Tax systems in transition

How have tax systems, whose primary role is to raise resources to finance public expenditures, evolved in the transition countries of Eastern Europe and the former Soviet Union? The authors find that: (1) the ratio of tax revenue-to-GDP decreased largely due to a fall in revenue from corporate income tax; (2) the fall in revenue from the corporate income tax led to a decline in the importance of income taxes, notwithstanding a rise in the share of individual income tax; (3) social security contributions together with payroll taxes became less important in the Commonwealth of Independent States; and (4) domestic indirect taxes gained in importancein overall tax revenues. Apart from the increased role of personal income taxation, these developments go in a direction opposite to those observed in poor countries as they get richer. They show a key aspect of transition, namely a movement from a system where the government exercised a preeminent claim on output and income before citizens had access to the remainder, to one with a greatly diminished role for the public sector, as reflected in a lower ratio of public expenditure to GDP, where the government needs to collect revenue in order to spend. Can expected levels of public expenditure be financed by the basic instruments of a modern tax system without creating significant distortions in the private sector? The authors suggest that transition countries, depending on their stage of development, should aim for a tax revenue-to-GDP ratio in the range of 22 to 31 percent, comprising value-added tax (6 to 7 percent), excises (2 to 3 percent), income tax (6 to 9 percent), social security contribution together with payroll tax (6 to 10 percent), and other taxes such as on trade and on property (2 percent). The authors'analysis also sheds light on the links between tax policy, tax administration, and the investment climate in transition countries.Municipal Financial Management,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Economic Theory&Research,Environmental Economics&Policies,Public Sector Economics&Finance,Economic Theory&Research,Banks&Banking Reform,Municipal Financial Management

Ethics, equity and the economics of climate change paper 2: economics and politics

Both intergenerational and intratemporal equity are central to the examination of policy towards climate change. However, many discussions of intergenerational issues have been marred by serious analytical errors, particularly in applying standard approaches to discounting; the errors arise, in part, from paying insufficient attention to the magnitude of potential damages, and is part from overlooking problems with market information. Some of the philosophical concepts and principles of Paper 1 are applied to the analytics and ethics of pure-time discounting and infinite-horizon models, providing helpful insights into orderings of welfare streams and obligations towards future generations. Such principles give little support for the idea of discrimination by date of birth. Intratemporal issues are central to problematic and slow-moving international discussions and are the second focus of this paper. A way forward is to cast the policy issues and analyses in a way that keeps equity issues central and embeds them in the challenge of fostering the dynamic transition to the low-carbon economy in both developed and developing countries. This avoids the trap of seeing issues primarily in terms of burden-sharing and zero-sum games – that leads to inaction and the most inequitable outcome of all

The case for a European low-carbon economy

In order to protect its future prosperity from the effects of climate change, Europe must move away from its current high-carbon path, to one built on sustainable growth and clean sources of energy. Lord Nicholas Stern makes the case for European governments to lay out a clear vision for a low-carbon economy. He argues for measures that include decarbonising the EU’s power sector by 2030, a true European ‘super-grid’, and the introduction of strong carbon prices across Europe that take into account greenhouse gas pollution. Until the economic crisis, the EU was a great example to the world of what cooperation can achieve. By promoting a sound vision for a low-carbon economy, it could be again

Ethics, equity and the economics of climate change paper 1: science and philosophy

This paper examines a broad range of ethical perspectives and principles relevant to the analysis of issues raised by the science of climate change and explores their implications. A second and companion paper extends this analysis to the contribution of ethics, economics and politics in understanding policy towards climate change. These tasks must start with the science which tells us that this is a problem of risk management on an immense scale. Risks on this scale take us far outside the familiar policy questions and standard, largely marginal, techniques commonly used by economists; this is a subject that requires the full breadth and depth of what economics has to offer and a much more thoughtful view of ethics than economists usually bring to bear. Different philosophical approaches bring different perspectives on understanding and policy, yet they generally point to the case for strong action to manage climate change

Economic development, climate and values: making policy

The two defining challenges of this century are overcoming poverty and managing the risks of climate change. Over the past 10 years, we have learned much about how to tackle them together from ideas on economic development and public policy. My own work in these areas over four decades as an academic and as a policy adviser in universities and international financial institutions has focused on how the investment environment and the empowerment of people can change lives and livelihoods. The application of insights from economic development and public policy to climate change requires rigorous analysis of issues such as discounting, modelling the risks of unmanaged climate change, climate policy targets and estimates of the costs of mitigation. The latest research and results show that the case for avoiding the risks of dangerous climate change through the transition to low-carbon economic development and growth is still stronger than when the Stern Review was published. This is partly because of evidence that some of the impacts of climate change are happening more quickly than originally expected, and because of remarkable advances in technologies, such as solar power. Nevertheless, significant hurdles remain in securing the international cooperation required to avoid dangerous climate change, not least because of disagreements and misunderstandings about key issues, such as ethics and equity

Understanding climate finance for the Paris summit in December 2015 in the context of financing for sustainable development for the Addis Ababa conference in July 2015

Headline issue: This paper was produced to inform negotiations ahead of a key international conference on finance for development, due to take place in Addis Ababa, Ethiopia, in July 2015, and the United Nations climate change summit, which will be held in Paris in December 2015. The paper asserts that overseas aid to support developing countries should be interwoven with efforts to mitigate and adapt to climate change. It claims that efforts to separate the two could be deeply damaging. Key findings: It is important to see climate finance for the Paris summit, at US$100 billion per annum, as catalytic in this context, rather than ‘gap-filling’.” The paper examines the critical issue of the ‘additionality’ of climate finance with respect to official development assistance (ODA), and identifies four ways of defining it: – supporting programmes or projects that would not have come about without climate finance; – stimulating action in areas which would not be otherwise covered or financed adequately by other sources; -mobilising new sources of financing that would not otherwise be forthcoming or available; and – providing a scale of overall ODA resources for climate action which is additional to what has been previously committed to development. The paper proposes six priority areas for support by climate finance: – promoting low- or lower-carbon activity in relation to infrastructure that may be under-emphasised in the agreement in Addis Ababa; – enhancing low-carbon activities, including energy efficiency, in non-infrastructure activities for buildings, transport, industry, agriculture, etc.; – funding adaptation, particularly for the most vulnerable and poorest countries; – avoiding deforestation, more productive land use, and protection of fragile resources, including oceans and biodiversity; – investing in innovation and breaking new ground for climate action, including novel ways for the public and private sectors to work together (eg on carbon capture and storage or climate-resilient agriculture); and – creating regional action, as many climate actions for both adaptation and mitigation are regional in nature but at the moment are under-supported and under-funde

Growth, climate and collaboration: towards agreement in Paris 2015

Headline issue: International agreements are built on shared understanding. So how should a climate change agreement be built at the 21st Conference of the Parties (COP21) to the UN Framework Convention on Climate Change (UNFCCC) in Paris in December 2015? The UNFCCC negotiations leading up to Paris have been organised on the basis that each country or region will determine their own contribution to the global climate mitigation effort.This more decentralised approach seems likely to lead to more ambitious commitments from many key countries. We are already seeing promising signs such as the joint announcement by the US and China in Beijing in November 2014 and the decision of the European Council a few weeks before. Together these cover around 50% of world emissions .These decisions are important and substantive steps in a sensible direction and suggest seriousness about a strong agreement in Paris in 2015. This policy report sets out four propositions required for an ambitious, dynamic and collaborative agreement in Paris in December 2015. Key points: The risks from unmanaged climate change are potentially immense and delay is dangerous. The path to a low-carbon economy can be highly attractive, embodying strong and high quality growth, investment and innovation in the context of rapid global structural transformation The agreement should be based on a shared commitment to creating “equitable access to sustainable development” The agreement should be structured to facilitate dynamic and collaborative interactions between parties. Governments should not insist that an agreement be an internationally legally-binding treaty

Towards a carbon neutral economy: how government should respond to market failures and market absence

The transition towards a carbon-neutral economy is a fundamental change, it involves not only transforming the energy sector but also radical reforms across the whole economy. Managing fundamental and wholesale change across such a large economy is a massive coordination challenge requiring the simultaneous deployment of a collection of instruments and institutional change. This paper looks into the key challenges in building a carbon-neutral economy and discusses how governments and markets should work together in addressing these challenges. Due to significant failures in key markets relevant to tackling carbon emissions and to the absence of crucial markets, this paper argues that governments must play an active role in formulating and implementing effective environmental policies, regulations and design. This paper discusses major market failures and market absence, leading to suggestions on policy measures that governments should take to overcome these challenges, enabling markets to give better signals in directing resource allocation and guiding the low-carbon transition. Governments must act to facilitate a transition that enables equity in opportunities and outcomes across regions and individuals. Implementing these strategies and policies requires cohesive government structures, led from the most senior levels, to foster the necessary investment, innovation and change needed