Question

Imagine that you are part of the mission of the World Bank to the country of Belindia. Bellindia is a developing economy, that is organized as a federation. Each one of its 15 states can implement different policies, and the federal government can also implement policies across the whole country. Belindia has just received a large loan from the World Bank. Your objective is to help the new government design and implement a series of policy interventions that hopefully will help the economy grow at a faster pace and reduce the poverty in the region. You are in charge of the design task force, and ask those under your command to come up with ideas. Amelia D'Allagna, the head economist of your team, comes to you with the following idea: One of the neighbors of Belindia, Aurealasia, implemented a universal basic income policy1 around six years ago. The program results have not been evaluated, but D'Allagna suggest that this type of program might help Belin- dia to eradicated poverty and, through a demand shock, accelerate growth in the economy. Until seven years ago, Belindia and Aurealasia were part of the same country, Eurelia. Euelia was partitioned by mandate of the UN into Belindia and Aurealasia, without any input from the locals. Ph.D. D'Allagna suggest that you should take advantage of this context and evaluate the program in terms of its effects on consumption and employment. She leaves to you the decision about how to implement the evaluation. Marianne Ortiz, chief economist of the federal government, has a different proposal. Three years after the partition of Eurelia, 3 of the 15 states of Belindia decided to implement a minimum wage. She thinks that, if said policy was to be generalized through all the country, poverty would be eradicated and there would be an increase in productivity and output. However, she is a bit hesitant since there has no been any evaluation of the effects of the introduction of the minimum wage Marcus Erkal, the senior economist of the team of the World Bank that approved the loan, gives you the following idea: part of the loan is labeled for expenditures in health and education. He suggest that part of said budget is used to implement a conditional cash transfer program that provides an incentive for parents to send their kids to school and to routine medical check-ups. He suggest that before implementing the program in all the country, you should evaluate if it would have a positive impact on educational attainment and health results. 2. Now consider Ortiz's suggestion. What type of empirical strategy would you implement to identify the effect of the minimum wage on employment and consumption? Explain what assumptions would you need to make in order to gain a causal estimate, how would you check if those assumptions are met IThat is, a program that transfers money to each citizen on a monthly basis in this case and how would it provide valuable information for the Belindia case.Be thorough in your answer.

Answer 1

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