rafmacalaba/datause-encoder-data huggingface dataset:
40 coordinating tax reforms: can lost tariffs be recouped?

An ideal tax system raises revenue to fund socially sanctioned government expenditures in ways that are administratively and politically feasible while promoting equity and efficiency (Burgess & Stern 1993). As countries become richer, they move towards this ideal by relying more on direct sources of taxation on personal income. Because of capacity constraints and high enforcement costs, however, developing countries focus on narrow tax bases that not only distort incentives and resource allocation, but also raise revenue that is inadequate to fund development needs.<sup>39</sup> This paper contributes to the debate on ways to reform trade practices without adversely affecting the fiscal base of poor countries. Cross-country evidence from 35 low-income countries also shows that as countries move away from trade-based taxes, they manage to partially offset trade-based revenue losses with domestic sources of taxes. That the presence of VAT is not more strongly associated with revenue recovery is a surprise because this is not what the simulations suggest. This can only be resolved if we acknowledge the great heterogeneity in VAT regimes across countries, with efficacy dependent on factors beyond the ad valorem rate, such as the size of the informal sector, product coverage of the value-added tax, systems of tax refund, and the capacity of tax administrations.

Using actual data on import value, tariffs, and up to ten domestic taxes on more than 400,000 import transactions from Nepal, I develop scenarios in which tariffs can be cut with the least impact on total revenue. This requires eliminating widespread exemptions and an effective implementation of domestic taxes such as VAT and excise spanning a widened base. The degree of informality and the hardto-tax sectors complicate tax replacement, but a measured approach to reducing tariffs and expanding consumption taxes could minimize adjustment costs. In the

> 39 Consider a hypothetical scenario where a typical poor country raises taxes of around 12 percent of GDP. It raises another 3 percent of GDP in non-tax revenue. Add to it a fiscal deficit of 5 percent of GDP. It then has to meet its immense development challenges like poverty alleviation with a resource envelope of around 20 percent of GDP. (Note that the interest burden on annual borrowing alone, at 8 percent, would add 0.4 percent of GDP in subsequent years.)
|OMVG Interconnection Project|Christopher PhilipTrimble|
|---|---|
|OMVG Interconnection Project|Christopher PhilipTrimble|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|Support to the National Education Pact Project|Monica Yanez Pagans|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|UG GEF Energyfor Rural Transformation III|Raihan Elahi|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|STP-QualityEducation for All Project|EmilyElaine Gardner|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|ET Productive SafetyNets Project 4(PSNP 4)|Lucian Bucur Pop|
|P146890 - Georgia Competitiveness and Growth DPO3|Mona Prasad|
|MZ Second Agriculture Development PolicyOperation AgDPO-2|Jan Joost Nijhoff|
Table 2 reports simple mean tariff rates and their standard deviations for the periods 1990-93 and 1995 for a larger group of countries. This table should provide an idea (albeit imperfectly, given that para-tariffs are excluded and averages are unweighted) of how most countries in the region compare to each other in terms of trade policy. It shows that by 1995, there was considerable uniformity across countries in the region in the level and dispersion oftariffrates.

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# 2. Outcome indicators of trade liberalization

Trade policy reform is effective to the extent that it encourages undistorted and (almost always) larger volumes of trade. The first two outcome indicators presented below are related to, respectively, changes and levels of trade intensity.'° Their usefulness as indicators is based on the proposition that trade liberalization leads to larger flows of imports and exports, relative to GDP. The third indicator, the black market premium on foreign exchange, measures the inadequacy of regulations governing foreign-exchange markets; as such, it serves as a proxy for price distortions present in both | current and capital account transactions." .

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Using thepercentage change in the ratio ofreal imports plus real exports to real GDP" as an outcome indicator of trade reform rests on the assumption that average changes in this ratio that occur in the medium-term (say four to five years) are mostly caused by policy changes. Under such assumption, this indicator can be used to compare improvements in trade openness over time and across countries (to the extent that initial trade openness is similar across countries'*), Table 3 reveals that, in the case of the early reformers, among them Bolivia, Chile, Costa Rica, and Mexico, the expansion of trade as a share to GDP occurred mostly in the 1986-89 period.'* In the 1990s, the

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1° The terms “trade intensity” and “volume of trade as a share to GDP” are used as synonymous with the ratio of real exports plus real imports to real GDP. 'l The black market premium on foreign exchange has also been used in the literature as a proxy for overall price distortions. See Barro (1991). ’? Real, rather than nominal, exports and imports are used in order to abstract from the effect of real exchange rate appreciations on trade measures.

8 Clearly, those countries that were already quite open at the start of the period would also tend to show little change in their volume of trade relative to GDP.

4 Detailed data for the period 1985-95 on this and all other indicators presented in this paper are given in the appendix.

5
|_Amoxicillin tabs/caps/oral available_|0.97|0.91|0.83|0.80|0.92|0.80|
|---|---|---|---|---|---|---|
|_Ampicillin powder available_|0.21|0.07|0.65|0.06|0.66|0.37|
|_Any antibiotic available_|0.97|0.92|0.85|0.81|1.00|0.84|
|_All antibiotics available_|0.19|0.05|0.42|0.02|0.40|0.21|
|**Rehydration**|||||||
|_ORS packet available_|0.83|0.80|0.85|0.77|0.99|0.87|
|_Sodium chloride inj. available_|0.63|0.43|0.98|0.67|0.91|0.69|
|_Has ORS and sodium chloride available_|0.57|0.37|0.82|0.57|0.90|0.61|
|_Neither ORS nor NaCl available_|0.11|0.15|0.00|0.13|0.00|0.04|

±Breakdowns by cadre and education were unavailable for facilities with over 50 medical staff in Tanzania so the counts of doctors, clinical officers, nurses, and other (and counts of staff with different levels of education) are only available for facilities with 50 or fewer medical staff. However, the counts of total medical staff include these larger facilities (Tanzania has 35 facilities with more than 50 medical staff, which increase the averages of total medical staff from 40.37 for hospitals and 8.29 for non-hospitals to the 111.47 and 8.97 reported in the table above).

*Acceptable waste disposal methods include: Open burning in pit or protected ground, placed in covered pit or pit latrine, placed in pit or protected ground, off-site removal (with protected storage) and one or two chamber incinerators.

> _+_ Other arrangements for emergency transport include other official vehicles, private vehicles or another mode of emergency transport.

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26 Notwithstanding good recoveries in some provinces, the profitability of the cooperative banks is low. In 1993/94 the FBC made a profit of only Rs. 10.8 million. But this is because the bank operates on the basis of a service charge, which was as low as 1.49 percent in 1993/94.

The FBC's low level of profitability is not the main problem, however. Instead, it is that continuous experimentation and extensive changes have eroded confidence in the cooperative movement. Since 1947 the movement has passed through three periods of debasement and corruption. In the 1950s the movement was deflected from its primary constituency, smallholders. In the early 1980s interest-free loans were usurped by the prosperous rural elite. A survey conducted by the Punjab Economic Research Institute, concluded that 61 percent of the societies were fictitious and 73 percent of the loans were bogus. Moreover, the smaller farmers were inflating their farm size to get larger loans and the bigger farmers were trimming their holdings to become eligible for the largesse.

In the early 1990's the Cooperative Finance Corporations collapsed after taking deposits of **Rs.** 15 billion from mostly rural residents and then investing the funds in risky ventures for the personal gain of cooperative organizers. These cooperatives were actually real estate companies that had managed to register as cooperative societies. The government is endeavoring to provide relief to the quarter million people who were affected by this fraud.

The cooperative movement also suffers from several institutional weaknesses, that have eroded the movement's credibility:

- Uneven Coverage. Nearly 63,000 cooperative societies are located in 15,000 villages, while 30,000 villages have none. Moreover, 34 percent of farms are cultivated by tenants, who cannot join credit cooperatives because they do not own immovable property (a membership requirement).

- Highly Subsidized Rates. Although interest-free lending was halted in 1988, the cost of cooperative credit is still verv low. A 14 percent rate is charged for production loans, with a 4 percent rebate for prompt payment.

- Absence of Professional Management. here remains no mechanism to ensure **that** only genuine societies are registered. The entire cooperative credit system lacks the professional capacity to appraise, prioritize, and recover loans. The audit function is not being performed by the Provincial Cooperative Department, which does not have adequate staff, and the provincial cooperative unions have no funds for education and training of society members
characteristics in order to improve the precision of estimates (Section 5.1), but also in order to minimize a systematic tendency to overstate poverty in truly non-poor communities and understate poverty in truly poor communities.

# <u>5.4 Correlation</u>

A further way to consider the reliability of the small area estimates is to examine the correlation between the predictions and the true values. Table 6 shows simple pearson and spearman rank correlations between true and predicted values. Each cell shows the correlation between predicted welfare and true welfare across the 20 target populations. Rows represent alternative pseudosurveys and columns indicate alternative welfare measures. Correlations (both pearson and rank) are positive and reasonably high for mean consumption and the two poverty measures (headcount rate and squared poverty gap). In the case of inequality the correlations are much lower – presumably because the target populations vary very little in terms of true inequality. Indeed, households in the PROGRESA communities are more homogeneous than those within a stratum in a typical poverty mapping application. All the communities in the PROGRESA sample were selected for the program because they were poor and rural, based on indicators in the 1990 and 1995 censuses. Consequently, the households are more similar to one another than the households in an entire stratum of a country. This high level of homogeneity across households (and target populations) is a somewhat unusual feature of this empirical application. However, it might be expected to present a particularly difficult setting in which to implement the small-area estimation methodology and therefore does provide a useful (conservative) setting in which to gauge the methodology’s performance.

# **6.  Discussion**

The results presented here offer a rough test of the ELL methodology and point to some tentative conclusions that may inform future applications of the ELL welfare mapping method. In terms of the predictive power of the method, the results provide strong evidence that ELL estimates have important information content. Bias is low, the correlations between actual and predicted values of poverty indices and the mean are 18
decreases with the difficulty of measuring performance in any other activities that make competing demands on the agent's time and attention.

Since linking environmental results to a manager’s specific effort can be relatively hard, particularly when considering long-term environmental risks, the upshot might then well be an overall reduction of incentives on some legitimate (and easier to appraise) business functions. This might create a dilemma for the firm, unless of course a compelling business case can be made for the achievement of environmental objectives.

# ▪ _Monitoring and auditing_

Over the last two decades, the practice of monitoring and auditing environmental activities has spread among business firms. In small or informal enterprises, such appraisals will be mostly holistic and subjective. In large corporations, they have often become standardized, owing to the introduction of international norms and techniques (ISO 14010, EMAS, etc.). An obvious benefit of these practices is the careful review of the firm’s management of environmental resources – a necessary condition for greening its operations.

**_The information obtained could also feedback on incentives._** As it was expressed early on in The Economist (8<sup>th</sup> September, 1990), “Audits allow chief executives to set goals for subsidiaries: get your reported emissions down to such-and-such level, or lose a bit of your bonus.” Gabel and SinclairDesgagné (1999), moreover, have proposed the following scheme in order to overcome the above dilemma and reconcile typical business duties with environmental assignments.

Let the common business activities be routinely monitored, as they usually are, and suppose that environmental activities are audited when business-as-usual performance is high. Furthermore, let the manager be penalized if an audit finds that environmental performance is below expectations, but make the manager’s average compensation greater when there is an audit than when there is none.

Clearly, a manager subject to this kind of scheme will seek to be audited. She will then work harder on the regular business activities in an attempt to boost results and trigger an environmental overview. But since there is little benefit in doing this if the environment was neglected, she will also pay due attention to environmental goals.

# ▪ _Transfer prices_

**_For the same reason that governments can impose taxes on polluting emissions, a large divisional firm could adjust the internal or transfer prices its divisions are using when they trade goods with each other, so that such prices incorporate the costs of environmental damages._** Several companies have employed this means to improve their environmental performance. A European chemical manufacturer, for example, is imputing all measured environmental costs (like the legal fees incurred or expected and the insurance premia charged) to the responsible products and processes. With their product margins altered in such a way, division managers’ incentives to trade environmentally friendlier goods increase.

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different segments of households, with consumers who differ in average income and therefore differ in willingness-to-pay for preschool education. The private provider optimally chooses between a high-price strategy, serving consumers with high willingness-to-pay only, and a low-price strategy, serving consumers from both segments. An expansion of public supply has ambiguous effects on private enrollment, depending on the difference in willingnessto-pay across consumer segments and on the relative size of each segment. Crowding-out effects of more public provision are less likely when the differences in willingness-to-pay across consumer segments are relatively large.

Our paper clearly relates to the more general literature on crowd-out effects of government funding, in particular the strand of the literature dealing with crowd-out effects of public provision of private goods. However, the existing empirical research has mainly been devoted to health care markets. Cutler and Gruber (1996) and Gruber and Simon (2008) analyze the extent to which public health insurance crowds out private insurance, while Cohen et al. (2013) study crowd-out effects of public providers in the US market for outpatient substance abuse treatment. In each case, sizable crowd-out effects are identified.

Among the relatively few empirical studies on child care markets in this strand of the literature, recent contributions include Bassok et al. (2014a) and Bassok et al. (2014b), who find evidence of significant crowding-out of private providers as a result of increased public provision in the child care markets in Oklahoma and Florida, respectively. Cascio and Schanzenbach (2013) also find evidence of crowd-out effects from the expansion of public preschool in Oklahoma and Georgia, particularly for high-income families. Similarly, Cascio (2009) finds evidence of sizable crowd-out effects using US census data over five decades.<sup>4</sup> These mixed findings for the US and Brazilian settings can be rationalized in the context of our model. As noted above, crowding-out effects of more public provision are less likely when the differences in willingness-to-pay across consumer segments are relatively large. These differences are expected to be generally larger in the Brazilian context, where the levels of inequality in parental income are among the highest in the world (World Bank,

> 4There is also a related recent study by Owens and Rennhoff (2012), who examine competition between for-profit and nonprofit child care providers in four Tennessee counties and find no evidence that nonprofit providers crowd out for-profit ones.

4
particular, we focus on the substitute side of alternative financial institutional arrangements and emphasize their respective advantages and weaknesses, but we do not analyze the potential complementary of alternative financial arrangements. In addition, more detailed empirical and theoretical research is necessary to finally establish the theory of optimal financial structure proposed in this paper<sup>1</sup> . With all these shortcomings in mind, we hope that this paper provides a new perspective for research on the relationship between financial structure and economic development.

# **Reference**

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- (2) Allen, F. and D. Gale, “Diversity of Opinion and Financing of New Technologies”, _Journal of Financial Intermediation_ , 1999, 8: 68-89.

- (3) Allen, F. and D. Gale , _Comparing Financial Systems_ , Cambridge, MA: MIT Press, 2000.

- (4) Beck, T. and R. Levine, “Industry Growth and Capital Allocation: Does Having a Market- or Bank-Based System Matter?” _Journal of Financial Economics_ , 2002, 64: 147-180.

- (5) Beck, T., A. Demirgüç-Kunt and R. Levine, “Law and Finance: Why Does Legal Origin Matter?” _Journal of Comparative Economics_ , 2003, 31:653-674.

- (6) Berger, Allen N., and Gregory F. Udell, “Relationship lending and lines of credit in small firm finance”, _Journal of Business_ ,1995, 68, 351-382.

- (7) Berger, Allen N., and Gregory F. Udell, “The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle”, _Journal of Banking & Finance_ , 1998, 22 : 613-673 .

- (8) Berger, Allen N., Anthony Saunders, Joseph M. Scalise, and Gregory F. Udell, “The effects of bank mergers and acquisitions on small business lending”, _Journal of Financial Economics_ ,1998, 50, 187-229.

- (9) Berger, A.N., N.H. Miller, M.A. Petersen, R.G. Ragan, and J.C.Stein,, “Does Function Follow Organizational Form? Evidence from the Lending Practices of large and Small Banks”, _Journal of Financial Economics_ , 2005, 76: 237-269.

- (10) Berle, A. A. and G. C. Means (1932), _The Modern Corporation and Private Property_ , New York:Harcourt Brace Jovanovich.

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1Lin and Sun (2008) use the provincial panel data on banking structure in China to test the theory of financial structure. The empirical results show that the economy grows faster in regions where small banks play a more active role in the banking sector. This is consistent with the theory of optimal financial structure.

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