Public finance and development: six things to read in March

16 March 2018
Insight
Loans and repayment schedules, Mumbai, India.

Should we be worried about declining budget transparency?

Last month saw the impressive launch of the international Budget Partnership’s Open Budget Survey – (a comparative assessment of budget transparency). The headline is that after 10 years of steady progress, the 2017 survey shows a modest decline in countries’ average scores (from 45 in 2015 to 43 in 2017). Declines in Sub-Saharan Africa have been the main driver in this falling average. Nobody is sure how to  explain the decline, although this Duncan Green blog does a nice job of summarising some different opinions on the topic.

Absent from any of the discussions is critical reflection on whether publishing evermore information  is always and everywhere a good thing. Indeed, ‘in many democratic societies it has become unfashionable to oppose transparency claims in any context’. Authors of the open budget survey suggest that the global average is well below what is needed for meaningful deliberation. Yet meaningful deliberation does not rely on information alone, but also on the quality and accessibility of information and the ability to analyse this information. My sense is that in many countries, the amount of information published has run far ahead of the quality of public debate.

What did we learn from the first global platform for collaboration on tax?

The global platform for collaboration on tax held its first conference in New York last month. The outcome statement sets out a number of ‘platform actions to take the tax agenda forward’. Much attention was given to medium-term revenue strategies – arguably the tax equivalent of a sector-wide approach. This prompted enthusiasm from some, but also some concerns (well summarised by ODI's Tom Hart). It will be interesting to see how the first pilots proceed.  

Some useful background documents were produced in the run up to the conference. This Oxfam briefing note on provides some useful background information on domestic revenue mobilisation in the global development context. Maya Forstater’s paper offers another reminder that gains around international tax issues are small relative to the those that can be made through domestic measures. Michael Keen and James Brumby discuss practical suggestions on how tax systems can assist in addressing excessive increases in wealth inequality. And this case study on Uganda, by Jalia Kangave and colleagues, provides a nice example of how one of these suggestions – ensuring wealthy individuals pay their taxes – can be put in to practise.

Learning lessons on financial management information systems

Governments and donors around the world have invested considerable sums in strengthening financial management IT systems in developing countries. As of 2010, the World Bank alone had invested more than $2 billion in various integrated financial management information services (IFMIS) projects. These investments have changed the way that public funds are managed. A new paper by Moritz Piatti-Fünfkirchen and Ali Hashim is the latest welcome attempt from the World Bank to learn lessons from past reform projects. The authors raise the question of whether a financial management information system in certain contexts can mean ‘doing the wrong things faster’. It’s a particularly useful resource for people thinking about the interactions between technology and existing processes for budget management.

Problem-driven iterative adaptation (PDIA) in practise

The Collaborative Africa Budget Reform Initiative (CABRI) and Harvard’s Building State Capability Programme have published a series of reflections on recent efforts to apply PDIA principles to public financial management in Africa. They give a nice flavour of some familiar problems in budgeting. For instance, this Matt Andrews blog on Nigeria looks at how the finance ministry tackled the common challenge of getting line ministries to follow routines set at the centre. I hope there is a follow up planned a couple of years hence to see what has happened to the groups’ work.

The case for and against earmarking taxes (again)

A funding crisis in the UK’s national health service prompted renewed debates over the winter about the role of ‘earmarking’ taxes to fund particular spending. Economists typically decry ‘hard’ hypothecation where expenditure – on say, health – is tied to a specific, unrelated tax: cutting health expenditure during a recession makes very little sense. Commentators in the UK have expressed more tolerance for ‘soft’ earmarking (where the links between a specific tax and spending are not legally binding) as an effective political tactic to make increases in taxes more palatable even if it is somewhat deceptive (because the taxes are not really tied to particular spending). Similar arguments on earmarking as a tool to bring political support for taxation have been used by Wilson Pritchard in the tax and statebuilding literature. Useful summaries of arguments both for and against earmarking can be found in this Richard Bird article and this ODI paper.

Understanding the challenges in turning around South Africa’s economy

Recent political developments in South Africa have seen renewed optimism in the media about the country’s economic prospects. This collaboration between the South African Treasury and the World Institute for Development Economics Research (UNU-WIDER) offers a timely analysis of some of the drivers of South Africa’s recent economic malaise. The policy synthesis provides a strong example of economists using detailed taxpayer data to better understand what is happening in the economy and using the analysis to come up with some concrete policy recommendations. Trends of wage inequality are especially striking, suggesting that the dramatic rise in high skilled wages point to the demand for skilled labour chronically exceeding supply. They argue ‘skilled immigration holds the potential to increase growth, by relieving the skills constraint, and reduce inequality, by cooling of the skilled wage premium.’

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