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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.
Matteo Ghilardi and Mr. Sergio Sola

. Welfare Comparison Table 3. Welfare Comparison Figures 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. Only Consumption Tax Adjusts to Close the Fiscal Gap Figure 8. Only Labor Tax Adjusts to Close the Fiscal Gap Figure 9. Only Capital Tax

Matteo Ghilardi and Mr. Sergio Sola

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 only consumption 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

Mr. Dubravko Mihaljek
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.
Mr. Dubravko Mihaljek

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., only consumption 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