Public Finance: An International Perspective

Contents
Preface
Chapter One: The Role of Government in a Modern Market Economy
1.1. The Economic Justification for Government Activity
1.1.1. Conditions for private markets to yield an optimal allocation of goods and services
1.1.2. Consequences of market imperfections
1.2. Specific Activities for Governments
1.2.1. Addressing natural monopolies
1.2.2. Public goods
1.2.3. Creating an economic framework that allows private markets to work well
1.2.4. Managing public goods and services
1.2.5. Externalities
1.2.6. Merit goods
1.2.7. Addressing distributional issues
1.2.8. Stabilization
1.2.9. Addressing information failures: Regulation and social insurance
1.2.9.1. Deposit insurance
1.2.9.2. Pensions
1.2.9.3. Health care
1.3. Summary
Chapter Two: How Fiscal Policy Affects the National Economy
2.1. Fiscal Policy: An Introduction
2.2. Fiscal Policy and Aggregate Demand
2.2.1. Fiscal policy in a closed economy
2.2.2. Fiscal policy in an open economy
2.2.2.1. Open economy with limited capital mobility and flexible exchange rate
2.2.2.2. Open economy with limited capital mobility and a fixed exchange rate
2.2.2.3. Open economy with perfect capital mobility
2.2.2.4. Impact of budget financing
2.2.2.5. Other factors affecting the impact of fiscal policy
2.2.3. Fiscal policy in countries with limited credibility
2.2.4. Fiscal multipliers
2.3. Fiscal Policy and the Supply Side
2.4. Fiscal Policy and Globalization
2.5. Fiscal Policy and the Balance of Payments
2.6. The Interaction between Fiscal and Monetary Policies
2.7. Using Fiscal Policy for Macroeconomic Management
2.7.1. Relative effectiveness of tax and spending policies for adjustment
2.7.2. Using fiscal policy to promote economic growth
2.8. Limitations on Fiscal Policy
2.9. Summary
Chapter Three: How the National Economy Affects the Fiscal Sector
3.1. Business Cycles and the Government Budget
3.2. How the Stage of Economic Development and Other Factors Affect Fiscal Policy
3.3. Is Fiscal Policy Pro- or Counter-Cyclical?
3.3.1. Advanced economies
3.3.2. Developing and emerging market countries
3.4. Making Policy More Counter-Cyclical
3.5. Summary
Chapter Four: Fiscal Accounts, Analysis, and Forecasting
4.1. Coverage of the Fiscal Sector
4.2. Fiscal Accounts
4.2.1. Main elements of the fiscal accounts
4.3. Fiscal Analysis: Key Indicators
4.3.1. Traditional measures of budget balance
4.3.1.1. Conventional (cash or overall) balance
4.3.1.2. Primary balance
4.3.1.3. Operational balance
4.3.1.4. Government savings (the current balance)
4.3.1.5. Public sector borrowing requirement
4.3.1.6. Cyclically adjusted budget balance
4.3.1.7. Structural balance
4.3.2. Fiscal balances under the 2001 and 2014 GFS
4.3.3. A quick introduction to fiscal sustainability
4.3.4. Budget financing
4.3.4.1. Foreign financing
4.3.4.2. Domestic financing
4.3.4.3. Drawing on foreign exchange reserves
4.3.4.4. Arrears
4.3.5. Fiscal space
4.3.6. Revenue analysis
4.3.6.1. The structure of the tax system
4.3.6.2. Measures of revenue performance
4.3.7. Expenditure analysis
4.4. Fiscal Forecasting
4.4.1. Forecasting revenues
4.4.1.1. The effective tax rate approach
4.4.1.2. The tax elasticity/buoyancy approach
4.4.2. Forecasting expenditures
4.4.2.1. Forecasting discretionary expenditures
4.4.2.2. Forecasting interest payments
4.4.2.3. Forecasting budget financing
4.5. Fiscal Analysis Case Study: Singapore
4.6. Summary
Chapter Five: Fiscal (Public Debt) Sustainability
5.1. Assessing Sustainability: Basic Considerations
5.1.1. Extensions of the basic formulas
5.1.1.1. Impact of non-debt-creating inflows
5.1.1.2. Taking account of uncertainty in forecasts
5.1.2. Other factors to consider when assessing sustainability
5.2. Analysis of Fiscal Solvency
5.3. Sustainability: Going Beyond the Basics
5.3.1. “Stress testing” public debt
5.3.2. Fiscal vulnerability
5.3.2.1. Incorrect specification of the initial fiscal position
5.3.2.2. Short-term fiscal risks
5.3.2.3. Threats to long-term fiscal sustainability
5.3.2.4. Weaknesses in the structure of revenue or expenditure, or in institutional capacity
5.3.3. Interactions with the financial sector
5.4. Fiscal Sustainability and the Financial Crisis of 2007–2009
5.5. Case Studies of Fiscal Sustainability
5.5.1. Greece
5.5.2. United States
5.6. Summary
Chapter Six: Revenue Policy
6.1. Selected Data on Government Revenue
6.2. Purposes of Taxation
6.3. Challenges of Taxation
6.4. Principles for an Effective Revenue System
6.4.1. Revenue adequacy
6.4.2. Economic efficiency
6.4.3. Fairness
6.4.4. Simplicity
6.4.5. Conflicts among objectives
6.4.6. Special issues regarding exemptions
6.4.7. Balancing the objectives
6.5. Major Revenue Sources
6.5.1. Personal income tax
6.5.1.1. Double taxation of savings
6.5.1.2. Double taxation of dividends
6.5.1.3. Taxing non-cash income
6.5.1.4. The marriage penalty
6.5.1.5. Taxing worldwide income
6.5.1.6. Taxing capital gains
6.5.1.7. Tax allowances to encourage behavior
6.5.1.8. Reaching “hard-to-tax” incomes
6.5.1.9. The degree of progressivity
6.5.1.10. Adjusting the income tax for inflation
6.5.1.11. Taxing income versus consumption
6.5.1.12. Administrative issues regarding a personal income tax
6.5.2. The corporate income or profit tax
6.5.3. Payroll taxes
6.5.4. Taxes on property and other assets
6.5.5. Taxes on general consumption
6.5.5.1. Retail sales tax
6.5.5.2. Value-added tax
6.5.6. Excise taxes
6.5.7. Taxes on international trade
6.5.8. Minimum taxes and presumptive levies
6.5.9. User fees
6.6. Other Tax Policy Issues
6.6.1. Tax expenditures
6.6.2. Taxing financial transactions
6.6.3. Tax treaties and harmonization
6.6.4. Implications of globalization for tax policy
6.6.5. Tax policy and fiscal federalism
6.7. Tax Administration
6.7.1. Basic considerations
6.7.2. Administrative tools
6.7.3. Trends in tax administration
6.7.4. Dealing with tax evasion
6.8. Summary
Chapter Seven: Expenditure Policy and Reform
7.1. Rationales for Government Expenditure: A Brief Review
7.2. Expenditure Levels and Composition — An International Comparison
7.3. Main Categories of Government Expenditure
7.4. Issues Affecting Specific Categories of Expenditure
7.4.1. Wages and salaries
7.4.2. Purchases of other goods and services
7.4.3. Subsidies and transfers
7.4.3.1. Consumer versus producer subsidies
7.4.3.2. General issues in subsidy design
7.4.4. Interest expenditure
7.4.5. Capital expenditure
7.5. Special Expenditure Issues
7.5.1. Unproductive expenditure
7.5.2. Quasi-fiscal expenditures
7.5.3. Mandatory vs. discretionary expenditures
7.5.4. Contingent expenditures
7.5.5. Public–private partnerships
7.6. Tools for Controlling Expenditure
7.6.1. General management tools
7.6.2. “Rules of thumb” that can help control expenditure; fiscal space
7.6.3. Short-term measures to improve expenditure control
7.6.4. More fundamental expenditure reforms
7.7. Summary
Chapter Eight: State Enterprises
8.1. Justifications for State Enterprises
8.1.1. Natural monopoly
8.1.2. Externalities require public management
8.1.3. High risk or capital scarcity precludes private entry
8.1.4. The service is essential but users cannot pay
8.1.5. The public sector can manage the operation better
8.2. Economic Implications of State Ownership
8.2.1. Incentives for production and management
8.2.2. Factors contributing to management problems
8.2.3. Consequences for efficiency
8.2.4. Consequences for consumers
8.2.5. Pricing at state enterprises
8.2.6. Financing issues
8.3. Reforming State Enterprises
8.3.1. Whether to divest or reform
8.3.2. Enterprise restructuring: Key issues
8.3.2.1. Changing operating assumptions
8.3.2.2. Organizational changes
8.3.2.3. Reforming management
8.3.2.4. Introducing competition
8.3.2.5. Risks from restructuring
8.4. Privatization
8.4.1. Preparing for privatization
8.4.2. Methods of privatization
8.4.3. Fiscal impact of privatization
8.4.4. Impact of privatization on employment, the share of state enterprise activity in GDP, and revenue
8.4.5. Effect of privatization on enterprise performance and perceived welfare
8.4.6. Public concerns about privatization and how governments can respond
8.5. Summary
Chapter Nine: Fiscal Aspects of Responding to Financial Crisis and Bank Restructuring
9.1. Background: What Triggers Bank Failures and the Need for Restructuring
9.2. Justification for Public Sector Response to Bank Failure and Financial Crisis
9.3. Policy Options to Support Failing Banks
9.3.1. Fiscal costs of addressing bank failure
9.3.2. Accounting issues in bank recapitalization
9.3.3. Illustrative cases of responding to bank crisis in Asia: Indonesia and Malaysia
9.4. Summary
Chapter Ten: Fiscal Federalism and Decentralization
10.1. Assigning Expenditure Responsibilities to Different Levels of Government — General Principles
10.1.1. Application of the “benefit principle”
10.1.2. Factors supporting more central control
10.1.3. Examples of how expenditure functions are allocated across levels of government
10.2. Assigning Revenue Sources to Different Levels of Government — General Principles
10.2.1. Each level of government needs dedicated revenue sources
10.2.2. Higher levels of government can best tap more mobile revenue sources
10.3. Intergovernmental Transfers in Federal Systems
10.3.1. Different levels of government receive specified shares of certain tax revenue
10.3.2. Revenues may be apportioned on the basis of relative population, revenue effort, or other factors
10.3.3. Grants
10.4. Achieving Fiscal Control in Federal Systems
10.4.1. Strategies to achieve fiscal control in federal systems
10.5. Fiscal Federalism in Practice
10.5.1. Brazil
10.5.2. United States
10.5.3. India
10.6. Summary
Chapter Eleven: Fiscal Policy for Promoting Growth and Alleviating Poverty and Inequality
11.1. Using Fiscal Policy to Promote Growth
11.1.1. Revenue policy
11.1.2. Expenditure policy
11.2. Using Fiscal Policy to Alleviate Poverty, Inequality, and Unemployment
11.2.1. Revenue measures to assist the poor and address inequality
11.2.2. Expenditure measures to address poverty and inequality
11.3. Summary
Chapter Twelve: Fiscal Policy and Aging: Public Pension Programs
12.1. Justifications for Public Pension Programs
12.1.1. Market failures
12.1.2. Other considerations
12.2. Types of Public Pension Programs
12.3. Advantages and Risks of Different Types of Public Pension Systems
12.3.1. Fully funded systems
12.3.2. PAYG systems
12.3.3. Population aging and fully funded systems
12.3.4. Risks affecting all pension systems
12.4. National Pension Programs: Illustrative Examples
12.4.1. Fully funded systems: Malaysia and Singapore
12.4.2. PAYG Systems: United Kingdom and United States
12.5. Population Aging and the Outlook for Public Pension Programs
12.6. Reforming Public Pension Programs: A General Approach
12.7. Summary
Chapter Thirteen: Fiscal Policy and Health Care
13.1. Basic Characteristics of Health Care
13.1.1. General characteristics of health care and the market for health care services
13.1.2. Special aspects of health insurance
13.2. The Role of Government in Health Care
13.2.1. Asymmetric information
13.2.2. Externalities
13.2.3. Distributional concerns
13.3. Trends in Health Expenditures
13.4. Singapore: Avoiding the Rise in Health Care Expenditures as a Percentage of GDP
13.5. Strategies for Containing Fiscal Costs for Health Care
13.6. Summary
Chapter Fourteen: Fiscal Rules
14.1. Kinds of Fiscal Rules and Their Implications
14.1.1. Types of rules
14.1.2. Implications of different rules
14.2. Effectiveness of Fiscal Rules
14.3. Fiscal Rules as Part of the Framework for Fiscal Policymaking
14.4. Developing Effective Fiscal Rules
14.4.1. General considerations
14.4.2. Which indicator to target
14.5. Recent Experience with Fiscal Rules
14.6. Summary
Chapter Fifteen: Fiscal Reforms
15.1. Goals of Fiscal Reform Programs
15.2. Potential Revenue Reforms
15.2.1. Broadening the tax base, to allow lower rates
15.2.2. Adopting new taxes with good potential for raising revenue
15.2.3. Adjusting other taxes and non-tax revenues
15.3. Potential Expenditure Reforms
15.3.1. Current expenditures
15.3.2. Capital expenditures
15.4. Potential Reforms for State Enterprises
15.5. Potential Reforms in Tax Administration and Public Expenditure Management
15.5.1. Tax administration
15.5.2. Public expenditure management
15.6. Achieving Fiscal Reform
15.6.1. Why reforms are implemented
15.6.2. Why reforms sometimes fail
15.6.3. Research on reform programs
15.7. Case Studies of Fiscal Reform
15.7.1. Countries of the former Soviet Union
15.7.2. India
15.7.3. Pakistan
15.7.4. Brazil
15.7.5. Canada
15.7.6. United States
15.8. Conclusions
Glossary
Bibliography
Index