The growing emphasis on nation-states and their pivotal role in economic development has emerged as a central theme in contemporary economic discourse. This review examines the concept of state capacity as discussed in the economic literature, focusing on its practical implications. While the definition of state capacity remains multifaceted, this analysis delves into its economic implications. We focus primarily on the literature surrounding fiscal capacity, exploring how a state’s ability to raise and manage revenue impacts economic development and other critical economic outcomes. This review aims to shed light on the crucial role of fiscal capacity in shaping economic performance, inspiring further research and policy development in this area. (JEL codes: D72, D73, D74, E62, H11, H20, H77, and H83)
Most tax administrations have struggled with tax under-reporting, which has cost them greatly financially and hampered economic growth overall. For most countries, value-added tax (VAT) is the main source of domestic revenue. VAT is the major contributor to total tax revenue in Rwanda, so even a small increase in its collection can raise overall significant revenue. Researchers have attempted to address the issue of under-reporting using various techniques. The purpose of this paper is to use machine learning models to detect and predict the VAT under-reporting in Rwanda. Several evaluation criteria are used to compare different supervised machine learning models. A number of factors are shown to be more influential on VAT under-reporting than others, including cross-border businesses, taxpayers with fewer years of experience, and taxpayers in sectors such as wholesale and retail trade as well as construction. Leveraging such approaches can increase revenue mobilization as tax administrations will have a quick and innovative method of predicting VAT under-reporting in advance and identify high-risk cases for audit.
This study is significant as it explores whether firm heterogeneity with non-tradable goods and financial integration contributes to better international risk-sharing. We construct a dynamic stochastic general equilibrium framework to examine the impact of wealth effects on international risk-sharing. Our findings reveal that the wealth effect is another crucial factor for the limited risk-sharing observed in response to a positive idiosyncratic shock affecting heterogeneous firms, despite the non-tradable goods sector and incomplete financial market being the primary reasons for limited risk-sharing between the two countries. We further investigate the implication of wealth effects for international risk-sharing and demonstrate that financial frictions across borders impede the spillover of wealth effects from the home country to the foreign country, resulting in decreased risk-sharing (the consumption co-movement across countries is low). The impact of wealth effects will be weakened if domestic households prefer to consume more non-tradable or home-produced goods, leading to lower risk-sharing.
The collection of value added tax (VAT) is essential for achieving domestic revenue objectives, yet VAT gap estimation is rarely performed in developing countries. This study utilizes innovative tax declaration and audit data to estimate VAT misreporting in Tanzania, applying a machine learning approach to predict evasion in unaudited firms and periods. We measure the underreporting component of the compliance gap, quantifying potential revenue losses due to inaccurate reporting. Our findings indicate that firms often avoid excessive audits, leading to increased evasion, with those firms showing the largest VAT gaps. We estimate a 62% VAT gap among small and medium-sized enterprises in Tanzania. Finally, we present a cost-benefit ratio, suggesting that while auditing sectors with large VAT gaps is cost-effective, those contributing significantly to the overall VAT gap should also be prioritized for revenue generation. (JEL codes: H25, H26, and H32)
We characterize the welfare effects of the informal sector by proposing a decomposition into efficiency and redistribution components. We focus on an economy where a planner wants to redistribute income with taxation and sets the optimal tax scheme. Since the informal sector can limit the taxation possibilities for the government but at the same time provide a shelter against tax distortions for individuals, we show that the net welfare effect can be positive or negative. We show that the relative advantage between informal and formal employment across different income levels is the key dimension that shapes the welfare costs of the informal sector. Using the model estimated with Colombian microdata, we show that, conditional on the optimal tax policy, the Colombian shadow economy benefits efficiency at the expense of redistribution. Consequently, the presence of the informal sector reduces welfare only when preferences for redistribution are strong. (JEL codes: H21, H26, J46).
We study the evolution of bank deposits in response to monetary policy shocks. The objective is to assess whether a significant deposit channel, that is, an outflow of deposits when monetary conditions tighten (), emerges at the macro level. The analysis relies on the estimation of a large Bayesian structural VAR for the USA, and monetary policy shocks are identified with 's method. We find some elements of the deposit channel, but our results suggest that its relevance for the transmission of monetary policy at the macro level is limited.
Traditionally, the Finnish party system has involved a high level of fragmentation yet remarkable stability, consensual decision-making, ideologically broad government coalitions, and mostly modest levels of polarization between parties or voters. These features suggest a limited effect of the party composition of government on economic policy. However, based on studies on close local elections, parliamentary speech, and party manifestos, we argue that the link between party politics and policy outcomes likely plays a role in Finland. Most analyses have examined the extent to which the characteristics of local politicians within the parties affect policy outcomes. These studies show that occupation, education, experience, competence, and residential location of local politicians strongly affect local policies, indicating that, in general, politics matters for policy. We also discuss how consensual national politics may have contributed to the recent success of the populist challenger Finns Party. As a new major player, the party has emphasized the role of sociocultural issues and especially affective polarization, which represents a considerable paradigm shift from the catch-all party policies typical of Finland for many decades. It is thus possible that the link between politics and policy will become more pronounced in the future, motivating further research.
This paper reviews the literature on partisan politics in Portugal at the national and sub-national levels. Starting with a description of the institutional setting, main parties and electoral results, the paper then delves into how partisanship matters for the policies implemented by incumbent governments. The available evidence indicates clear differences in several policy areas, such as the labour market, welfare, health, education, and gender issues, with Portuguese left- and right-wing governments acting in line with their ideological agendas. Voter behaviour and the emergence of the populist far-right in the Portuguese parliament are also analysed. (JEL codes: D04, D7, H4, and H7)
Party politics in Austria has two distinctive features: institutionalized power sharing between the two main parties, known as Proporz, and a longstanding tradition of far-right populism. I examine whether these two phenomena are connected: Does reduced political competition correlate with vote shares for the far right? The results do not support the hypothesis that populist parties are stronger in places with reduced political competition and with Proporz institutions. Instead, the results show that Austrian populism has very deep historical roots. Historical party preferences in the 1930s explain a substantial part of the variation in far-right populist vote shares across Austrian regions today. Populism may also have economic consequences. Descriptive evidence shows that economic growth was 2 percentage points lower in Austria when far-right populists were in the national government, whereas no partisan differences can be found for the two main parties.
We use data from the European working condition survey to describe the frequency of housework activities by men and women before and after the COVID-19 pandemic in European countries. We find that, although women continue to spend more time than men in housework activities, men increase housework activities after the pandemic and the gender gaps narrow. The result is driven by countries initially characterized by larger gender gaps in housework activities.
We develop a method to impute capital stocks from investments for a sub-sample of firms in the German social security records and implement a machine-learning algorithm to predict capital stocks for the universe of firms. These capital stocks explain 40% of the variation in capital stocks of the Bureau van Dijk data. We make our data available for other researchers. We find that these capital stocks explain a sizeable fraction of wage inequality by extending the variance decomposition of , suggesting that rising firm heterogeneity in capital intensity may further amplify wage inequality. (JEL codes: C81, D24, and J31)
This article examines gender gaps in higher education in Spain in the context of technological advancements, particularly digitalization and artificial intelligence (AI). First, analyzing descriptive Spanish data we identify significant disparities, with women overrepresented in health-related fields and underrepresented in STEM (Science, Technology, Engineering and Mathematics) disciplines. This imbalance is concerning as STEM fields offer better employment prospects and higher salaries. Then, we analyze university degrees' exposure to technological change through routine task intensity (RTI) and AI exposure indices, as well as a novel index of exposure to emerging digital technologies from 2015 to 2024. Our findings show that women are more enrolled in degrees with higher RTI, prone to automation, and less in degrees with higher AI exposure, likely to benefit from technological advancements. This suggests technological change could widen existing labor market gender gaps. To address this, we recommend policies to boost female participation in STEM fields and adapt educational curricula to reduce routine tasks and enhance AI complementarities, ensuring equitable labor market outcomes amid technological change. (JEL codes: I23, I26, J16, J24).
Using panel data from 99 countries over the period of 1985-2020, this study aims to uncover that fiscal rules work in electoral cycles. The results show that fiscal rules are less likely to be implemented in the pre-election year. We also find that this loosening in fiscal rules is especially prominent in cases when the incumbent political party can wield significant political power, where countries are less developed economically and politically, and where the management of fiscal rules is more likely to be exposed to discretionary interventions. Our findings are aligned with the opportunistic political budget cycles, in which politicians exploit fiscal policies and systems to serve their own political incentives. These results suggest that even fiscal rules, which are designed to prevent political pressure, are also subject to political process. (JEL codes: D72, D78, E32, E62, H11, and H60).
This paper presents the main features of the Greek political landscape during the period 1974-2008 and examines whether the governing ideology of the country's main political parties is correlated with specific fiscal and monetary policy patterns. The descriptive analysis reveals two key findings. First, the data indicates ideological differences in fiscal policy during the pre-1993 period, with PASOK governments exhibiting higher public spending and deficits, while the conservative New Democracy (ND) demonstrated greater fiscal restraint. Monetary policy during this period also appears to follow ideological differences. Second, in the post-1993 period, two trends emerged that do not seem to be ideologically driven. From 1994 to 2001, both major political parties in Greece focused on joining the Economic and Monetary Union, aligning their policies with the Maastricht Treaty. This resulted in a decrease in government expenditure and an increase in total revenue, even under the left-wing PASOK government that was in office during that period. However, after Greece joined the eurozone, external constraints such as the Stability and Growth Pact did not effectively enforce fiscal discipline. From 2001 onward, there was an increase in expansionary fiscal policies, even under the right-wing ND government, suggesting that government ideology had minimal influence on fiscal variables during this period. Greece provides an intriguing example of how partisan politics can intersect with international institutional and policy constraints. (JEL codes: H2 and H1)
This work estimates the relationship between Central Bank Independence (CBI) and economic growth in the context of monetary unions, using dynamic panel models. We use two measures of CBI: the Legal CBI index and the irregular turnover rate. When an irregular turnover of the Central Bank Governor occurs, it harms growth for countries outside monetary unions. On the contrary, the Legal CBI index is a positive factor for growth, although only regarding countries belonging to monetary unions. The limitations on lending to the government is the most important component of the Legal CBI, which explains this result. Additionally, we analyse sub-samples taking into account the level of income, the number of crises, the existence of quantitative easing policies, and different time windows. Interestingly, 1990-2013 was a harmful period for growth for the entire sample but benign for countries that belong to monetary unions. Moreover, when countries are in a crisis they benefit from being a member of a monetary union with an independent central bank. Results seem to point to the conclusion that Legal CBI in a monetary union has the potential to increase economic growth rates. (JEL codes: C23, E58, and O43)
This paper provides key insights into women's representation in the fintech industry, and descriptively examines the association between female leadership and firm performance in this industry. Using novel data from fintech firms in over 80 countries, we find that women leaders in this industry remain scarce. Our analysis reveals that firms founded by women are associated with lower firm performance as measured by their estimated revenue and funding acquired, especially for small firms. On the other hand, there is a positive association between gender diversity in executive board and firm performance, especially for mid-to-large sized firms.
We provide a concise overview of the literature concerning the factors influencing preferences for redistribution, with particular attention to works that have integrated considerations of gender and/or cohort heterogeneity into their analyses. We then present a series of stylized facts on preferences for redistribution based on data from the European Social Survey for a wide array of European countries over the period spanning from 2002 to 2022. We document that, since 2002, the average preferences for redistribution have increased. While the gender gap has remained substantially unchanged, the generational gap has widened over time. Distinguishing women and men by a set of individual characteristics, instead, there exists a not negligible heterogeneity both 'between' and 'within' women and men. At the country level, the overall gender gap in preferences for redistribution increases as the country's per capita income or gender equality increase. Conversely, the gender gap decreases in more income, unequal, and religious countries. Finally, looking at the two exogenous shocks, that is, the 2008 financial and economic crisis and the Covid-19 pandemic, we observe that average individual attitudes towards redistribution react to both events but in a surprisingly opposite way, with a relevant heterogeneity across different sub-groups of women and men.
