_comprehensiveness of diagnosis in the typical project discussed The section closes with an examination of the extent to which pre-project work discusses lessons from earlier experience._ In a recent Bank study, Evans and Battaile (1998) present evidence that good Bank performance is a key determinant of successful project outcomes, being dominated only by borrower performance. The most important ingredient of good Bank performance identified in the study is the quality-at-entry of a project. Thus the importance of thorough pre-project preparation and diagnostic work.

In order to evaluate the way in which Bank projects have incorporated institutional concerns in their design, we have analyzed existing documentation against a framework summarized in the matrix in Table 6. In this framework,<sup>5</sup> Performance is a function of Capacity, Institutions and Exogenous constraints. Furthermore performance is disaggregated into policy formulation, accountability and service delivery with the latter being divided further into effectiveness and efficiency. Effectiveness refers to the quality and quantity of services provided while efficiency deals with the unit cost of service provision.<sup>6</sup> Tables Al through A6 in appendix report the extent to which different diagnostic areas were examined in the 43 projects with major tax/customs administration components. A summary, which also shows the overall comprehensiveness of diagnostic exercises in the typical project, is in Table 7.

It should be made clear that, in compiling project data, no judgement was made about the adequacy or completeness of the diagnosis in any category in SARs or MOPs since other preproject documents, if any, were largely unavailable for this review.<sup>7</sup> On the basis of the data in table 7, we can infer the following conclusions:

- _Tax policy institutions and tax structure:_ Tax policy making and analysis institutions received attention in only about one quarter of projects in the sample. Regarding tax structure and revenue performance, diagnosis was typically limited to standard tax features such as the tax to GDP ratio; mix of taxes; tax rates, bases and exemptions; and their recent reform history. Within this set, disaggregated analysis was less common than aggregate information. Quantitative and formal analysis, such as analysis using relatively standard tools like effective rates, buoyancy and elasticity was relatively rare. Formal econometric modeling was reported in only 2 projects. Furthermore, the extent of analysis of these areas present in TLSR projects tended to be lower than in SALs/SECALs. Infirmities diagnosed were typically limited to only the major features that were against good practice, such as high and differentiated rates, narrow bases, multiple exemptions and input taxation (i.e. absence of a VAT). Most projects, furthermore, did not cite references to Bank or other work discussing "good" tax design.<sup>8</sup>

Inspired by Nick Manning and Brian Levy in various unpublished work.

> **6** Further disaggregation of the categories in the table is to be found in the diagnostic and project formulation framework of Gill (1998), though diagnostic categories are classified differently there. Other, less detailed, diagnostic frameworks are to be found in Bagchi, Bird and Das-Gupta (1995), Datta-Mitra (1997), Annex 4, and in Vazquez-Caro, Reid and Bird (1992).

> 7In point of fact, diagnosis in most SARs and MOPs, if not supplemented by other documents, was mostly inadequate and furthermore, coverage within different categories was typically incomplete. s See, for example, World Bank (1991), Khalilzadeh Shirazi and Shah (1991) and Gillis, Sicat and Shoup (1990).

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