 So now it's the time for questions and ask comments from the audience. We'll take a few comments first and then let Tauvel and Mika ask when then we see How are we doing in terms of time? So the two questions here at the front. Thank you very much Okay, so I am Nora Lustig Michael You probably have heard of our work which tries to have a holistic approach to the Incidence analysis with all the caveats that you mentioned and I cannot agree more with you that's the approach Joel mentioned that's important talk about tax systems I really think we need to talk about tax and spending systems and I want to venture An explanation. I think of why people are so reluctant to actually accept the policies that recommend getting rid of Exemptions or using the VAT and then redistribute later because for a long time The later was not part of the equation The redistribution part, you know the the fund for many years was advising countries to give rid of exemptions Punto right and In Mexico in particular for a long time The only thing that the government was saying is the exemptions relatively, you know They're progressive if you in if they're in a quality reducing because but but they benefit relatively more the the rich But they didn't accompany the proposal of trying to get rid of the exemptions with a clear Indication that those resources would be used to compensate the poor That's one of the things that there's been a loss of credibility for good reasons I would say unfortunately, but but you have to fight that because I think the proposal is correct But why is the resistance one is that the second reason why the problem is there is because The subsidies or the exemptions actually are addressing a group of the poor that is very hard for Governments to reach which are the urban poor Okay, and Mexico is actually struggling with that right now in which they you know Then great strides in making progress with the now called Prospera I just changed its name opportunities and progress a third name But they can't really make it work in urban settings because very hard to target So there what are they trying to do? You know they're now they're going back to discussion about using minimum wages And that's where that's where the issue of what you do instead becomes much more difficult. So I am you know Interest, I mean I had forgotten that the snap had this Tax exemption embedded in it, but but there is I haven't read it and I was going to ask you this idea of having a personalized VAT, you know Which means somehow what you have here in snap that you actually in Embed the Benefit as a tax credit so to speak to people who are already part of your Poor population, but particularly think about the urban areas if you do not come with a solution for that then politicians are going to resist it for good reasons because the urban poor are much higher in the Dessal scale that probably fourth fifth the cell to get upset if you can if you take away that substance So you have to think about a way in which that group gets to be benefited also by the reforms Okay, thank you Andrea Cornia. I'm Andrea Cornia from the University of Florence I have one question I mean one common question to enjoy and I think that optimal taxation theory Perhaps needs to be expanded so as to consider and when you deal with the so-called efficiency cost of taxation Well, another approach to look at it is to say well, okay I have to pay higher taxes, but then I will get a lot in return from the government and this is the West European approach People are more willing to pay taxes because they have a fairly good healthcare system They're basically free and high quality education then there are minimum pension guaranteed to everybody So so the the efficiency cost of taxation that there will be lower lower labor supply or MSN I Think there are all these new theories of fiscal exchange you give me this and I give you that I mean I have to pay your taxes, but then I get a lot in return I live five years in Finland and here people the tax rates are quite high and people do grumble like they Grumble everywhere else, but they I mean tax compliance is fairly high So the fact is not very high and then the second point is that when when are these efficiency cost? Kicking in I mean in Uruguay the income tax in during the Conservative government have been completely abolished the personal income tax then they this has been in Reintroduced with reasonable rates. I think the maximum was be twenty twenty five percent And then one of my PhD is done is that this showing that the reintroduction has not generated any Diminution any decline in labor supply. So I think that the Perhaps the optimal taxation has to be As to evolve also a little bit in this direction. The second point is for Michael Keane Many many years ago Francis Stuart and I we did an article called two errors of targeting and we compared basically the errors Of including the say the rich through subsidies to generalize subsidies and then there was that you Have when you do transfer income when Transferring income, I mean there is a major problem with identifying the poor and so so when we summed up I mean I thought that the traditional problem was that Normally that in those days the bank That's why not the fun the bank basically was suggesting is okay No cares top generalized subsidies and replace them with the income transfers now normally If you if you impose very restrictive identification criteria, then you exclude a lot of the poor and You exclude exclude a lot of the people so what it turned out in and we examined about ten ten country case studies Sri Lanka India and don't remember the others which basically if you value only the inclusion error You obtain that this program has appeared to the other if you include inclusion Inclusion exclusion ever then you come up that in some cases generalized price some see it might have been superior Particularly if generalized price subsidies are the same like in India with the PDS in which you do have Subsidized broken rice rather than rice Okay in the interest of time, please keep try to keep your comments Relatively short so we take a couple of more and then we let these speakers to ask for Francois Okay, no Thank you very much Francois Bourguignon. Thank you very much for two very nice presentations on on the first one Would it be possible? I mean could you tell us a little more about the elasticity's of the tax basis to the Income tax rate. I know that you've done very much work in particular with Emmanuel says on on this I'm not sure that I remember well the Figures that you you're rich. I mean there's a range of estimates that that's rich but if I'm not mistaken when Trying to apply this kind of French to an optimal taxation framework then having the optimal top income tax rate at 60% was not at all completely illusory So is it true or not? I mean what is a kind of? Well, the orders of magnitude that that we that we can think of and on the next presentation See that your argument about food subsidies is very very strong. I remember a couple of years from now I was trying to do exactly the same kind of argument in Egypt and Presumably is a bank was taught really very effective in in getting these results. You're absolutely right to To insist on the political economy aspect, which as a matter of fact is also present in the UK and also present in France but I Think another aspect in the developing countries and maybe also in the in developed countries in the fact that We are not always I mean it is not always okay that a channel to transfer cash is available and If in the case of Egypt, it would well it would be possible to say look We will be reducing the food subsidy But at the same time these cash benefits that you are getting will be increasing by so much Something which would be possible in Mexico something which would possible in Brazil then things might be completely different because people could immediately see That they would be losing on the one hand, but they will be gaining on the other hand Okay, and then one final question proves No gentleman at the back Bruce probably University of New South Wales I mean this on the same question of the the price subsidies. I mean, I think Keep political issue is a question of commitment to the compensation. I mean many countries Governments can credibly commit to making a say a cash transfer compensation in the immediate aftermath of an indirect tax change But of course typically cash transfers at payments that get adjusted from time to time And so there's a question about whether people can believe that in the in the course of many adjustments over many years that Additional payment will stick As a pop perhaps in countries like say Australia and the UK perhaps one solution is to think of institutional frameworks So for example some sort of especially designated cash transfer which Which responds to this and we just set up with price indexation and so on as part of its some defaults formulation Okay, thanks so much. We now let the speakers to respond so Joel you like to go first hmm So let me respond to two of the questions first about theory of fiscal exchange There's no question in my mind that if you look across countries and across cultures and try to explain The extent of tax evasion concepts like fiscal exchange matter a lot But the policy issue is not whether we can change Italy into Finland We are in most cases when we're thinking about policy reforms We're sort of stuck with the attitude people have toward government whether they find credible and reasonable to Think about I give you this you give me that and if we're talking about Policy the response to policy for a given attitude toward fiscal exchange I think the evidence is overwhelming that deterrence type theories explain Evasion better than any other theory. I I don't mean to say non deterrence theories like duty and trust don't matter at all but deterrence theories are over overwhelmingly explain I think The determinants of tax evasion penalties probability of Detection matter if we're talking about for a given set of attitudes toward government To the question about the elasticity of taxable income It is true that the manual sighs and I wrote a survey paper where we talk about the estimates But we give a range of estimates and the two of us might be on the On the two bounds of the range, but I will answer your question. So I think the the literature suggests the elasticity of taxable income is between Point two and point four if you get start thinking about point four You can easily get to an optimal tax rate. That's up near sixty percent But I'll stress a couple things first of all we don't the margin of error is still pretty high It's not easy to measure the elasticity of taxable income Second that there's I think there's no question that the elasticity is different for different income classes And in particular, I think it's higher for the high-income classes Because they have not only the ability to make real responses, but they have available to them a much wider range of avoidance In particular responses, but also evasion responses. So You know, I am not Convinced that what we know about the elasticity of taxable income is enough for me to go to a government and say You know to move the top income tax rate to sixty percent and don't worry about the behavioral response. I personally I'm not there Okay, Nick Thank you. Yes, no, maybe just to to respond to The comments I've managed to write down and reasonably neat handwriting I think Nora's point about that the difficulty of the kind of Inadequacies of past advice I think is is a fair comment and I think that's certainly something I think the funders Recognized for a few years. I think it has been a problem that we send just from our narrow perspective that you know We've sent a mission on the tax side that would say You know get rid of these exemptions and you can look up to them on the spending side The authorities then say well, okay, thank you. How do we do it? And then we say well, we'll send another mission to talk about that or that's not actually us That's the World Bank or so I think that's true. And I think it's certainly something we're We're trying to be better on it's actually very very difficult to do actually so we've had a few goes at that but just just in terms of Putting together packages, it's it's very it's very hard to do maybe just to Pick up a couple of the things here. I think on the The point about fiscal exchange and trust in government when I agree with Joel Joe said I think that's also why you know, I think another link. We haven't made well is that I just touched on briefly is the link between reforms in Tax and spending and reforms and actually the management of expenditure because that's also You know it clearly is a big issue in many countries and it's simply that they don't trust the money is going to be spent in any Kind of reasonable way and I think we've really we've barely scratched the surface. I think in terms of actually Marrying again those two areas of work. I think Both people like us and countries themselves need to Need to work work harder on I think just to pick up a couple of just general issues on the on the subsidies thing Which as we all know is is not a is not a new issue I Remember Ravi Kanba at a conference once Somebody presented a paper on subsidies and energy subsidies and he said well We've we've all written this paper at least once in the last 30 years The numbers change that's it the paper is the same but the numbers change we kind of and I think that that's true But I guess there are a number of distinct issues there one is kind of the availability of instruments to reach these these various groups Which we can we can talk about that. I mean are there I think I'm always quite impressed by this Iran example where this was just such an expensive thing It was worth investing in setting up these atm's networks getting people bank accounts making the thing work So if we don't have these instruments clearly in many cases that you know They doing it is going to be pays for themselves many times over and I think you know we see these We do see these things even in Egypt. I guess is also largely an urban issue But you know I think the the availability of instruments You know we shouldn't take as well clearly we don't take as exogenous and I think there are things We can see countries doing I'm just sort of not completely sure that's That's going to be a whole solution. I do think technology is helpful here as I mentioned with biometric cars You know pole subs it is a very simple things to do and again. This is this is what as a day This is what what Iran basically did but that leads into the second issue, which is the commitment issue, which I very much agree about and I think that was partly what I was getting up when I talked about earmarking was the idea that well Are there ways we can tie our hands that that people will credibly believe And I think the issue the again that the issue there is well that means typically It has it has pros and cons which I was trying to get to it can be very constraining for your spending Why would you like if you say well, we're going to fund health care through the VAT? There's no necessary reason why what you want to spend on health care should depend on what you raise from the VAT If your VAT revenue collapses you're going to find money from some other source to finance it in which case you're not really earmarking stuff at all You're basically, you know, you're either overly constraining spending or you're basically lying to people about what you're doing with that with their money And you know, we do see countries the work that have extensive earmarking Where it becomes a real it becomes a real budgetary macro issue the extent which funds get earmarked Having said that of course we should recognize, you know, we do earmark stuff Social contributions are basically an example of earmarking and certainly before I joined the fund I had an academic paper saying that earmarking was a jolly good thing Which I've reconsidered a little bit But I do think, you know commitment is commitment is a I Don't I really don't have a really don't have a very strong ass, but I totally entirely agree that so That's an issue. Did I miss anything? Though the person has VAT. Well, I mean, I think of that, you know, as I understand it This is basically just saying well, let's compensate people in terms of what we think their VAT payments would have been Which is the which is the way that the IDB people present it Which is really just a special case of some of the things I've been thinking about. I don't think it's Okay, thank you very much both We still have time for one or two questions. Oh, we have quite many so The two here at me in the front, so let's start from those please keep it short and please also identify yourself I'm Nicholas and get I would like to ask Joel about the possibility of linking Tax data to survey data for more comprehensive analysis and I also wanted to direct a question to Michael about the how he thinks that the big informal sector in developing countries will affect the possibility of Emulating the British case for for for developing countries especially of Africa and compounded with corruption and the difficulty of even targeting the right beneficiaries. Thank you Thank you so much Finn, please Thank you very much. My name is Finn tab First of all, thank you very much for two brilliant presentations. That's very much appreciated To jail. I mean thanks for the messages from the tax community development community Let's try and see whether we cannot come up with a series of messages from the development community And Make I am and maybe Joel you might want to comment on that also I'm gonna have a couple of observations based on two country experiences Most in vegan Tanzania in particular, but I'm particularly going to refer to Tanzania The first is out of also being on the so-called Danish external appropriation committee in other words I'm on that committee which basically signs off and all the need a programs Just a couple of weeks ago. I was sitting in the meeting and then one of the trans conditions is Getting the tax share up and then sort of as of course I sort of sit there and reflect. Well, but Is that in all cases a good thing? I Mean, you know and then basically the response when I asked the question Well, why that specifically is well, that's because the IMF tells us that And and I'm not saying that's right. I'm not saying that's right But but where does that sort of kind of thinking come from and and why are we so kind of crude? Now I'm as you know I'm also living in in Finland and the present Development minister of Finland is sort of in the same area and he's right now reflecting on a policy where he would Allocate aid in the following way if countries increase their tax share Then he will give the aid he will tie the aid to that. I Wonder whether you had some reflections on that Okay, thank you Another question here in the front And gentlemen with the watcher My name is a Subramanian. This is for professor keen I think you will agree that the choice between targeting and universalization would be very much a case specific Choice But I think it is worth pointing out especially in the context of our country says India from which I come That the general disposition and favor of targeting Has not always necessarily been particularly healthy With specific reference to the public distribution system for food for instance There is first of all the massive cost of dismantling the public distribution system and replacing it with a system of targeted transfers Now even assuming that the objective of collecting information is to dispel ignorance nothing more than that The my biometric Identification program in India has cost an absolute packet. I mean it's been a hugely expensive endeavor Which does not reckon yet with the fact that when when a government has discretion or when there are agents of the government who have the discretion to To offer Selective to confer selective favors on people. There's also the problem of corruption and bribery So you might have all the information that you need at your disposal and yet be guilty of deliberate mis-targeting of resources and in addition, I think one should also be somewhat sensitive to the To the fact that biometric identification is very often a thinly employed disguise for Targeting illegal immigrants. So there's a lot of intrusive surveillance, which which happens under the guise of Targeting Secondly, this is this is a this is a gentle question Which either of you could to respond to it might seem needlessly controversial, but I assured you that it's genuinely meant and asked in the spirit of genuine inquiry Which is that if the objective of a tax-come-transfer system is to eliminate acute poverty Then I think for most countries of the world and certainly at the international level The aggregate burden of redistributive taxation is very small That's the aggregate poverty deficit say as a ratio of taxable income All the implementation of some sort of lexicographic maximum principle of taxation would result in very small proportions of the population being taxed and relatively small proportions of their incomes being taxed in relation to the huge benefits which are to be obtained from eradicating mass poverty, which is after all a massive model shame as well now This is a reflection a little bit on our profession. Are we pretending to go along? With with governments which refuse to get on with a job of actually eradicating this problem by getting a little too subtle and exquisite with the design of Rather fine-tuned incentive-compatible systems when perhaps what we ought to be reiterating again and again is to say get on with a job It's not such a such a hugely difficult one as it's often made out Okay, I hate to Try to finish this this discussion on there's such a wonderful topic as taxation We're running out of time and I do need to keep to have the floor is still Well, I sense that I got the easier of the questions I Think there was one directed toward me about the possibility of a linking tax return data to survey data The answer to that question really depends on what country you're talking about the rules about The privacy of tax return data are very different in different countries Not only about linking to other data, but what making The tax return data in some form publicly available More and more in more and more countries that's becoming possible for researchers to get access to some kind of sample of tax returns date tax return data, which So which is encouraging But there's no general answer to whether that can also be linked to survey data But I will say that I think making tax return data Available to researchers in some form is a very important thing for democracy because it allows private non-government people to think about tax policy to come to independent judgments using the the data that comes from From tax returns and other government sources Well, thank you. No, they're very very good very very very hard questions. I don't have anything terribly Smart to say and any of them. I think the first there was first issue about Informality Which I think we could probably have a whole separate session on because I think you know The first thing I would say was all what do we actually mean by informality? And I think you know for in many respects when we think about the tax system You know, it we're really talking about compliance and non-compliance and which comes under some of the issues that Joel was talking about about For example, where you where you draw thresholds for people who are in that in we should be in the system I think many of the smaller traders are standard standard view would be that many of us small Micro-type traders just shouldn't be in the tax system at all and there should be you know We have a typically we tend to have a fairly generous VAT threshold and they're sort of out of the system But I know I'm not giving you a very full answer because I think that would really take actually a full Full hour and I can send you a paper on that actually On on raising tax ratio. Well, I guess obviously I don't want to comment on particular countries But I think as a you know as a general rule. I think it was a general impression I think certainly our sense is that many low-income countries Typically will need to raise more revenue in order to meet their development goals We know that aid budgets are coming under under pressure They've done a generally a you know a good job in terms of building strong fiscal but fiscal buffers So certainly I think the raising the tax ratio in in many countries You know, we would think is is something to aim at but having said that I mean, I think certainly we're also At least as conscious at The importance of the structure of the tax system, so I think there are a number of countries for example that have Less so in recent years, but you know if we look back to since the early 90s or something There are a lot of countries that haven't done much in terms of the overall tax ratio But I've actually done a lot in terms of changing the tax structure in terms of where the revenue comes from which we might Disagreed well we would tend to say is it is a good thing others might disagree for example But the reduction in countries that have managed to reduce tariff revenue Replace it from other sources. We would tend to think have actually done quite a good quite a good job So I think we do we do think the structure of the of the of the tax system matters At least as much and I think I think the point you were making about the notion that age should be conditional on some stronger effort in in domestic resource mobilization that mean that is That that's certainly an idea that's around and I think is is going to gain traction I mean we there is and it was you know an empirical literature on what aid does to does to Domestic revenue mobilization which people have different different views on But you know there are certainly people who believe that particular types of aid actually have debilitated efforts to strengthen domestic tax systems and of course strengthening domestic tax systems doesn't just mean You know the VAT it actually also means developing a proper income tax So, you know, I think certainly when we when we think about Advising countries, we're often thinking not just or even mainly of the overall revenue ratio But of some structural measures towards what we'd think of us. It was tax systems better suited to meeting macro and and and fairness and efficiency objectives I Thought I was interested I was interested in your remarks about the experience of biometric Cards and Indian. I'd certainly don't claim to be an expert and I'd be keen to learn more. I think I'm largely going by assessments that were done at Center for Global Development and they were there actually they took a rather different line their view was actually these things been really rather cheap but I haven't I mean I think I but I think it's an important issue because you know The mere fact of identification Let alone linking with other data sources is but you know, if you can get it, right does seem to be potentially Really quite powerful. I mean if you can just be able to pay a poll subsidy with a reasonable chance that it works is Is a huge strengthening of instruments? I like your phrase about needlessly controversial I wrote that down But I was in I'm always in favor of people who needlessly controversial But I think in a way your point was also answering that the point raised here in some sense that actually You know a lot of a lot of these things don't don't take that much money and Just go on and do it. Which is also true. Of course of the wider aid debate, right? I mean It's not we're not talking about much money in many of these in many of these poverty relief areas But I saw I don't know if that got anywhere close to hmm Okay, thank you so much. Thank you once again Joel me for this excellent talk