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From Micro Data to Global Evidence

Paper Session

Friday, Jan. 3, 2020 8:00 AM - 10:00 AM (PDT)

Marriott Marquis, Torrey Pines 3
Hosted By: American Economic Association
  • Chair: Anders Jensen, Harvard Business School

Informality, Consumption Taxes and Redistribution

Pierre Bachas
World Bank
Lucie Gadenne
University of Warwick
Anders Jensen
Harvard Business School


Are consumption taxes progressive in developing countries? We assemble expenditure surveys from 30 countries at different levels of development to study the redistributive potential of taxation. We revisit the role played by rate differentiation across products and consider a new redistribution channel: the ‘de facto’ exemption of the informal sector from taxation. Using place of purchase information to proxy for informal sector consumption enables us to characterize Informality Engel Curves: we find that the budget share spent in the informal sector steeply declines with income in all countries. We then extend the standard optimal commodity tax model to allow for an informal sector and calibrate it to our data. We find that optimal uniform rates decrease with development, while relative tax subsidies on food products increase with development. Overall, the informal sector makes consumption taxes progressive: on average households in the richest quintile face an effective tax rate that is 2.5 times higher than that of the poorest quintile. Optimally differentiating rates on food versus non-food products only marginally increases progressivity, especially in the poorest countries.

Misallocation of State Capacity? Evidence from Two Million Primary Schools

Torsten Figueiredo Walter
New York University Abu Dhabi


It is well known that average pupil-teacher ratios (PTRs) are higher in poorer countries. This paper shows that PTR variation is also higher, and this helps explain cross-country differences in educational outcomes. I build a new global school-level data set that comprises nearly two million schools and represents the public primary education sector in 91 countries. This allows me to document that variation in school-level PTRs is negatively correlated with per capita income across countries. I further show that in the developing world, (a) PTR variation is a local phenomenon, in the sense that even within second-tier administrative units differences in PTRs between schools are large, (b) PTRs are higher in rural areas, but PTR differences between schools within both urban and rural areas are much larger than differences in average PTRs between urban and rural areas, (c) PTRs are higher in areas where adult literacy is low, and (d) PTRs are higher at schools that also lack other resources, such as classrooms. To assess the relevance of these facts, I build a model of education production. Simulations suggest that test score gains from implementing counterfactual teacher allocations would be substantial in many lower income countries, but only marginal in high-income countries. In contrast, obtaining equivalent gains through reductions in aggregate PTRs, while holding relative PTRs between schools fixed, would require large teacher workforce increases.

Labor Market Flows and Development

Kevin Donovan
Yale University
Todd Schoellman
Federal Reserve Bank of Minneapolis
Will Jianyu Lu
Central Bank of Chile


We build a new cross-country dataset of harmonized rotating panel labor force surveys covering 39 countries across a wide range of development. We document that labor market transition rates (the job-finding rate, employment exit rate, and job-to-job transition rate) are 2–3 times higher in poor as compared to the richest countries. We use accounting approaches to show that cross-country differences in labor market institutions or the composition of workers or firms account for at most half of this trend. Much of the difference can be attributed to workers with low levels of job tenure, who are particularly likely to exit employment or switch jobs in poor countries. These results are consistent with theories that feature a more important role for post-match selection in poor countries. Such theories also rationalize our new and otherwise puzzling finding that returns to tenure are higher in poor countries.

Does Schooling Cause Structural Transformation

Tommaso Porzio
Columbia University
Gabriela Santangelo
University of Cambridge


We show that the global schooling increase during the 20thcentury affected structural transformation by changing the supply of agricultural labor. We develop an analytical model of frictional labor reallocation out of agriculture to infer changes in birth-cohort characteristics from observed data on agricultural employment. Bringing the model to microdata from 49 countries, we find that the increase in schooling was accompanied by a large shift in the labor force’s comparative advantage away from agriculture. We provide empirical evidence to suggest this relationship was causal. With fixed prices, the resulting decreasein the supply of agricultural workers can account for almost half of the observed reallocation out of agriculture. However, in general equilibrium, the net effect is ambiguous.
JEL Classifications
  • O1 - Economic Development
  • O2 - Development Planning and Policy