Papers by Gabriela Inchauste
World Bank Publications - Reports, Dec 1, 2020
Social Science Research Network, 2003
The views expressed in this Working Paper are those of the author(s) and do not necessarily repre... more The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMP policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Using urban household surveys, we constructed a panel dataset to study the effects of the Argentine macroeconomic crisis of 1999-2002 with the aim of (I) identifying the most vulnerable households, (2) investigating whether employment in the public sector and government spending served to decrease vulnerability, and (3) understanding the mechanisms used by households to smooth the effects of the crisis. Households whose heads were male, less educated, and employed in the construction sector were more vulnerable to the crisis, experiencing larger-than-average declines in income and higher dispersion. Households whose heads were employed in the public sector were more protected from the crisis, although higher public spending did not serve to decrease their vulnerability. A significant source of vulnerability was linked to changes in employment status, and we studied the determinants of the probability of being unemployed and of becoming unemployed. Last, we found that households were unable to perfectly smooth income shocks. Given these results, there is room for broadening social safety nets, particularly in the form of public works programs.
Policy Research Working Papers
The Distributional Impact of Taxes and Transfers: Evidence From Eight Developing Countries
This paper uses the 2010/11 Household Consumption Expenditure Survey (HCES) and the Welfare Monit... more This paper uses the 2010/11 Household Consumption Expenditure Survey (HCES) and the Welfare Monitoring Survey (WMS) collected by the Central Statistical Agency (CSA) of Ethiopia, as well as 2011 data from national income and public finance accounts from the Ministry of Finance and Development to assess the effects of government taxes, transfers and social spending on the distribution of income in Ethiopia, and examines whether policy can be modified to improve the well-being of the poor. This study finds that fiscal policy in Ethiopia is progressive and equalizing, and poor populations are net beneficiaries of the fiscal system. Though the depth and severity of poverty is ameliorated, the poverty headcount is higher after taxes, transfers, and subsidies. Though Ethiopia's Gini coefficient was lowered by 2 points, the poverty headcount (under $1.25 USD per day in 2005 PPP) is increased from 31.9% to 32.4% as a result of fiscal policy. Direct taxes, such as PIT, were progressive and equalizing, but aggregately poverty-increasing due to a low cutoff income for PIT and a regressive land use fee. Direct transfers, especially the Productive Safety Net Program (PSNP), were progressive, equalizing, and poverty-reducing. Indirect taxes were progressive and equalizing, but poverty-increasing. Subsidies for goods like kerosene were relatively equalizing, while electricity subsidies were regressive because poor households often do not use electricity. Expenditures on primary education and health were progressive and equalizing, but spending on tertiary education was not. Due to low completion rates of primary education amongst the poor, access to tertiary education by the poor is almost nil.
At the same time, while reforms to promote transparency and accountability in government should l... more At the same time, while reforms to promote transparency and accountability in government should lead to better performance, a political settlement around the new governance structure will need to emerge. 5. Bearing in mind the challenges to Sri Lanka's further development, this diagnostic consists of a systematic and detailed review of potential factors impacting progress on the twin goals. In line with the World Bank Group's new approach to working with country partners (Box 1.1), this report aims to identify the most critical constraints and opportunities to advancing achievement of the twin goals. In order to organize and discipline the analysis, the report uses a framework that combines the Hausman, Rodrik and Velasco (2005) growth diagnostic and the Bussolo and Lopez-Calva (2014) asset-based approach to identify a universe of 22 potential areas that may constrain or drive progress towards the twin goals. Sri Lanka's performance in each area was assessed for its relative impact on achieving the twin goals. This systematic analysis was then presented in set of consultations with multiple stakeholders, including government, academia, think tanks, the private sector, civil society organizations, and international organizations to validate the findings, determine the relative importance of issues identified in each of the 22 areas and identify knowledge gaps. These findings were weighted against criteria of: (i) the potential impact on ending poverty and on promoting shared prosperity; (ii) the degree to which addressing these constraints would have complementarities across different domains; (iii) the strength of the evidence base behind the impact; (iv) the time horizon of impacts; and (v) whether addressing the constraint is a precondition to unlocking wider potential. This process yielded consensus that the key priorities for sustaining progress in ending poverty and promoting shared prosperity are to address the country's fiscal, competitiveness and inclusion challenges, as well as cross-cutting governance and sustainability challenges. The Fiscal Challenge 6. Low and declining revenues critically impact Sri Lanka's fiscal position. Sri Lanka now has one of the lowest tax revenue-to-GDP ratios in the world, reflecting a decline from 24.2 percent in 1978 to 10.7 percent in 2014. The major causes of this decline are the low increase in the number of taxpayers, reductions in statutory rates without commensurate efforts to expand the tax base, inefficiencies in administration and numerous exemptions. In particular, since the introduction of a value added tax (VAT) in 2002, successive changes in the tax regime have led to over 500 types of exemptions for a wide variety of goods. There are also over 40 broad types of exemptions on corporate and personal income tax depending on the source of income and the type of taxpayer. Administration is complicated by lack of Box 1.1 The Systematic Country Diagnostic: A New World Bank Group Tool for Country Engagement Under its new approach to working with its country partners, the World Bank Group (WBG) requires the preparation of a Systematic Country Diagnostic (SCD) to precede the development of Country Partnership Frameworks that guide programming. The objective of an SCD is to identify the most critical constraints and opportunities facing a country in accelerating progress toward the goals of ending extreme poverty and promoting shared prosperity in a sustainable manner. The SCD is expected to produce an objective, evidence-based, candid assessment of the main challenges facing the country, without limitation to the areas where the WBG is currently engaged. 3 coordination among entities collecting revenue as well as the Board of Investment, which provides incentives. No tax expenditure analysis is conducted before or after the introduction of incentives. 7. Low tax revenues combined with an expenditure profile that is largely non-discretionary has led to a lean, rigid budget with little room for critical development spending. Sri Lanka's overall revenues and expenditures are among the lowest in the region. Fiscal consolidation and relative prioritization of public investment in capital infrastructure following the conflict have squeezed spending on other public goods, including health, education and social protection, which are currently below levels in other regional and emerging market comparators. Fiscal consolidation combined with declining revenues has made the budget rigid, leaving little fiscal space for the government to maneuver. Difficult-to-reduce items, such as public service remuneration, transfers, and interest payments, have accounted for 60 percent of expenditure in recent years. Moreover, wage pressures have been rising due to a 57 percent increase in the numbers of public servants in the past 10 years. This has yielded a situation where public servants account for 13 percent of the labor force, comparable to the OECD average of 15 percent in 2011. At the same time, increases in recurrent expenditures in early 2015, particularly a raise in allowances to public servants, is to be financed by one-time taxes, leaving very little room to maneuver. A strong commitment to fiscal consolidation in the face of these pressures has led to Sri Lanka having extremely low levels of public spending on education, health, and social protection as a percentage of GDP. Going forward, continued commitment to fiscal consolidation is critical to ensure macroeconomic stability, but this will require long-term improvements in revenues. The Challenge of Promoting More and Better Jobs for the Bottom 40 Percent 8. Sri Lanka has a number of advantages that can contribute to inclusive growth. Given its relatively small domestic market, Sri Lanka will need to look outward to fulfill its ambitions to become a prosperous and competitive middle-income country. As such, the country has important strengths, such as overall strong human capital and a reliable infrastructure base, particularly when compared to other South Asian countries. Sri Lanka also enjoys an enviable location in a fast-growing region along a major trade route, opening opportunities to serve as a regional trading hub. Moreover, Sri Lanka's boasts unique natural assets, with a temperate climate, diverse topography, and unique historical assets, giving it a strong basis for tourism. At the same time, the country has a track record of developing globally competitive companies, particularly in niches of the apparel and information technology (IT) sectors. Address the long-term fiscal sustainability concerns related to population aging
Policy Research Working Papers
Finanzas y desarrollo: publicación trimestral del Fondo Monetario Internacional y del Banco Mundial, 2002
D ra w M a in E le m e n ts fro m a C o u n try 's P R S P H ig h lig h t F le x ib ility in A c ... more D ra w M a in E le m e n ts fro m a C o u n try 's P R S P H ig h lig h t F le x ib ility in A c c e p tin g C o u n try C h o ic e s F o c u s o n A re a s o f IM F E x p e rtis e a n d R e s p o n s ib ility IV Key Feature 3: Budgets That Are More Pro-Poor and Pro-Growth R e o rie n t G o v e rn m e n t S p e n d in g T o w a rd A c tiv itie s T h a t B e n e fit th e P o o r Im p ro v e th e E ffic ie n c y a n d T a rg e tin g o f S p e n d in g in K e y S e c to rs Im p le m e n t T a x P o lic ie s T h a t S im u lta n e o u s ly Im p ro v e E ffic ie n c y a n d E q u ity
The Distributional Impact of Taxes and Transfers: Evidence From Eight Developing Countries
Policy Research Working Papers
The Political Economy of Energy Subsidy Reform, 2017
The Political Economy of Energy Subsidy Reform, 2017
Untargeted price subsidies could easily be construed as one of the most expensive and most regres... more Untargeted price subsidies could easily be construed as one of the most expensive and most regressive fiscal policies in low-to middle-income countries. In fact, public expenditure on subsidies often exceeds the entirety of these countries' social safety net expenditures many times over, making this a critical area of reform that can reap important benefits for social welfare and macroeconomic and fiscal stability. In some cases, the energy subsidy bill is enormous-straining countries' fiscal capacity, skewing the distribution of income away from the poor, and perpetuating large distortions in economic activity toward capital-intensive and environmentally damaging activities. In these places, no other single policy failure is as consequential as subsidies. Although there is ample evidence of the unfavorable fiscal and benefit incidence of subsidies, the economic arguments on behalf of fiscal sustainability and equity are often not enough to allow for reforms to take hold. Why are subsidies so difficult to reduce? And when governments have eventually managed to reduce subsidies, what disrupted the political equilibrium that gave rise to them in the first place? Relatively few World Bank reports provide a political economy perspective on this issue. Instead, most of the work on subsidies has focused on their sectoral efficiency, fiscal sustainability, or distributional impacts. Even so, most do point to the critical role of political economy in subsidy reform. This volume was initiated at the request of World Bank country teams working in countries considering energy subsidy reforms. Their main complaint was that although they understood the macroeconomic, fiscal, and distributional reasons for recommending a reform, they had difficulty in providing examples of the political economy circumstances that might allow reforms to take place. The request was to provide an in-depth account of the timing and sequencing of countries that had successfully reformed energy subsidies-and to do so within a broader political economy context. Observing the political economy climates of governments that have grappled with subsidy reform provides a rich source of learning for other countries with comparable political climates. Instead of drawing up a prescriptive road map for reform, the idea was to derive lessons and to point to the circumstances that enabled reforms to take place. The team assembling this volume reached out for expertise outside the Poverty and Equity Global Practice. First, to a colleague with expertise on the xii
IMF Working Papers, 2000
Recent efforts at poverty alleviation emphasize increasing government spending on education. Howe... more Recent efforts at poverty alleviation emphasize increasing government spending on education. However, even if spending were perfectly targeted, it is not evident that spending by itself will lead to higher educational attainment. Bolivian household data is used in this paper to ascertain the probability of an individual quitting school due to financial or other reasons. Simulations show that government cash transfers can help to improve educational attainment somewhat. However, nonmonetary limitations must also be addressed if educational attainment is to improve significantly, in particular, for indigenous women who have the lowest levels of education in the country.
Review of Development Economics, 2007
World Development, 2022
Like high-income countries, low-and middle-income countries (LMICs) offer reduced rates and exemp... more Like high-income countries, low-and middle-income countries (LMICs) offer reduced rates and exemptions on particular goods and services in their value-added tax (VAT) systems. These policies are often motivated by distributional concerns and target items thought to take up a larger share of the budgets of poorer households. This paper explores the effectiveness of such policies in six LMICs. We estimate their impact on tax revenues, inequality and poverty, and compare these effects to existing cash transfer schemes and a hypothetical Universal Transfer (UT) funded by broadening the VAT base. To do so, we use tax-benefit microsimulation models incorporating input-output tables, allowing us to estimate the impact of exemptions on consumer prices due to VAT embedded in supply chains. We show that although preferential VAT rates reduce poverty, they are not well targeted towards poor households overall. Existing cash transfer schemes are better targeted but generally have limited coverage. A UT funded by a broader VAT base would create large net gains for the poorest households, reducing inequality and most measures of extreme poverty in each of the countries studied. Our results suggest that the widespread practice of providing special VAT treatment to certain goods and services is an expensive way of reaching poor households. In principle, expanding the VAT base and social protection schemes in tandem has the potential to both raise tax revenues and reduce poverty. Such reforms therefore warrant consideration for LMICs as they pursue Domestic Revenue Mobilisation and broader development objectives.
bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su r... more bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Produced by the Research Support Team
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Papers by Gabriela Inchauste