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Mr. Phillip L Swagel, Mr. Steven V Dunaway, and Mr. Martin D Kaufman
Differences in per capita output across Canadian provinces have narrowed less than disparities in per capita income in past decades. Using a panel regression framework, this paper studies the differential impact of federal transfer programs on output convergence. The evidence suggests that while the Employment Insurance (EI) system seems to have had a significant negative effect on output convergence?by discouraging migration within Canada?the Equalization transfers may have helped spur convergence. The EI system, despite reforms introduced in the 1990s, still appears to contain features that deter labor mobility.
International Monetary Fund
This Selected Issues paper assesses the long-term fiscal position of Canada. Simulations based on current tax and spending policies suggest that the fiscal position will remain favorable until well into the middle of the century, and relatively modest adjustments would be required to make these policies sustainable in the long term. The analysis also illustrates that these conclusions could be easily overturned if pressures to spend the planning surpluses that are expected to emerge in coming years are not resisted, and if measures are not put in place to contain the cost of health care.
Mr. Phillip L Swagel, Mr. Steven V Dunaway, and Mr. Martin D Kaufman

of the EI system. Finally, a migration equation is included; migration patterns into a province are expected to occur in response to relative unemployment conditions, GDP per capita, and EI transfers to provincial residents. Summary of the Model Growth of real GDP/person = f(Log(real GDP/person) -l , Log(real Equalization payments/person), Log (real EI payments/person), migration/person, other control variables and constant) Log(real EI payments/person) = f(relative unemployment rate, EI generosity, constant) Log(real Equalization payments/person) = f

International Monetary Fund

transfers are assumed to depend on a province’s GDP and unemployment, and on changes in the generosity of the EI system. Finally, a migration equation is included; migration patterns into a province are expected to occur in response to relative unemployment conditions, GDP per capita, and EI transfers to provincial residents. Summary of Model Growth of real GDP/person = f(Log(real GDP/person). 1 , Log(real Equalization payments/person), Log (real EI payments/person), migration/person, other control variables and constant) Log(reaI EI payments/person) = f

Mr. Andrew Feltenstein and Mr. Jiming Ha

savings made up of domestic and foreign interest bearing assets depends upon relative domestic and foreign interest rates, deflated by the change in the exchange rate. Finally, equation ( 5d ) is a migration equation that says that the change in the consumer’s relative holdings of urban and rural labor depends on the relative wage rates. In the final period of the model we impose an exogenous savings rate on the consumers, as in equation ( 5e ). Thus savings rates are endogenously determined by intertemporal maximization in period 1, but are fixed in period 2. c

Mr. Andrew Feltenstein
We construct a dynamic general equilibrium model of an open economy and use it to examine issues of trade liberalization in Mexico. In particular, we consider the fiscal implications of quotas and tariffs and, accordingly, their removal. We show that, in the short run, there may be negative revenue effects from tariff liberalization, so that it may be necessary to raise domestic taxes to compensate for the tariff reduction. We also show that these results are highly sensitive to behavioral shifts in exports. Since such shifts are quite likely given the nature of the trade reform currently being undertaken, it is important that we qualify our results accordingly.
Mr. Andrew Feltenstein

a budget constraint in each period. Equation (4b) is a standard money demand equation in which the demand for cash balances depends upon the domestic interest rate and the value of intended consumption. Equation (4c) says that the proportion of savings made up of domestic and foreign interest-bearing assets depends upon relative domestic and foreign interest rates, deflated by the change in the exchange rate. Finally, equation (4d) is a migration equation that says that the change in the consumer’s relative holdings of urban and rural labor depends on the

Mr. Andrew Feltenstein and Mr. Jiming Ha
An intertemporal general equilibrium model is used to examine infrastructure effects on the Mexican national income. Production functions are estimated for the major sectors of the economy in which sectoral output depends on inputs of capital and labor, as well as the stocks of the public infrastructure. The analysis indicates that despite high estimated output elasticities with respect to public infrastructure, increased expenditure on infrastructure has rapidly decreasing benefits. Some benefits could be achieved by modest increases in capital expenditures, although at the cost of significantly higher inflation and real interest rates. The increase in real interest rates causes these benefits to be greatly reduced.
Mr. Antonio Spilimbergo and Mr. Luis Ubeda
Blacks in the United States have a lower geographic mobility rates than whites even though they have several characteristics that are usually associated with high rates of mobility: high unemployment, low rate of home ownership, low marriage rate and settlement in areas where unemployment is high. This paper tests the relevance of family ties in explaining mobility by using proxies that are constructed using data from the University of Michigan’s Panel Study of Income Dynamics, covering the period 1977–88. The results are robust to different specifications and estimation techniques, and explain the puzzle of the role played by the nuclear and the extended family in the decision to move.
Mr. Antonio Spilimbergo and Mr. Luis Ubeda

the data. Section IV estimates migration equations. Section V presents some robustness tests. Section VI concludes. II. L iterature R eview The empirical literature has long explored the idea that family and social ties can explain both micro and macro patterns in migration. Before the use of microdata, however, only suggestive evidence was available and the interpretation was tentative. For instance, Schwartz (1973) interprets the strong negative correlation between migration and distance as evidence of psychic costs related to separation from