Luis-Felipe Zanna, Olivier Basdevant, Ms. Susan S. Yang, Ms. Genevieve Verdier, Mr. Joannes Mongardini, and Dalmacio Benicio
Botswana, Lesotho, Namibia, and Swaziland face the serious challenge of adjusting not only to lower Southern Africa Customs Union (SACU) transfers because of the global economic crisis, but also to a potential further decline over the medium term. This paper assesses options for the design of the needed fiscal consolidation. The choice among these options should be driven by (i) the impact on growth and (ii) the specificities of each country. Overall, a focus on government consumption cuts appears to minimize the negative impact on growth, and would be appropriate given the relatively large size of the public sector in each country.
. Welfare Comparison
Table 3. Welfare Comparison
Figure 1. Infrastructure Spending Needs
Figure 2. Existing Capital and Operation and Maintenance Spending
Figure 3. Investment in Infrastructure Sectors as Percentage of GDP
Figure 4. Efficiency Scores - LIC Countries
Figure 5. Baseline Case - Only Taxes Adjust to Close the Fiscal Gap
Figure 6. Allowing for Public Debt to Close the Fiscal Gap
Figure 7. OnlyConsumption Tax Adjusts to Close the Fiscal Gap
Figure 8. Only Labor Tax Adjusts to Close the Fiscal Gap
Figure 9. Only Capital Tax
consumption is slightly lower than in the model without endogenous debt, smoothing the fiscal adjustment allows consumption to increase in the earlier years leading to a larger positive welfare gain.
B. Fiscal Stabilization Packages and Welfare Implications
Adjustment through Consumption Taxes : When onlyconsumption taxes are allowed to adjust ( Figure 7 ), their increase during the scaling-up period is higher than in the baseline case. They reach about 21 percent and therefore cause consumption to decline slightly on impact. On the other hand, however, the fact
This paper studies an optimal tax problem for a small open economy where collecting taxes is costly. It is shown that, in the presence of collection costs modeled as an increasing function of the tax rate: (a) the standard rules of optimal commodity taxation (the Ramsey, the inverse elasticity, the Corlett-Hague rules) may no longer be valid; (b) tariffs may replace domestic taxes as a second-best revenue-raising device; and (c) the optimal tariff/tax structure may be uniform rather than differentiated.
price ratio of tradeables, relative to the world market price ratio, in the same direction. Finally, labor is paid its marginal-product value, denoted v.
Taxes. In keeping with the literature, we assume that commodity taxes can be levied only at the border and the point of purchase -- i.e., onlyconsumption and foreign trade can be taxed. 7 Producers sell their output in the domestic market at prices r 1 = p 1 + τ 1 , and r 2 = p 2 - τ 2 , where τ 1 is the import tariff and τ 2 is the export tax. Consumers purchase these good at prices q 1 = p 1 + τ 1 + t