The Unassuming Economist

From a paper by John Iselin, and Daniel Reck:

“We analyze how tax noncompliance modifies the dynamics of the income distribution. Relative
rates of misreporting (RRMs) between the top 1% and bottom 99% are sufficient to answer this
question. The essential unknown dynamically is the RRM for pass-through income. Reviewing
available evidence, we argue that plausibly, this RRM is between 0.3 and 1.0 and constant over
time. Including misreporting changes the difference in the top 1% share of fiscal (pre-tax national)
income from 1962 to 2019 by -0.1 to 0.8 percentage points (0.2-0.8pp), compared to -0.7pp (-0.3)
with Auten and Splinter’s approach and 1.0pp (0.6) with Piketty, Saez, and Zucman’s.”

From a paper by Mulu Gebreeyesus, and Getachew Ahmed Abegaz:

“This paper analyzes Ethiopia’s structural transformation from 2000 to 2022 across four
dimensions: employment, productivity, skill intensity, and tradability. While the country achieved
strong economic growth, averaging 8.9 percent annually, its structural transformation has been
uneven and incomplete. Labor has shifted out of agriculture, but mainly into low-productivity
informal services, while manufacturing’s employment share declined despite policy support.
Aggregate productivity growth, though substantial, was driven largely by within-sector gains, with
minimal contribution from labor reallocation. High-productivity sectors, including manufacturing
and modern services, remain small, capital-intensive, and poorly connected to employment and
exports. Ethiopia’s tradable sector is narrow, dominated by agricultural commodities and air
transport, with limited value-added in manufacturing and ICT. Comparative analysis shows that
while Ethiopia has outpaced many African peers in productivity, it lags in employment absorption
and export diversification, contrasting sharply with East Asia’s inclusive, manufacturing-led
growth. The findings point to a disconnect between output growth and structural inclusion.
Addressing this requires a hybrid strategy that expands labor-intensive manufacturing, upgrades
informal services, aligns skills with market demand, and diversifies tradable activities. Ethiopia’s
experience offers a critical lesson for other developing countries: sustained transformation
depends not only on growth, but on how this growth reallocates labor and resources toward more
productive sectors.”

From a paper by Saeeda Batool, and Saira Tufail:

“This study examines the link between the energy market dynamics and labor market outcomes with a focus on the impact of oil market shocks, energy-related uncertainties, and risks on labor income share. Utilizing Panel Structural Vector Autoregression (PSVAR) for a group of 29 OECD countries over the period of 1999 to 2021, this research offers key insights for economies navigating the challenge of ensuring energy security while safeguarding workers’ incomes amid evolving energy markets. The results of the impulse response analysis revealed that among different energy market dynamics, the oil price has a strong negative impact on labor income, whereas higher aggregate demand tends to increase the share of labor income. Similarly, shocks to energy security risks and energy-related uncertainties reduce labor income. The variance decomposition analysis confirms that oil supply shocks are the main factor accounting for the variability in labor income, followed by oil demand shocks. Additionally, energy security risks and economic uncertainty significantly shape the labor income variability, particularly in the medium to long term, by increasing the volatility and unpredictability in labor markets. These findings underscore the critical need for policies that address the vulnerabilities of the labor income share against these shocks.”

From a paper by Jérémie Cohen-Setton and Peter Montiel:

“The Fund deserves credit for adapting its fiscal policy advice promptly and pragmatically to an extraordinary macroeconomic environment. In the aftermath of the Global Financial Crisis, exceptional economic slack, disinflationary pressures, and historically low interest rates led the Fund to reassess its long-standing emphasis on fiscal prudence. Without abandoning its focus on sustainability, it became a strong advocate of countercyclical fiscal support—promoting expansionary measures anchored in credible medium-term consolidation plans and underpinned by strong fiscal institutions. The Fund also showed greater willingness to relax medium-term spending plans to accommodate priority investments in infrastructure, social protection, and climate transition, especially when such measures could both sustain demand and strengthen the foundations for future growth. This reorientation reflected new research findings and strong intellectual leadership, which helped challenge entrenched views. As output gaps closed, inflation returned, and interest rates rose, the Fund appropriately re-emphasized the underlying trade-offs among fiscal objectives.

Over time, bilateral surveillance became more attuned to fiscal trade-offs, with advice increasingly differentiated across countries according to fiscal space and cyclical conditions. Analytical work on the costs of consolidation improved realism, but the operational use of diagnostic tools remain uneven. Greater and more systematic use of these tools—alongside stronger analysis of automatic stabilizers and clearer justification of fiscal package size—would further enhance the quality of advice.

The Fund’s coverage of fiscal risks, institutions, and distributional issues has expanded, but mitigation advice is often generic. Engagement on fiscal rules has also tended to be reactive, limiting influence at the design stage. While the Fund rightly focuses on protecting the poorest—who are least represented in the policy process—it could gain traction by also considering effects on middle-income groups, whose perceptions of fairness shape reform acceptance. Similarly, although advice on the composition of fiscal adjustment has become more nuanced, staff often converge on a narrow set of preferred measures rather than presenting alternative policy options. Offering such menus, outlining the main pros and cons of each, would strengthen policy debate and help authorities select measures consistent with their social preferences and political realities.

Finally, the integration of long-term policy objectives into fiscal advice remains incomplete, weakening both the articulation of trade-offs and the rationale for medium-term debt targets. Staff increasingly acknowledge that there may be valid reasons to temporarily relax medium-term spending plans to accommodate essential public goods—such as climate mitigation, defense, or social spending—but these considerations are treated unevenly across reports. Strengthening the analytical basis for these recommendations—by grounding fiscal advice in transparent assessments of costs and benefits and by applying a clearer framework for choosing among feasible medium-term debt anchors—would enhance the coherence and evenhandedness of the Fund’s fiscal advice.”

From a paper by Karan Bhasin, Kajal Lahiri and Prakash Loungani:

“This paper estimates uncertainty shocks using density forecasts from the Reserve Bank of India’s Survey of Professional Forecasters (2008–2023). These forecasts enable a direct measurement of unobservable uncertainty in real-time, as the first difference in the second moment of the densities. In addition, we propose a forecast calibration test based on the predictive sequential principle. We report five key findings: (i) macroeconomic uncertainty in India has been on a decline since 2008; (ii) shocks to uncertainty derived from density forecasts compare favorably with other popular measures, viz. Economic Policy Uncertainty and VIX; (iii) prequential tests indicate forecasts to be calibrated; (iv) uncertainty is affected primarily by negative news and is variance rational, and (v) it captures demand shocks even after controlling for global uncertainty shocks, in contrast to EPU and VIX, which are primarily driven by supply shocks. Distinguishing these shocks is crucial for optimal monetary policy.”