Publication: Latvia's Macroeconomic Options in the Medium Term: Fiscal and Monetary Challenges of EU Membership
Loading...
Date
2004-05
ISSN
Published
2004-05
Author(s)
Abstract
Latvia's experience over the past decade shows that economic growth and real convergence can no longer be assumed to be exogenously driven processes determined by given technological improvements and relatively higher factor returns. Instead, it is an endogenously driven process led by many variables, including policy variables. European Union membership clearly brings enormous economic benefits to Latvia. However, it also brings important challenges on the macroeconomic front, especially prior to the adoption of the euro. Substantial progress has been made toward fiscal consolidation since the mid-1990s but several risks remain. Given the facts that domestic demand remains buoyant and that Latvia will have to accommodate the expenditure commitments associated with NATO and EU membership while simultaneously aiming to fulfill the medium-term goal of a balanced budget, a more prudent fiscal policy should be the main short-term policy objective. The authorities should therefore reassess their current medium-term budget framework and strengthen their fiscal rules so that off-budget spending is eliminated and controls over spending ministries and local government finances are reinforced. They should also rethink any further tax reductions until a clear strategy is designed for compensating for projected losses in government revenues. Monetary policy can contribute to sustainable growth and job creation in Latvia in the medium and long term by providing an environment for price stability. It will have to be complemented by further microeconomic reforms and prudent wage developments aligned with productivity growth.
Link to Data Set
Citation
“Monga, Celestin. 2004. Latvia's Macroeconomic Options in the Medium Term: Fiscal and Monetary Challenges of EU Membership. Policy Research Working Paper;No.3307. © World Bank, Washington, D.C.. http://hdl.handle.net/10986/14111 License: CC BY 3.0 IGO.”
Other publications in this report series
Publication Firm Networks and Global Technology Diffusion(Washington, DC: World Bank, 2024-09-13)This study examines the role of multinational firms and global value chain linkages in the cross-country diffusion of emerging technologies. The analysis combines detailed information on the near-universe of online job postings in 17 countries with data on multinational networks and firm-to-firm linkages from 2014 to 2022. Online job postings are utilized to investigate how jobs related to emerging technologies spread through firm networks. The findings show that emerging technology jobs are highly concentrated within multinational firms and their supply chains. Approximately one third of all emerging technology job postings during this period come from Fortune 500 firms, their affiliates, buyers, suppliers, or innovation partners. Although the locations where these technologies originate exhibit a higher prevalence of technology job openings, this advantage diminishes over time as diffusion accelerates in wealthier and geographically closer countries and regions. The study highlights the significant role of firm-to-firm linkages in technology diffusion, with some linkages proving more influential than others. Firms that were previously buyers or innovation partners of establishments in technology-originating locations experienced faster growth in jobs related to these technologies. Moreover, relationships outside corporate boundaries play a particularly critical role, and these connections are influential beyond the factor of geographical distance.Publication Regional Convergence in Brazil(Washington, DC: World Bank, 2024-09-11)This paper examines whether labor productivity converged across Brazil’s states (“departments”) between 2002 and 2018. The results show strong evidence of unconditional convergence in which states with lower levels of initial labor productivity experienced substantially faster labor productivity growth. The convergence rate was faster over 2002–10 compared to 2010–18 period and particularly strong in agriculture, extractives, and manufacturing. These findings of the regional convergence are robust to controlling for state and industry fixed effects, states’ initial poverty rates, human capital, tax collection per capita, and infrastructure. Given the high disparity in labor productivity across Brazil’s states, such regional convergence has the potential to raise aggregate productivity and per capita income.Publication Evaluation of Door-to-Door Tax Enforcement Strategy in Indonesia(Washington, DC: World Bank, 2024-09-10)This paper presents an evaluation of a tax enforcement program conducted in Indonesia where officials from the tax authority visited properties to engage directly with owners about their property tax obligations. Through these visits, auditors explained outstanding debts and payment processes, aiming to improve tax compliance and revenue collection. The paper uses an administrative data set and a new set of machine learning–based techniques to assess the program’s effectiveness. The program was responsible for increasing tax compliance on the extensive margin by 4.3 percent and on the intensive margin by 5.1 percent in the first year it was implemented. These effects are particularly strong as they persist in the following period. The findings show that the visited properties had better compliance history, lower value, smaller area, and were more likely to have some construction on them. A key finding from the analysis is that higher-value properties are less sensitive to the visits. In other words, if a data-driven tax-enforcement strategy is to be applied, then it may focus resources on enforcing taxation at the poorest part of the population in this case. This opens up the discussion of the distributional consequences of an algorithm-based enforcement strategy, which is increasingly important as machine learning techniques are used by tax authorities.Publication The Economic Impacts of the Syrian Refugee Migration on Jordan(Washington, DC: World Bank, 2024-09-10)The Syrian Civil War in 2011 led to a substantial influx of refugees into Jordan, with more than 660,000 Syrians arriving by 2015. More than half of these refugees were of working age. This study shows that Syrian refugees have less education than their Jordanian counterparts, and policies attempted to help them to assimilate into manufacturing. The study tests two hypotheses related to refugee assimilation. The first hypothesis examines the 2016 Jordan Compact with the European Union, which aimed to integrate Syrian refugees and improve Jordan’s export profile with simplified rules of origin for certain industries. If the Jordan Compact was effective, a relative increase in exports to the European Union, compared to other regions, would be expected. The second hypothesis suggests that the successful integration of Syrian workers into the manufacturing sector contributed to a boost in manufacturing exports to all destinations relative to other exports. The study conducts a gravity difference-in-differences analysis to evaluate these two hypotheses. The findings show little, if any, evidence supporting the first hypothesis but strong support for the second. These findings suggest that although the simplified rules of origin had limited impact on exports to the European Union, the Jordanian government effectively integrated Syrian workers into the manufacturing sector. Labor force surveys indicate that a skill mismatch impeded the integration of Syrian workers into the industries targeted by the Jordan Compact, but refugees were successfully assimilated into the manufacturing industry.Publication Export-Led Industrial Policy for Developing Countries(Washington, DC: World Bank, 2024-09-10)Industrial policy prioritizes growth in specific sectors. Yet there is little agreement about how to target sectors in practice, and many argue that governments cannot pick winners. This essay observes that governments can and do identify tradable sectors where public inputs accelerate growth and generate economic benefits. These strategic sectors are: (i) those that are relatively more productive, and (ii) those that are relatively less productive but require technology like the country’s existing technology and have rapidly growing markets and limited international competition. Since developing countries are productive in fewer sectors and have less technology, targeting can be more valuable for them. Export promotion agencies are institutions that have demonstrated effectiveness in coordinating public inputs to grow these sectors. Compared to protectionism, this alternative approach to ‘industrial policy’ is cheaper, less susceptible to capture by unproductive firms, and permissible under the rules of international trade agreements. Many countries’ development strategies adopt this approach.