In the Philippines, lack of fiscal discipline has been a major factor behind the nation’s macroeconomic instability. Since the mid-1980s, in particular, expanding fiscal as well as current account deficit has fuelled concerns over external debt sustainability, and has thus made the Philippines dependent on an International Monetary Fund program and Paris Club debt rescheduling.
However, the fiscal consolidation policy initiated by President Arroyo’s administration, aimed at restoring macroeconomic stability, has resulted in significant improvements in fiscal balance and a marked decrease in public sector debt. Improvements in the Philippines’ fiscal position have contributed to containing the impact of the global financial crisis on the nation’s economy, while creating fiscal space for stimulus policy measures to counter the global recession.
Yet, to date, fiscal consolidation under the Arroyo administration may not have been fully recognized in spite of its significant effect on the economy of the Philippines. Therefore, it is worthwhile analyzing how the Arroyo administration’s fiscal consolidation policy has contributed to improving the fiscal balance and attaining macroeconomic stability, and then proposing policy initiatives that the Aquino administration, which took office in 2010, needs to implement in order to successfully implement the fiscal consolidation policy.
Against this backdrop, this paper makes a comprehensive study of the impact of the fiscal consolidation policy under the Arroyo administration and the challenges that remain to be addressed, with reference to past studies on the issue. To this end, this paper firstly examines how progress in fiscal consolidation under the Arroyo administration has contributed to macroeconomic stability and has led to significant improvements in the Philippines’ sovereign creditworthiness. This paper secondly evaluates the administration’s fiscal consolidation initiatives from revenue and expenditure side and points out that the tax reform policy did not bring about the level of increase in tax revenue expected due to a decrease in tax collection efficiency and the failure to enact key bills. Furthermore, this paper outlines that the fiscal deficit widened significantly in 2009 due to the introduction of a stimulus package to cope with the global recession and measures that undermined tax revenue. This paper undertakes a simulation using the debt sustainability analysis framework to quantify the desirable tax revenue needed for further fiscal consolidation and increased capital spending which is necessary for growth enhancement.
Based upon the simulation result, this paper finally presents a medium-term scenario with a goal of increasing tax revenue by approximately 2 percentage points of GDP. To achieve this target, this paper emphasizes that the Aquino administration must present, before anything else, a clear roadmap to fiscal consolidation, together with specific policy measures to increase tax revenue, and implement these measures promptly.

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This paper presents a quantitative analysis of the determining factors contributing to income inequality among farm households based on data in Sichuan Province. A particular focus is given to inequality among regions in terms of work opportunities and labor productivity in township and village enterprises. A combination of both of these factors serves as an indicator for rural industrialization (township and village enterprises’ output/rural workforce). As the method of analysis, household-level income function was estimated, and using the results, the ratio of the contribution to the income inequality (Gini coefficient and squared coefficient) of each variable was estimated.
It became evident that income inequality among regions could explain about 20% of income inequality among farm households, and that the most significant factor for income inequality among regions is rural industrialization. The divide among regions in terms of labor productivity and job opportunities in township and village enterprises also has a great impact on income inequality among farm households.
It was also concluded that among the variables covered in the paper, rural industrialization makes the greatest contribution to income inequality among farm households. As for household attributions, the findings show that their contribution to physical capital such as agricultural fixed capital, cultivated acreage and a topographical dummy-variable is small. Disparities in educational standards, age and vocational training, which represent human capital, also contribute little.
As can be deduced from the above, rural industrialization is the crucial factor for inequality of income in farm communities in Sichuan Province, where there are many farm households that depend on migrant workers earning. Therefore, systems and policies for promoting the increase in investments in inland regions (cities, townships) with rural communities, which are relatively lagging in industrialization, may serve as effective tools for rectifying income inequality among farm households.
The Gini coefficient in rural Sichuan has stabilized in the last dozen years or so as the result of increased rate of wage earnings and deterioration in the level of wage earnings inequality(pseudo-Gini coefficient). The equality of wage earnings is thought to be caused by migrant worker earnings, and not wages received from local enterprises. This can be explained by the widening gap among rural industrialized regions after the mid-1990s.
As the number of businesses penetrating the inland regions has been increasing in recent years, constructions of industrial parks are underway in urban districts and their surrounding areas.From the above analysis results, income inequality among farm households will increase unless the workforce is shifted to industrially developed regions.

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This paper analyzes the factors that affect wage differentials between migrants and urban register workers in urban China. The empirical analysis focuses on three themes: (i) How are wage differentials influenced by differentials in human capital and discrimination? (ii) How are wage differentials influenced by inter-industrial differentials and intra-industrial differentials? (iii) How are wage differentials influenced by discriminations of opportunity when workers enter industrial sectors and by discriminations in the same industrial sector?
As is well known, in the economic transition period, two phenomena are particularly significant in the urban China labor market. The first is that wage differentials between the migrants and the urban register workers are large. The second is that since the 1990s industrial wage differentials have been growing. This paper analyzes the industrial influences on wage differentials between migrants and urban register workers in urban China. Using micro-data from the 2002 Chinese Household Income Project Surveys of migrants and urban registers(CHIP2002), decompositions based on the Oaxaca-Blinder and Brown decomposition models are analyzed. The main results are as follows.
Firstly, the estimated results based on the Oaxaca--Blinder decomposition model show that although differentials of human capital and discrimination both influence wage differentials, the effect of discrimination is the biggest at 90.05%. These conclusions are similar to those of previous studies.
Second, although the differentials between inter-industrial differentials and intra-industrial differentials both influence wage differentials, the effect of intra-industrial differentials is the biggest at 92.09%.
Third, in terms of the overall effects of discrimination, the discrimination between migrants and urban register workers in the same industrial sector is the biggest at 173.13%. In addition, the discriminations of approach opportunity for entry into the industrial sector also influence wage differentials (17.52%).
These estimated results show that there is segmentation caused by the registration system in the urban China labor market. The existence of discrimination against migrants causes a distortion in the labor allocation, and is thought to have reduced the effectiveness of the resource allocation. It is therefore necessary to reform further the registration system and henceforth promote unification between the rural and the urban labor markets in China.

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This paper investigates the factors that explain the movement in China’s inflation rate following the promotion of its ‘open door’ policy. Since 1990, inflation in China has fluctuated greatly despite a stable growth in real GDP. Inflation showed an upward trend in the early 1990s, fell and stagnated in the late 1990s, and has risen again since 2000. This paper therefore examines why, despite stable economic growth over the past two decades, China’s inflation rates have risen since 2000.
Although some previous studies have suggested that an expansion in demand has caused China’s inflation rates to rise since 2000, demand-side factors alone cannot explain this phenomenon. Since 2000, the increase in foreign direct investment has brought about an increase in the trade surplus and in demand. Because demand factors cause a rise not only in inflation rates but also in real GDP growth, they do not explain China’s characteristics. This article thus examines how monetary factors other than demand affect inflation.
To verify the relationship between the money market and price, an error-correction model for I(2) variables is used. Nominal money supply and price level variables are introduced into the model to estimate the effect of a change in the money market on price level, and the integrated orders of both variables are said to be 2. Moreover, as the sample period overlaps the promotion of the ‘open door’ policy, the nominal effective exchange rate is included in the model to reflect foreign factors. Hence, this paper estimates the money demand function by imposing an identification restriction on the error-correction term that describes the relations between money supply and demand.
The empirical results suggest that excess money can explain China’s fluctuating inflation rate during a period of stable economic growth. It is shown that the error-correction term, which is interpreted as the relation between money supply and demand, significantly affects the price acceleration variables but not the production acceleration variables. Furthermore, the results show that excess money is brought about by a decline in the nominal effective exchange rate and a rise in the inflation rate, which are driven by foreign factors.

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