 So, yna'r anewsio'n gweithio, ddim yn ymdweud o'ch cwestiynau. Felly, os ydych chi'n gofyn i'r ffordd, ychydig yn ymddi'r ysgol yn y gweithio'r ffordd, y ffordd yma, ar y gweithio'r ffordd, yn y gweithio'r gweithio, dwi'n ddifetio'r ddifetio, no, dwi'n ddifetio'r ffordd, dwi'n ddifetio'r ddifetio. If you could identify yourself, please, sir, for the audience. Just have to follow from the University of Professional Studies Ghana. To Professor Sanjif, in one of the slides, I saw that on the implementation of the fiscal strategy side for the three different categories of countries that you use, it looks as if the implementation stage, they all score the same, but on the other two, that is the understanding stage and then the formulation stages, they seem to be some wide differences among the countries. Why is that the case from the analysis? Why is that the implementation stage, the different countries are almost performing the same way, but wide differences in the other sectors? The second point is that I also noticed that in terms of accommodating the business cycles into the processes for low-income countries, there was zero. Why does it mean that that is totally ignored in the processes or not? And then... Do you have a final question, Joseph? And then the last one goes to Professor Juca in terms of the tax system in developing countries, particularly from where I come from, you have a large number of the informal sector. To what extent can this category of businesses be incorporated into the tax system vis-à-vis the formal sector, which is probably bearing the larger portion of the tax revenue that is to be generated? Thank you. Thank you, Joseph. So we also have a question on this side. Could you pass the microphone to Omar? Omar, if you put your hand up, there we are. Thank you and identify yourself for those who don't know you. Okay, thanks, Omar McDewm from the London School of Economics. Thank you very much to all the speakers. A question for Juca. Juca, I'm very grateful that you're here because it allows me to ask a question that I've been wanting to ask for a very, very long time about the Nordic miracle. So you've asked the question of what features the tax system would explain the Nordic success. Well, I wanted to know if, in fact, it had something to do... had nothing, in fact, to do with the tax system of Nordic countries, and had something to do outside of the tax systems. And the explanation that I've often heard, and I wanted to know what you thought about this as a fin, is that it had something to do with Nordic countries' demography. And in particular, the two facts, that they are both very small populations and also they're relatively homogeneous populations. Diversity is correlated, we believe, with different notions of what the state is. And so it may be that individuals are unwilling to pay taxes to a state that they don't... whose authority they may not share or have respect for. So I wondered then then what about this idea about homogeneity and about state size and about population size, whether it has something to do with the success of their tax system. Okay, thank you, Omar. Is there another question on that side of the room before we go to the other side of the room? Okay, we have two... Sorry, Michael at the back there. You're just by Michael Walcock. Sorry if you could say who you are, Michael, for those who don't know you. Yeah, I'm Michael. No, Michael Walcock from the World Bank. I guess it's just a refinement of the first question, actually, to Sanjeev, in this, I think it was budget unity out of the 12 different things in your spider diagram there. In one sense, one would expect high-income, middle-income, and low-income to be sort of arrayed as you would expect them to be on a diagram like that. Not just in the category of implementation, but the specific question around budget unity. Why is that for all in statistical purposes, at least we don't seem to see any difference at all between those three? I can think of an explanation, but I'd be really interested in how the IMF sort of makes sense of that kind of empirical result. Okay, thank you, Michael. We have two ladies at the front, and then I'm going to switch over to the right-hand side. So the lady, could you identify yourself, please? Okay, I'm Madina Globa with the Economic Policy Research Centre in Uganda. Mine goes to Sanjeev. I saw your line up on the budgeting process. Uganda just finished reading the budget and seemed a little bit desperate. We're wondering how the IMF comes into all the donors, come into influencing this budget process, because right now it's a bit too political than actually the Ministry of Finance taking its role in the budget process. So how does the donors, like the Britain Woods, infecting on our budgeting process? Thank you. Okay, thank you, Madina. If you could pass the microphone to the lady on the same row. Thank you. Thank you very much for three presentations, very exciting. And my questions would like to ask... Could you identify yourself, please? Oh, sorry. I'm Hong from Central EC2 for Economic Management. My question relates to Sanjeev about your very interesting diagram, or diamond diagram. You said that there must be a kind of macroeconomic fiscal forecasting and also fiscal risk management activities. And also you said that the fiscal system should be independent. So my question is about how the institutional arrangement, meaning the organizational arrangement, can be met with those kind of indicators, whether the first two indicators should take a role by the independent agencies or the Ministry of Finance, because in the case of Vietnam, for example, it seems that those three roles are all taken by the Ministry of Finance, even including the taxation management. So my question is about what about the international experience about those kind of functions. Thank you. Thank you very much, Hong. Okay, do we have questions on the right-hand side? I hope there's a question also for Vladimir among the group. Please, the gentleman at the front, if you could identify yourself. Thank you. Yes, I'm Santiago Levy from the Inter-American Development Bank. This is a comment on the second presentation by Ducca, which I find really interesting and very important, and I take advantage of Sanjeev's present here. I think a lot of the revenue and tax analysis in developing countries, unfortunately, only looks at the revenue side and tries to find the weight losses or the efficiency or inefficiency losses. There's a lot of concentration on the mix of that income taxes and the structure of taxation. You make the very important point that the tax base and the incentives to evade are not independent of what the money is used for and the expenditure side. The Nordic example tells that the participation rate can itself be endogenous and compensate some of the labour market distortions if you actually spend on that. I want to just suggest that this analysis be extended because in many of the developing countries, the revenue side of the budget undermines the tax base and undermines the revenue effort and actually ends up subsidizing evasion because a lot of the spending goes to subsidizing formal activities directly and indirectly, which not only hurts the participation rate but hurts formal informal choices and hurts firm behavior. More broadly, and I finish the point here, this idea of not only looking only at the revenue side of the budget, but simultaneously looking at what the money is being spent on and the incentives that it generates to evade, or not to evade and to participate and not to participate is sort of fundamental in the way we think about tax systems. Thank you. Thank you, Santiago, and welcome to Hanoi. There's a question in the middle there. The lady with her hand up, please. I guess most of the questions I had have been addressed, but perhaps let me just say. I had a... Oh, let me introduce myself. My name is Pamela from Zambia Institute for Policy Analysis and Research, and I think my question is on the production of financial statistics by an independent office. I think I would love to hear more of how that can be achieved with some examples where that has been achieved. My second question is linked to linking expenditure to how it is collected. Now, vis-à-vis a large or sizeable informal sector, how can that be achieved as well? Because in some of these countries, the informal sector is quite large, so how could government spend expenditure be linked to how the revenue is collected? And the other last point is on third-party reporting. Of course, given the same sizeable informal sector, how can third-party reporting be enhanced? Thank you. Thank you very much, Pamela. Are there any questions on that side? Alan, please. Could you pass the microphone to the gentleman at the front? And then I'll switch back. Alan De Genvry, University of California at Berkeley. It seems to me that all three presentations make the point that there is a need to coordinate, there is a need to plan in a sense, there is a need to return to a capacity to think ahead, to define an industrial policy, to link the income side to the expenditure side. This puts the back on the table in a sense the issue of planning, an issue that we have kind of swept aside. Planning has been done more through the back door than in explicit fashion. Could you, the three speakers, take on the issue of the institutions? How would you put planning back on the table? And what kind of institution would you use for that purpose? Which in some way rejoins the question from Vietnam. Thank you, Alan. That's a question for all three members, but very much, I think, for Vladimir. OK, so we have finally, I think, Anthony. Anthony, can you raise your hand right up so the microphone can get to you? The lady is with the microphone. I need some lunch because she's having to run around. Thank you very much. My name is Anthony from University of Southern Denmark in Denmark. Two questions for actually one embedded, two embedded in one for Professor Yoka. How sustainable is the Nordic model in terms of the, if you picture the demographic transition that these countries are going through right now, the aging has been a sort of a concern in the policy cycles. So this tax system, how sustainable it is because it's the huge base of this tax system that depends on workforce, people are going back to work. And in that case then what are the lessons developing countries can learn from these potential sustainability issues. And then two questions to Professor Vladimir. One is on industrial policy. You argue that industrial policy seem to be a way out for sort of pushing economic growth. But I want you to know your views on to what extent that is realistic in terms of the global political landscape. And I can give an example here, think of the WTO and the rules of the game. What lessons can developing countries draw from these and how best can they go about issues like intellectual property rights on innovation and so on and so forth to be able to benefit more on these industrial policies. And the second question is you argue that it's more these transition economics it has something to do with government failure than market failure. And I wanted to draw your attention to the fact that how can this be realistic on developing countries, particularly in Africa. How is this government failure vis-à-vis market failure realistic if you picture the African economies. Thank you. Okay, thank you very much Anthony. Okay, so I'm now going to return to the panel. But before I do that, Sanjeev has a question for I think Yuka. Because I'm sorry to... No, please go ahead. I want to pick up on some of the issues with Santiago raised and and of course the issues that Yuka addressed are the ones are bread and butter of the work that we do in the fiscal affairs department. You know, I mean we have been looking at the design of tax systems in the context of the debate which is going on on income distribution and fiscal policy. And also of the link between spending and the taxation. I think that is a point which is very well taken. But the ability of the government to spend depend on administrative capacity which is lacking in a number of countries. So I mean this model applies only if you assume that the countries have the capacity to implement good expenditure programs. And for most of us who have been in this business for a while, this is not that easy. So I think that's one link that we must recognize. The second one is dual income taxation. I think theoretically it makes sense. We've been discussing this with some countries. But again in the context of the debate which has been initiated by Piketty and by others where we say that labour income would be taxed at a higher rate than the capital income. How do you sell this to a society in a number of places where, you know, how progressive is this system going to be in the end? So that's again an issue which we should not overlook. And again on the self-reporting, I think that's a good idea. But let me give you a practical example. VAT, yes, there is a self-reporting there. But one of the biggest issues we face now, for example in Africa, is that countries are not given VAT refunds. And so the self-reporting system breaks down. So we have to take into account again the discussion we had in the morning about what are the norms and what are the systems prevailing in the countries. And then I would also like to, on the presentation on the investment and on the state, etc. I think one issue which we have to bear in mind, there's no discussion about the quality of investment. We know from our experience and there's a lot of work we are doing now in our own department on investment because there's a huge debate of increasing public investment not only in low-income countries, but in advanced countries in emerging markets and other groups of countries. But one thing that worries everybody, even in advanced countries, is how to ensure quality of investment. And just to say that investment, if you increase investment things will happen, we know many examples from failed projects in the history that that doesn't happen. So I just wanted to add that. Okay, we'll come back to you, Sanjeev, to respond to some of the audience. But let me take now Yuka and his responses, because there's an immediate sort of follow-up there with Sanjeev and also to the audience questions, Yuka. Okay, thank you, thank you all for these excellent questions. I need to say that these were really great questions, but many of them are also really hard. So let me try to do my best in answering them, and I wish I had the correct answer to all of these, and I think the world would be a better place if the economists could answer those, but there are still so many open issues that these are just some quick reflections. Yes, oh yes, okay, that too. First of all, the point about the informal sector. That's a point well taken, and this is something which actually requires thorough analysis, because part of the informal sector represents activities which we wouldn't like to tax at all. So in a sense it's good to have informal sector for very poor workers. So those we wouldn't want to tax even if we were able to. But then there might be some ways of utilising new information technology, and the VAT chains. Although, as Sanjud said, the VAT is something which is maybe sometimes overplayed its role, but on the other hand there is some evidence that the adoption of VATs, this is based on IMF research results, adoption of VATs sort of things equal has led to increase in tax revenues. There's something in that which actually is a form of a tax which is a kind of money machine as your colleague at the fund Michael Keane puts it. Maybe this practice of reverse charging in the VAT, so normally the VAT works so that the taxpayer only pays the, as the name also says, the tax on the value added. But in some sectors, in developed countries nowadays, like the construction sector, the final delivery of that firm is also responsible for paying back all the tax on the whole chain, so that has helped to gain some extra revenues. Then there was a, do a carry on or leave the others? Oh, there were so many questions. So one thing which is a very general question by Omar on if there's anything we can learn from the Nordic tax system given that the countries might be so different. And I think that this is partially true that the countries are indeed different and not everything is exportable, but there are some features in the tax system. This is something which is very, very well dealt with in the clever paper that there's evidence not only from the Nordic countries but also from other countries that these features like the third party reporting and the broad tax base plus the idea of also paying attention to the expenditure side are something which are not unique to the Nordic countries, although Nordic countries apply them to a large extent. So there's something there. There might be something else as well, which is not relevant, but the answer is that part of it is relevant. Thank you very much. Let me next take Vladimir. I think Alain's question very much was geared at you, Vladimir. Thank you so much. Thank you for the questions. The Alain de Genry question was about what kind of institutions you develop in order to make sure that the government works. Something tangible I can say on the issue, basically no one knows, but something tangible I can say is that if we look at the indicators of the government performance, it's better to use not the various indices like control over corruption, there are six indices of the World Bank about the government effectiveness, rule of law and so on. These indices, they are sometimes in conflict with the objective indicators of the government performance. By the objective indicators, I mean two things. First is the crime rate or better murder rate, because murders are better registered in low-developed countries. If there is a body, there is a case. So basically all the murders are registered except for the countries where there are wars going on. And second, the share of the shadow economy. It's also an objective indicator. It is evaluated based on certain procedures, the share of cash money, the consumption of electricity and so on. So there are estimates of the shadow economy. So this is the indicators, these are the indicators that allow you to see what kind of institutions do work. And one more thing, central bank independence, because there was one of the indicators of institutions in Sanjeev presentation was central bank independence. We know that central bank independence works to bring down inflation, but we know that low inflation is usually associated with less growth. So once we talk about economic growth, there is a paper by Alex Tukerman, which links the level of inflation to the independence of the central bank. But sometimes low inflation is not so good for growth and this inflation targeting, which is a new mantra, today there are papers saying that there is a debate going on here. So central bank independence may not be such a great institution for economic growth. And then quickly, Valmy. Yes, and there are two questions from the gentlemen in the middle of the room. What about the industrial policy if the space for industrial policy is very much narrowed by the WTO and by the rule, so trade protection is out of question today and very difficult to exercise and also intellectual property rights rule. The simple answer is underpricing your exchange rate. I have a paper on that once you build your reserves and you underpric your exchange rate and build your reserves, then it's an industrial policy that favours traded goods versus non-traded goods and export-oriented development. This is the industrial policy of East Asian countries. By the way, in Africa, the country that proceeded with these kind of policies, Botswana, one of the most successful economies in Africa from 1960 to 2000, it was building the reserves growing faster than any other country in the world and the reserves to GDP ratio was the highest in the world, 24 months of imports, if I'm not mistaken. Now, the second question was about... And very quickly, Vladimir. Yes, the government failure and how it applies to Africa, well, in addition to Botswana, let me just point to the other story. There is a paper by Poltorowicz and the obedient servant stages of development and economic growth. The increase in government spending was associated with a better performance or at least the decline in government spending was associated with a worse performance. So there is some evidence for all the countries, not only for Africa. Thank you. Thank you Vladimir. Okay, Sanjeev, now we're at a risk of crowding out the fund but also crowding out lunch. So I'll ask you to be quite succinct in your responses. That's okay. I'll stick with the constraint that you've imposed. The one question which I think two people asked was about why is the result on the implementation stage on budget unity so strange. It so happens that in seven countries, you know, the way the decisions are being made, we had seven countries in the sample for the low income group. The central government expenditures were being authorized under one decision making head. So this is an empirical artifact. It's not something which one can explain through anything else. Then there was this question about why is the business cycle not included in the fiscal objectives. And the reason for that is in most of these low income countries you do not have the ability to come up with a potential output and then have a structural deficit. So they normally rely on overall deficits and not have business cycles included in them. And that's one of the reasons. And there was a question about why there are the independent fiscal agencies. What are they and how do they fit in with the role of the Ministry of Finance? To answer that question, one can look at the experience of the UK. UK did not have independent fiscal agency until recently. They set it up and what it did was to improve the quality of the macro forecast that the Treasury was making until then the Treasury were overestimating the GDP growth. As a result they were presenting a rosier picture then it should have been and that had an impact on how the fiscal planning was being done. Now as a part of the reforms that have been introduced in Europe all the countries are required to have independent fiscal agencies so most of them are doing that. Finally, on the role of donors there is no specific institution on the role of donors, how the donors interface with the countries. The only thing one could do is in the fiscal reporting the coverage of the accounts, the coverage of the money that is coming in from donors should be included in the spending. Thank you very much. It's good to know that England can do something right given our success rate in football recently. OK, so thank you very much for the panel. It's been an excellent session. We ran out of time for responses on the questions but you can talk to them over lunch. To get your lunch though you'll need a name badge so pick that up. Remember at 1.30 there is a launch of a book on international development speakers including David Malone the rector of the United Nations University. David is in the audience there together with Ravi Kanbor. So do come along to that. It remains for me to thank the panel and to thank you for a very good session. Thank you.