Fiscal reform

The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper shows that increasing government social expenditures can make a substantive contribution to increasing household consumption in China. The paper first undertakes an empirical study of the relationship between the savings rate and social expenditures for a panel of OECD countries and provides illustrative estimates of their implications for China. It then applies a generational accounting framework to Chinese household income survey data. This analysis suggests that a sustained 1 percent of GDP increase in public expenditures, distributed equally across education, health, and pensions, would result in a permanent increase the household consumption ratio of 1¼ percentage points of GDP. JEL Classification Numbers: D12, E21, H31

Relations between Latin America and Asia—by Asia in this case we refer to that broad swath of the Asian land mass that goes from East Asia through Southeast Asia all the way to South Asia—are undergoing a very special moment. It is precisely at moments like this that systematic reflection and analysis about the future course and direction of these links needs to happen. Much work has been done on Sino-LAC relations; some (particularly in previous decades) on the long-standing ties between Japan and the region; and Indo-LAC links are only now starting to trigger some interest. But broader reflections on the direction, pace, and quality of Asia-LAC links remain relatively few and far between.

The purpose of this volume, designed as the first part of a broader project, is to help fill this void and initiate a wide-ranging discussion about the current course of these ties: whether they should be nudged in one direction or another; what to make of present economic opportunities, and what the implications of the latter are for Latin America’s long-term development goals. Starting from current economic trends, its goal is to explore the implications of existing trade and investment patterns in Asia-LAC links. We have selected some of the most important cases in the region, but by no means all of them. Missing from this volume are significant players such as Venezuela, Ecuador, Cuba, and Costa Rica, among others, including the small states of the Caribbean. We hope to include them in future stages.

Among the questions we consider are the following: What can be done to mitigate, if not totally avoid, the “de-industrializing” effects of the demand for Latin American natural resources coming from Asia? What is the significance, if any, of the fact that trade between the two regions is largely intersectoral, with Latin America exporting mostly commodities to Asia and Asia in turn selling mostly industrial and consumer products, including many high-tech ones, to Latin America? What can Latin American countries do to get into the Asian value-added chains of production? Given that since 2003, an average of 2.3 regional trade agreements (RTAs) per year have been signed between countries of these two regions, are further FTAs and RTAs between Asia and LAC countries, like the ones between Chile and China, India and South Korea, or the one between MERCOSUR and India, the way forward? Is Taiwan still a relevant actor or have countries that have historically maintained diplomatic relations with it been seduced by the opportunities that China represents, thus leaving Taiwan behind? Are Argentina’s measures to limit foreign ownership of agricultural land a harbinger of things to come, as Asian companies move into South America? And, without downplaying China’s unmistakable role in South America’s recent prosperity, what are the sources of conflict and friction and how can they best be addressed?

This paper examines the concept of fiscal federalism in Nigeria, its legal framework, its historical evolution, the political economy, issues and challenges and the options for reform. It will posit that fiscal federalism is a particular pattern of constitutional division of revenue powers and responsibilities among levels of government. The dynamism and complexity of Nigeria’s federalism has attracted academic scrutiny. This is because it has generated so many problems capable of threatening the corporate existence and continuity of the Nigerian state.  The federal government has occupied a very strong position vis-à-vis the State and Local government since the 1970’s in Nigeria. Most of the power (financial and legislative) relating to economic development has been explicitly centralized at the federal level. The true practice of fiscal federalism in Nigeria has been inhibited by several factors which include, the dominance of the federal government in the sharing of national financial resources from the Federation Account, the imposition of the command structure of the military on fiscal federalism, the pattern of assignment of responsibilities by the constitution among federating units, and over-reliance on the revenue from the Federation Account.
No doubts, fiscal federalism is unarguably a potent economic strategy that can be used to maximize provision of public services as well promote macroeconomic stability. Central to the success of fiscal decentralization, is clarity in revenue and expenditure authority and responsibilities. This paper traces the historical evolution of Nigeria’s fiscal federalism, the legal framework inherent, the issues and challenges of fiscal federalism in Nigeria, and alternatives for remediation.
This paper will adopt an evaluative and assessment method, with the use of secondary data to explain the lingering controversies that underlie fiscal federalism and the challenge of both human and infrastructural development in Nigeria. The methods attempted to unveil the various revenue principles such as the principle of derivation, equality of states and demographic strength in Nigerian federal system. In using these methods, the various politics and agitations for the review of fiscal formula for even development of all states could be appreciated. However, it should be borne in mind that within the limited scope of this paper, all the principles of fiscal federalism may not be fully captured and explored, but these can help in the analysis and explanation of fiscal federalism especially as it relates to national development.
Finally, this paper will posit the various options necessary for reform

Due to the deteriorating fiscal situation of the states, the Government of India has taken several initiatives, including the creation of a Fiscal Reform Facility, which sought to provide financial-grant incentives to the states, in order to encourage a movement toward budget balance over the five year period coinciding with the implementation period of the Eleventh Finance Commission (2000-2005). The

The last decade has been witness to one of the largest tax experiments in economic history, the transformation from centrally-planned to market-based tax systems. The cultural and institutional legacy of central planning has had a lasting impact on tax reform in countries in transition. The fundamental choices for reform were a 'big-bang' approach or an evolutionary approach. With the benefit of hindsight, we can now evaluate the choices made and whether or not basic advice was heeded. The tax systems that have emerged are, at least in some ways, satisfactory in terms of tax policy but deficient in terms of tax administration and enforcement. Experiences with tax reform have been diverse, and in some countries there has been very little reform at all. We conclude by examining what lessons have been learned during the first decade of transition. JEL Classification Numbers: H0, H2, P2 3 For the purpose of this paper, CIT refers to all previous centrally planned or socialist countries in Central and Eastern Europe (CEE) and the former Soviet Union (FSU). Other countries experimenting with transition to a market economy include China, Vietnam, Cambodia, Laos, North Korea, and Myanmar. Cuba is a special case in itself and like in North Korea little reform has been pursued there. The main differences between CITs in CEE and the FSU, and the rest is that the latter group of countries has not simultaneously engaged in political liberalization, maintaining instead a single-party political system. The focus of this paper is on tax reform in CEE and the FSU. 4 See for an earlier review of tax systems in transitional economies and Ebril and Havrylyshyn (1999)for a more recent review of tax reform in the Former Soviet Union. Background information on the economic conditions and the tax structure of CITs is available from the European Bank for Reconstruction and Development's Transition Report (1999) and the International Bureau of Fiscal Documentation's

Over the course of more than a generation of vibrant and mostly uninterrupted electoral democracy, Latin American governments have done almost nothing about the fact that the region suffers from the highest levels of inequality, on average, in the world. On the spending side, what little has been done has been quite innovative, and this has brought new attention to redistribution through programs such as conditional cash transfers and universal noncontributory pensions, which have been credited by some with a small but measurable improvement in equality in several countries since about 2000. But taxation across the region is still generally regressive, relying greatly on revenue from consumption taxes and (with a handful of minor exceptions) hardly at all on revenue from personal income taxes. The long coexistence in the region of elected governments, enormous inequality, and inattention to progressive taxation ought to puzzle us—and not just because it directly violates the expectations of the most widely cited model of the political economy of taxation.

However, more recently, and especially since the Uruguayan tax reform of 2006, some policymakers have in fact begun to consider what might be done on the revenue side of the ledger to address inequality. The Chilean tax reform of 2014 is the best example. Still, progressive tax
measures have faced a variety of obstacles, as we discuss in more detail
below, including the doubts of some experts and practitioners about their effectiveness or political feasibility. Hence the questions: What kinds of reforms would be economically efficient, effective at redistribution, and politically possible? And what conditions and strategies might be most conducive to such reforms?

This book seeks to answer these questions, in pursuit of two objectives. The first is to update the literature on tax reform in Latin America by focusing on how progressive tax reforms take place, with special reference to important recent examples of success and failure in this regard. The second is to glean advice for reformers, drawn from the same literature and examples, emphasizing factors that are within the control of policymakers. The literature on tax reform in the region has produced a large volume of work on the optimal design of reform from an economic and administrative standpoint. But much less has been done on the determinants of reform, especially on the success or failure of progressive tax initiatives.

This article considers some of the effects of health sector reform on human resources for health (HRH) in developing countries and countries in transition by examining the effect of fiscal reform and the introduction of decentralisation and market mechanisms to the health sector.Fiscal reform results in pressure to measure the staff outputs of the health sector. Financial decentralisation often leads to hospitals becoming "corporatised" institutions, operating with business principles but remaining in the public sector. The introduction of market mechanisms often involves the formation of an internal market within the health sector and market testing of different functions with the private sector. This has immediate implications for the employment of health workers in the public sector, because the public sector may reduce its workforce if services are purchased from other sectors or may introduce more short-term and temporary employment contracts.Decentralisation of budge...

The search for solutions to urban and social problems prompted by informal settlements is gaining importance in the development agenda of most large cities in Latin America. Nearly 60 percent of the population lives in informal, often centrally located settlements.

For any given order of stochastic dominance, standard concentration curves are decomposed into contribution curves corresponding to within-group inequalities, between-group inequalities, and transvariational inequalities. We prove, for all orders, that contribution curve dominance implies systematically welfare-improving tax reforms and conversely. Accordingly, we point out some undesirable fiscal reforms since a welfare expansion may be costly in terms of particular inequalities.

Markets and government planning are providing alternative systems for coordinating people’s consumption of resources. The effectiveness of coordination depends on the capability of each system to signify accurate information about people’s wants and available supplies of resources. And on the incentives each provides for individuals to react to the desire of others [Hayek (1945) and Wills (2007)]. Natural resources generate public revenues and benefits. Its equitable distribution and sustainable production leads to real development and ultimately helped to poverty reduction and alleviation. Therefore, natural resource revenues necessitate distributions that favour the needs of the indigenous poor people and local sustainable development. Productive and high-value natural resources are seldom accessible to all citizens and their benefits are rarely evenly dispersed crosswise peoples and geographically across nations. It is worth mentioning that revenues collected from natural resourc...

In May 2000, the Latin American Program and Yale University held a conference to assess the profound transformations underway in Mexico and in U.S.-Mexico relations. This volume offers several of the presentations from this conference which address three areas of concern: political and social transition in Mexico; new directions in economic policy; and the changing nature of U.S.-Mexico relations.

Although corruption may have a corrosive effect on economies and rule-based institutions, it also forms part of the fabric of social and political relationships. This endogenous character means that conflict may be engendered more by changes in the pattern of corruption than by the existence of corruption itself. Such changes, frequently associated with domestic or external shocks, can lead to armed conflict as increasingly violent forms of competitive corruption between factions 'fuel war' by rewarding belligerents. Controversially, 'buying-off' belligerents can facilitate a transition to peace; but 'sticks' such as economic sanctions, rather than 'carrots', have dominated international conflict resolution instruments. While 'buying peace' can present a short-term solution, the key challenge for peace-building initiatives and fiscal reforms is to shift individual incentives and rewards away from the competition for immediate corrupt gains. This may be facilitated by placing public revenues under international supervision during peace processes.

To finance basic pro-poor services, the Government of Ghana must mobilize more public revenue. But tax reform has been highly controversial in Ghana. An attempt to introduce VAT in 1995 failed after widespread protests. Although a second attempt to introduce VAT in 1998 succeeded, strong resistance to tax reform remains, and the total tax base remains narrow and over-dependent on petroleum taxes. This paper argues that slow progress in public expenditure reform, in particular in raising spending on basic services, has impeded the public's willingness to pay taxes, since many people see little benefit. This is especially the case in the poorer regions, which in addition have borne the brunt of the rising petroleum tax. The paper concludes that much more attention must be given to the political economy of fiscal policy in Ghana, if lasting improvements to the fiscal system are to be achieved.

This paper tackles the issue of international fiscal coordination in a world of integrated markets sovereign national governments. Taxation of mobile capital and immobile labor in order to finance a public good generates inefficient fiscal competition. Two fiscal reforms are considered: a minimum capital tax level and a tax range, i.e., a minimum plus a maximum capital tax level. We

This article examines how an integrated least-cost implementation of the Kyoto Protocol in the United States would affect U.S. competitiveness and jobs. Drawing on previous work, the authors analyze integrated emission reduction strategies based on a $50/ton carbon tax (including border tax adjustments), a payroll tax cut, energyproductivity-oriented market reforms, and international flexibility mechanisms. This policy portfolios is compared to conventional approaches that omit market and fiscal reforms.

Right after Romania’s change in regime in December 1989, profound changes in the structure and functioning of government and the economy started to take place. Since the early 1990s the decentralization of the public sector has been an important policy initiative in the process of transition to a market economy and a democratic society. The impetus for decentralization policy has gained considerable momentum in recent times.

Economie, croissance et environnement. De nouvelles stratégies pour de nouvelles relations L'exigence de durabilité du développement impose à la fois une imbrication plus étroite entre politiques d'environnement et processus économique et un souci plus affirmé pour la recherche de l'efficacité économique des politiques, ce que permettrait l'extension du recours aux incitations économiques au sein d'une stratégie composite exploitant les synergies entre instruments. Les incertitudes et controverses scientifiques caractérisant le front actif du champ de l'environnement appellent la formulation de critères stratégiques de second rang et la recherche de stratégies de « moindre regret » répondant à d'autre objectifs de la collectivité. Tel serait l'enjeu d'une réforme de la fiscalité incorporant des « écotaxes », comme le montre l'analyse du projet européen de création d'une taxe mixte CO2 /énergie. Abstract Economy, growth, environment : new strategies for new relationships To become sustainable, development trajectories need altogether a tighter integration of environmental policies and economic processes, and a greater attention to be given to the costeffectiveness of policies. This could resuit from an extension of the use of econo mie incentives within a mixed strategy trying to exploit potential synergies between various types of instruments. Scientific uncertainties and controversies coming from the active frontier of environmental problems should lead to the definition of second best strategie criteria and the search for "minimum regret" strategies also aiming at satisfying other social objectives. This is what is at stake with a fiscal reform incorporating "ecotaxes", as it is shown from an assessment of the European project of a new mixed carbon/ energy tax".

Finally, in 1988 a "fiscal contracting" system was implemented under which provincial governments each negotiated a fixed tax quota with the center, with collections above that level being retained at the local level. (This approach, dubbed "eating in separate kitchens," was also introduced at lower levels of government).

This article treats on the fiscal harmonization process within the European Union being indispensable for assuring loyalty in the competition on its single market, given the fact that different system of taxation had direct and powerful impact on the prices level and on chosing the location for production and distribution activities. Both direct and indirect taxation distort the four fundamental freedoms of the single market. Most of the European Union´s regulations regarding fiscal harmonization resemble to the Directive regarding especially the indirect taxes: VAT, Excises. The fiscal reforms from the member states have to be conceived in such a manner that they take into account the necessity of fiscal harmonization on EU level, creating a reasonable compromise between each country˙s sovereignty and the desideratum of removing fiscal barriers from the normal functioning of the single market.

Trade, exchange rate, fiscal, and agricultural sector policy reforms are the pillars of structural adjustment programs in Africa. Results indicate that trade and exchange rate reforms are associated with a large decline in economic rents and a shift in relative prices that favor the rural and urban poor. Fiscal reforms have not brought about draconian belt-tightening measures, although the incidence of public spending, particularly in the social sectors and in terms of public sector employment, remains far from progressive. Reduction of export crop taxation contributes to higher incomes for the poor, and domestic food crop liberalization has not led to increases in purchase prices of staple commodities for most low-income households.

Since the early nineties, Lebanon has undertaken a number of economic reforms, covering in particular international trade and internal fiscal policy issues. Simultaneously, debt has been skyrocketing, partially justified by reconstruction needs after the end of the civil war. Fostering economic growth seems to be the only way out of the debt trap, but reforms intended to stimulate growth may well have adverse short run effects on public and external deficits. We construct a dynamic open economy CGE model with debt constraints in the sense that external debt requires physical capital as collateral. This model allows us to study the effects of a number of important economic policy issues (fiscal policy reform, WTO membership, FDI) in a multisectoral dynamic setting under the realistic assumption that debt constraints relax when the economy starts growing. In particular, this paper, reports results on scenarios of trade liberalization and political stabilization.

Medium Term Fiscal Frameworks (MTFs) have become one of the most popular reforms to the budgetary process in Latin America during the last decade, and introducing MTFs seemed to be the magic solution for most fiscal ailments. Nonetheless, there has been no comprehensive evaluation of their impact. This document discusses the normative merits of using MTFs, provides a characterization of

This paper addresses the question of whether the European Monetary System can be copied outside Europe. Our answer is negative. The EMS is just one element of a more comprehensive design of institutional integration within Europe: the presence of the European Economic Community, and the dependence of EEC institutions upon exchange rate stability lend credibility to EMS exchange rate targets in a way that would not be present. say, among the United States, Europe and Japan. The EMS has also reproduced previous experiences of fixed exchange rates by not imposing the exchange rate constraint symmetrically upon all member countries: the system has de facto worked as a DM-zone, thus confirming that the institution of fixed rates pg cannot induce international monetary cooperation. Finally, the differences in the use of the inflation tax among European countries and the divergent behavior of government debt after 1979 indicate that the pursuit of monetary convergence among countries with ...

The study team would like to begin with its sincere thanks to Seeta Prabhu and Suraj Kumar of UNDP, who conceived this entire project covering eight states, provided substantive guidance at different stages of the project and gave several comments for the improvement of the study reports. From the Planning Commission, R Sridharan, Rajat Sachar, and Ragini Sahay provided support for the work. To all of them, our sincere thanks. A study with as wide a scope as the present one cannot be completed without the cooperation of the concerned state government. The nodal agency for facilitating our work in the state was the Planning Department; the study team acknowledges its deep gratitude to the personnel of this department, and R. V. Singh in particular. Apart from the Planning Department, the Finance Department officials, particularly K.C. Badu have been extremely helpful, for which we thank them. We have also liberally imposed ourselves on the time and good nature of the officials of several other departments and organisations during the necessary process of understanding various issues of concern in each area and obtaining detailed data on various aspects of human development. In the area of education, our greatest debt is to the officials of OPEPA, particularly Madhusudan Padhi and J.M. Sardar, who have readily provided a large amount of data and other qualitative information. To Suresh Chandra Patnaik and Radha Mohan Panda we offer a 'Thank you'. As with officials in the education department, we have also received tremendous cooperation from officials from other departments like health, water supply, women and child development, rural development, panchayati raj, and urban development. It may be difficult to name all of them individually, but particular mention must be made of

© 2004 International Monetary Fund WP/04/98 IMF Working Paper Fiscal Affairs Department Toward More Effective Redistribution: Reform Options for Intergovernmental Transfers in China Prepared by Ehtisham Ahmad, Raju Singh, and Mario Fortuna1 June 2004 Abstract This ...

We utilize a multi-sector general equilibrium model based on intertemporally optimizing agents to study issues of trade liberalization and fiscal adjustments in the context of the Turkish economy. A key feature of the model is its explicit recognition of the distortionary consequences of excessive borrowing requirements of the public sector through increased domestic interest costs. The model results suggest that the postponement of adjustment to growing public debt and fiscal imbalances could be detrimental; and that in the absence of coordinated fiscal reforms, the welfare gains expected from trade liberalization may significantly be negated.

... In those unusual cases where a woman is working in the public sector, she tends to reside in households in the upper end of the urban income distribution. ... Evidence from Africa, however, generally does not support the widely accepted proposition that the poor Early ...

Is presenting a fiscal bonus as an income increase (a gain) the same as presenting it as a tax rebate (a loss reduction)? This paper aims to answer this question with two studies. Study 1 is a survey carried out in Italy to explore citizens' perceptions of a fiscal reform introduced in 2005. It shows both effects imputable to the methods used to describe the bonus and differences between respondents belonging to different occupational groups. But it does not allow disentangling these factors. Study 2 aims to investigate whether and how (1) the frame used to describe a fiscal bonus and (2) taxpayers' occupational status, influence their evaluation of this tax reduction and the uses they intend to make of it. To this end, 252 participants belonging to different occupational groups were submitted to two between-subject framing conditions (the bonus being described as a reduced loss or as a gain). They were then asked to evaluate the bonus' importance for their personal weal...

In this paper we aim to discuss the strengths and weaknesses of the fiscal consolidation package adopted recently by the Italian Government in order to achieve a balanced budget by 2013. Revenues are forecasted to increase by more than 3.3 GDP percentage points; these stem mostly from indirect and property taxation. The analysis of the Italian case is interesting since it seems to be consistent with a recent strand of the literature which, in order to foster both short and long-term economic growth, advocated a shift of the tax burden from capital and labour income to consumption and property. Through a set of micro simulation models, this paper evaluates the effects of the Italian fiscal package on households and firms. We show that, in respect of households' income, indirect and property tax reforms are highly regressive, whilst the reform makes limited resources available for growth enhancing policies (reduction in the effective corporate tax burden). Then, we propose an alternative fiscal package. We show that a less regressive reform on households can be obtained by shifting taxation from personal and corporate income tax to indirect taxation. Our proposal allows the tax burden on firms to be reduced substantially and, in the meantime, offers lower personal income tax rates on households in the lowest deciles of income distribution since they are penalized most by the increase in indirect taxation.

Turkey recently launched a set of structural reforms to address elimination of producer price subsidies in its agriculture, and replacing them with a targeted direct income transfer program. The paper investigates analytically viable options of the proposed agricultural-cum-fiscal reform and analyzes the formal links between the public sector fiscal balances, accumulation patterns, dynamic resource allocation, and consumer welfare under a medium-long-term horizon. We utilize a dynamic general equilibrium model. The model results suggest that even though there are expected modest welfare gains of consumers' intertemporal efficiency, the repercussions of these policies on the rural economy and aggregate gross domestic product are likely to be deflationary.

To finance basic pro-poor services, the Government of Ghana must mobilize more public revenue. But tax reform has been highly controversial in Ghana. An attempt to introduce VAT in 1995 failed after widespread protests. Although a second attempt to introduce VAT in ...

This article treats on the fiscal harmonization process within the European Union being indispensable for assuring loyalty in the competition on its single market, given the fact that different system of taxation had direct and powerful impact on the prices level and on chosing the location for production and distribution activities. Both direct and indirect taxation distort the four fundamental