Public finance and development: seven things to read in June

30 May 2018
Insight
Loans and repayment schedules, Mumbai, India. Photo: Simone D. McCourtie / World Bank CC BY-NC-ND 2.0

Tax and exemptions, gender, diagnostics, fragility and procurement are among the topics that have caught my eye recently. 

The implications of changes to tax laws governing Britain’s overseas territories

Last month saw a major win for financial transparency campaigners, as the UK passed laws obliging their overseas territories to make public the real owners of all companies registered in their jurisdiction. A key narrative of the tax justice movement has been that current arrangements for international taxation undermine the ability of poor countries to levy taxes on multinational corporations. This timely briefing by Wilson Prichard usefully sets out what would need to happen for the increases in available information to translate into increased tax collections in low income countries.

Tax exemptions on foreign aid

A new paper from ODI and the African Tax Administration Forum (ATAF) looks at the thorny issue of granting tax exemptions to foreign aid. Although exempting aid from tax has been a distinctive feature of the international aid architecture, very little is known about how it operates in practise. Responses to surveys summarised in this note help to start shedding some light on how exemptions are administered in practise and how those exemptions are perceived (often quite differently) by revenue authorities. The authors steer clear of blanket responses but suggest that some of the most egregious practices, such as aid workers and contractors routinely avoiding paying income tax should be stopped.

Reducing gender disparities through public spending.

Sexual harassment scandals from Hollywood to Westminster and evidence on gender pay-gaps are highlighting that there is still a long way to go in the struggle for equal treatment of women. What then is the role of public spending in addressing gender inequities? This new ODI note aims to offer some concrete ideas for advisers and governments looking at how to integrate gender considerations into systems for managing public spending, particularly in environments where there are significant capacity constraints. Looking back, the International Budget Partnership has a nice round up of recent work on the topic calling for better measurement and embedding of gender analysis in budgeting and policy-making routines. This 2004 note from the UK Treasury on the analysis of spending through a gendered-lens is also still a useful resource.

Taking stock of diagnostics and measures of public financial management performance

The PEFA Secretariat has published a stocktake of the PFM diagnostic tools being used to assess government’s public financial management systems. It’s a useful resource for people looking to understand the suite of different instruments that are currently available. There were 45 different diagnostics at the time of assessment in 2016 relative to just 11 in 2004. Twenty-two of these tools have scoring systems where by performance can be benchmarked across countries. 

This worries me. How should governments prioritise reforms when so many things seem to matter? I am  reminded  of a quote from Alfred Hirschman cited in the 2017 World Development Report, ‘the intensive study of the problem of economic development has had one discouraging result: it has produced an ever-lengthening list of factors and conditions, of obstacles and prerequisites.’

Escaping the fragility trap and the role of taxation

The fragility commission published its report last month on escaping the fragility trap. The report is critical of international donors ‘asserting their own unrealistic priorities’ and argues for a more pragmatic and patient approach to addressing fragility. In response, Marcus Manuel suggests the report is ‘spot on’ but asks why development agencies continue to fail to deliver such an approach (as evidenced by a new report from the IMF’s Independent Evaluation Office).

Promotion of domestic resource mobilisation has been put forward as a mechanism to support state-building. This report from CMI has some solid, practical recommendations that caution against simplistic narratives of more tax leads to stronger states. There are some nice quotes that anyone being paid to advise a government would do well to heed, including, ‘it comes with an obligation to keep ideas within reason, to ensure a certain humility in the design and implementation of the approaches to domestic revenue mobilisation, and to exercise caution in championing perspectives that have not had time to face the test of practice.’

Opening up the black-box of procurement and contracting

Public procurement is a big deal in terms of public spending. But it is an area that is not well-researched, partly one suspects because governments have often been loathe to share information on procurement and contracting practises. This is starting to change as information on contracts are increasingly being made public. The large datasets are particularly attracting the attention of microeconomists and there is more research on this topic on its way.

A recent paper on procurement in Hungary shows how competitive auctions provide better deals relative to negotiated deals. By contrast, a similar study on Italy found that increased discretion of buyers led to improved procurement outcomes. Outcomes do not just differ across governments but also within government. This study on procurement in Russia found significant variation in the effectiveness of procurement outcomes across different government agencies and different responses to policy changes. What’s the overall takeaway? We maybe know less than we think we might know.

The ongoing debate on ‘billions to trillions’

The debate on private financing for infrastructure rolls on. The World Bank’s Independent Evaluation Group opines that it’s all about the execution. ‘If they are designed and implemented well, infrastructure PPPs “can deliver the goods”… By contrast, poorly structured PPPs can quickly materialize high risks, and create many headaches for the public sector and private parties involved.’

Gyude Moore, Liberia’s former Minister of Public Works is more sceptical. He concludes that the ‘Billions to trillions’ agenda ‘is not happening anytime soon’ in the poorest countries – drawing on a report from ODI’s Chris Humphreys on what more the Multilateral Development Banks could be doing to promote private investment in infrastructure.

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