Institutional Framework and Poverty: A Transition Economy Perspective

This paper focuses on the role of institutions in poverty alleviation, where both poverty and institutions are interpreted broadly. The broadening of the poverty notion is important at least from the policy perspective. Even if one were convinced that higher growth would reduce income poverty to an acceptable margin, there appears to be little concrete policy measures that one may offer so as to harness greater growth. Besides, the weight of the empirical evidence to date, if not squarely founded on the transition economies of the EEFSU region, is that reducing average poverty is not enough. Existing and possibly rising inequality would ensure that a great many would fall through the cracks, and not benefit from high growth, even if that was achievable. The non-income elements of poverty, on the other hand, are more directly open to influence by policy interventions such as the easing of micro credit and other public and private ventures in health, sanitation, literacy and numeracy fronts. Finally the modest amount of information available at our disposal indicates that the underlying strength of the institutions (economic, political and social) is possibly the single most agent of significance to bring about the alleviation of non-income poverty. There is a further possibility that the same institutional forces would also materially affect the income measure of poverty as well in a discernible fashion.

Institutional Framework and Poverty: A Transition Economy Perspective

Institutions, Poverty reduction, Growth

Choice of Tax Base Revisited: Cash Flow vs. Prepayment Approaches to Consumption Taxation

This paper re-examines the issues involved in the design of a direct tax on consumption, an idea that has received a fair degree of acceptance in the transition countries over the past decade (e.g., tax reforms in Croatia and Moldova). First we argue that on the subject of equivalence among a set of taxes, the only meaningful comparison is along the ex-ante concept of equivalence, and not ex-post. The latter as we shall see requires highly implausible, and often arbitrary, choice scenarios. We carry out the analysis in a variety of models starting with the two-period consumption-saving choice under full certainty. However, a good part of the discussion is carried out where the portfolio choice behaviour is embedded in an intertemporal savings model that has been widely discussed in the literature. We then take up more complete (and necessarily more complex) choice situations for examination. Indeed the first of two variations of the above is a model where individuals make work-leisure (for a given skill level) as well as the safe-risky asset choice. The last is of risky human capital choice, where the physical investment is restricted to a single non-risky asset. For the purposes of the paper, the models are very general, and the precise choice context is open to wider interpretations than how they are actually phrased. In spite of our preoccupation with the efficiency aspects, we are interested in other important issues of equity, and those of an administrative nature. But our remarks on the latter fronts are limited to the insight that we directly gain from the analytics.tax reform in transition countries, cash-flow tax, prepayment tax, ex-ante and ex-post equity, risk sharing, and tax reform

The Efficiency Loss of Capital Income Taxation under Imperfect Loss Offset Provisions

The importance of capital loss offset provisions in a world of risk is well documented in the tax literature. However, the potential deadweight losses owing to imperfect offset has not been fully explored. This paper develops a framework whereby that investigation can be carried out and utilizes numerical simulations to investigate the size of potential losses. Results show that when the government and private sector are equally efficient in handling market risk, welfare losses owing to the absence of offset provisions could be substantial. Under plausible assumptions about attitudes towards risk and time preference, and with a capital income tax rate of forty percent, over sixty cents per dollar of tax revenue raised would be dissipated. In contrast, full loss offset would reduce that loss to approximately fourteen cents.capital income taxation, uncertainty, deadweight loss, loss offset provisions