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This paper studies whether budget rigidities affect the probability of countries getting into fiscal distress and reduce the likelihood of governments performing fiscal adjustments. Budget rigidities are constraints that limit the ability of the government to change the size and structure of the public budget in the short term. Budget rigidities stem from different institutional arrangements and therefore can take different forms. To build an indicator of rigid spending that is comparable across a large set of countries, this paper employs a simple definition based on budget components that are naturally inflexible: the sum of public wages, pensions, and debt service. It decomposes this measure into a structural component and a nonstructural component. Then, the paper applies a linear probability model to a panel of 182 advanced and developing countries. A key finding is that relatively high shares of rigid (observed) components of public spending contribute to countries getting into fiscal distress and are a constraint for fiscal consolidation. The paper finds evidence that a relatively high share of nonstructural rigid spending contributes to the probability of fiscal distress and reduces the probability of fiscal consolidation. Moreover, the effect of rigid expenditure seems to be more relevant for economies with high inequality, governments with lower margins of majority, and countries with lower institutional quality. In addition, when looking at the composition of the measure of rigid expenditure, there is also some evidence that higher expenditure on pensions reduces the probability of fiscal adjustment more robustly than higher expenditure on wages.
Budget Rigidity --- Debt Burden --- Fiscal Adjustment --- Fiscal and Monetary Policy --- Fiscal Consolidation --- Fiscal Policy --- Macroeconomics and Economic Growth --- Public Sector Development --- Public Wages
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This paper estimates the long-term impacts of schooling disruptions on private returns to schooling in Kuwait. It applies an instrumental variables approach to estimate the private returns to schooling, using unique civil service payroll data, with Kuwaiti students' exposure to the Gulf War (1990-91) as the instrument. The Gulf War is a suitable instrument because it profoundly affected Kuwaiti students' schooling at the time and is unlikely to be correlated with many potentially problematic omitted variables, such as students' ability. The analysis finds that (i) people who were of schooling age during the Gulf War tend to have lower educational attainment than people who were of schooling age after the Gulf War; (ii) men who were of schooling age at the time of the Gulf War earn on average 5.6 percent less for each year of schooling lost, and women earn correspondingly 6.8 percent less for each year of schooling lost; (iii) students who were in lower grades during the Gulf War tend to suffer a greater percentage wage loss for each year of lost schooling.
Armed Conflict --- Civil Service --- Conflict and Development --- Conflict-Affected States --- Economics of Education --- Education --- Employment and Unemployment --- Gulf War --- Lost Schooling --- Marginal Product Of Labor --- Public Wages --- Returns To Education --- Skills Development and Labor Force Training --- Social Protections and Labor
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