Public finance and development: six things to read in May

21 May 2019
Insight
Loans and repayment schedules, Mumbai, India. Photo: Simone D. McCourtie/World Bank CC BY-NC-ND 2.0

Chinese lending and debt sustainability

The Chinese government has come under a lot of flak in recent times for its lending practices. Not all of it entirely fair, as Deborah Brautigam has been regularly pointing out

Elsewhere, the Chinese government has won plaudits for last month’s launch of a new debt sustainability framework (pdf) for the Belt and Road Initiative. This is largely modelled around the IMF and World Bank’s existing framework.

This (paid) Financial Times article discusses the imperatives behind slowly moving to a more transparent lending framework and suggests that transparency needs to be extended to the scale of loans within the Chinese government.

What do budget officers do all day?

Anybody who has worked inside a finance ministry will recognise the ubiquitous figure of a ‘desk officer’ working inside the budget office who is the first point of call when spending ministries need something. While there is plenty of literature written about public budgeting theory and various budgetary reforms, relatively little has been documented about what these individuals do on a day-to-day basis and why they do it.

This new ODI publication follows the work of desk officers responsible for controlling spending of line ministries in Malaysia, Myanmar, Netherlands, Slovenia and the United Kingdom. Variations across country seem to be more closely linked to the way in which spending is controlled under different political and institutional regimes, rather than driven by differing individual ‘capacity’.

This may seem obvious, but in my experience budgeting training programmes tend to be based around ‘new techniques’, rather than the tasks they  actually perform on a day-to-day basis. Support to improve outputs of budget officers could benefit from an understanding of what budget officers actually do, rather than assumptions of what they should do.

Financial management information systems

Governments and international organisations have invested billions of dollars (pdf) in financial management information systems (FMISs). A new IMF ‘how to’ note provides valuable new survey evidence from 46 countries of the gap between what such systems promise and what is actually delivered. Many of the core deliverables one would expect (e.g. generation of reliable fiscal reports) are regularly not in place.

The note suggests adopting a ‘modular’ design to the implementation of such systems, where FMISs are focused on core functions and then mechanisms are found to link up other stand-alone software systems. This seems eminently sensible, but perhaps not that much of a departure from current operational realities. 

Tax, transparency and inequality

I received an email last month from Matthew Collin (formerly of Aid Thoughts fame) summarising some interesting recent research on taxation. It’s a great resource and I hope it is published soon.

He unpacks very nicely a mixed bag of results about the role of information and transparency on taxation and how they affect inequality and social cohesion.

  • In Pakistan, the revenue board started publishing a list of actual tax payments and the top 100 payers for each tax category – this saw overall tax payments increase.
  • in Norway, previous work has shown the online publication of individual tax returns (complete with information on their income) also led to an increase in taxes being paid, despite potentially  making people more jealous (there was an increase in the rich-poor happiness/life satisfaction gap by between 21-29%).
  • In Sweden, when survey respondents were told that approximately half of all household wealth was inherited (including the fortunes of billionaires), there was a 30% increase in their support for wealth taxation.
  • A randomised experiment in Tanzania shows that how information is presented about the fairness (or unfairness) of tax systems matters. Two videos were shown to different groups explaining how tax avoidance undermined provision of social services. But rather than reinforce a social contract through punishing the government at elections, the video using morally-charged language around tax avoidance deterred people from voting in forthcoming elections.

The links between audits and electoral accountability

Keeping on the topic of transparency and accountability, it tends to be assumed that increased information about how governments are spending money can help build more accountable governments. Yet current evidence on this is patchy.

This new study shows how the timeliness and political salience of the release of information can be critical. A natural experiment using by-elections triggered by the deaths of incumbents finds that when municipal audits are published directly before a by-election, voters in South Africa rewarded improvements and punished poor performance by about five percentage points. These effects dissipate when the audits are released months before a by-election.

The costs of fossil fuel subsidies

For many years, ODI has been urging governments to undertake fossil fuel subsidy reforms. In typically understated style, this new IMF working paper notes that ‘global fossil fuel subsidies remain large’ – accounting for an eye-watering 6.3% of global GDP in 2015. The authors find that if fossil fuel subsidies were absent, global carbon emissions would have been 28% lower and the government would have increased revenue by 3.8% of GDP.

If you would like to sign up to receive the public finance resources round-up regularly, please email Mark ([email protected]).