, Industrial --- Technology transfer --- Costs of production --- Industrial costs --- Industries --- Production costs --- Cost --- Labor output --- Productivity of labor --- Industrial productivity --- Hours of labor --- Labor time --- Productivity bargaining --- Capital output ratios --- Productivity of capital --- Production (Economic theory) --- Government productivity --- Business administration --- Business enterprises --- Business management --- Corporate management --- Corporations --- Industrial administration --- Management, Industrial --- Rationalization of industry --- Scientific management --- Management --- Business --- Industrial organization --- 658.112 Site, location, place of business --- Site, location, place of business --- 65.011.4 Productivity. Economic efficiency (cost-effectiveness). Profitability. Rationalization. Simplification. Efficiency. Cost-consciousness. Success --- Productivity. Economic efficiency (cost-effectiveness). Profitability. Rationalization. Simplification. Efficiency. Cost-consciousness. Success --- Costs --- Organization theory

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June 2000 - What explains the spread of both democracy and financial openness at this time in history, given the constraining impact of financial market integration on national policy autonomy? International policy coordination is part of the answer, but not all. Also important is the presence of cost-effective redistributive schemes that provide insurance against the risk of financial instability. The debate about the relationship between democratic forms of government and the free movement of capital across borders dates to the 18th century. It has regained prominence as capital on a massive scale has become increasingly mobile and as free economies experience continuous pressure from rapidly changing technology, market integration, changing consumer preferences, and intensified competition. These changes imply greater uncertainty about citizens' future income positions, which could prompt them to seek insurance through the marketplace or through constitutionally arranged income redistribution. As more countries move toward democracy, the availability of such insurance mechanisms to citizens is key if political pressure for capital controls is to be averted and if public support for an open, liberal international financial order is to be maintained. Dailami briefly reviews how today's international financial system evolved from one of mostly closed capital accounts immediately after World War II to today's enormous, largely free-flowing market. Drawing on insights from the literature on public choice and constitutional political economy, Dailami develops an analytical framework for a welfare cost-benefit analysis of financial openness to international capital flows. The main welfare benefits of financial openness derive from greater economic efficiency and increased opportunities for risk diversification. The welfare costs relate to the cost of insurance used as a mechanism for coping with the risks of financial volatility. These insurance costs are the economic losses associated with redistribution, including moral hazard, rent-seeking, and rent-avoidance. A cross-sectional analysis of a large sample of developed and developing countries shows the positive correlation between democracy (as defined by political and civil liberty) and financial openness. More rigorous econometric investigation using logit analysis and controlling for level of income also shows that redistributive social policies are key in determining the likelihood that countries can successfully combine an openness to international capital mobility with democratic forms of government. This paper - a product of Governance, Regulation, and Finance, World Bank Institute- is part of a broader research effort on The Quality of Growth. The author may be contacted at mdailami@worldbank.org.

Banks and Banking Reform --- Bonds --- Capital Flows --- Capital Movements --- Currencies and Exchange Rates --- Debt Markets --- Developing Countries --- Economic Efficiency --- Economic Theory and Research --- Emerging Markets --- Finance and Financial Sector Development --- Financial Literacy --- Financial Openness --- Free Capital --- Future --- Governance --- Governance Indicators --- Government Policies --- Information Technologies --- Insurance --- International Capital --- International Capital Mobility --- International Financial Markets --- International Financial System --- International Lending --- Labor Policies --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Market --- Market Integration --- Moral Hazard --- Political Economy --- Private Sector Development --- Social Protections and Labor