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ADB Fiscal Research and Publications

ADB Fiscal Research and Publications include working papers from the Asian Development Outlook 2022 Theme Chapter, Mobilizing Taxes for Development, as well as research outputs from the Technical Assistance Project on Fiscal Policy for Green and Inclusive Development.

Health spending efficiency in developing Asia

The coronavirus disease (COVID-19) pandemic put significant stress on health systems and brought to the fore the importance of efficient health spending. Among the subregions of developing Asia, East Asia exhibits the highest technical efficiency. Expanding the service coverage of universal healthcare enhances the realization of health outcomes, while leveraging the concentration of population improves the effective utilization of health budgets. Moreover, Caucasus and Central Asia has the highest allocative efficiency. Overall, developing Asia has substantial room for improvement in efficiency, with a primary focus on technical efficiency.

Donna Faye Bajaro, Yothin Jinjarak, Yuho Myoda, Donghyun Park, Pilipinas Quising

Disaster Risk, Inequality, and Fiscal Sustainability

Using panel data, the findings suggest that rising climate-related disaster risks raise government debt and undermine fiscal sustainability, with low-income households bearing the brunt of the impact. According to a New Keynesian Dynamic Stochastic General Equilibrium model, disaster risk generates recessions and increases inequality, particularly among “hand-to-mouth” agents. The paper also shows a considerable increase in sovereign debt due to disaster risk, and it recommends targeted transfers while cautioning against the fiscal cost of progressive taxes.

Le, Anh H. Le, Donghyun Park, John Beirne, Gazi Salah Uddin

The findings highlight the impact on economies most vulnerable to climate change. The results suggest that factors such as political stability and financial development have the potential to alleviate these effects. It reveals that the influence of climate risk on fiscal capacity is more significant in situations of limited fiscal space. Implementing fiscal consolidation emerges as a crucial factor in mitigating the negative impact of climate risks on fiscal capacity, with political stability and financial development also playing pivotal roles.

John Beirne, Donghyun Park, Jamel Saadaoui, Gazi Salah Uddin

Developing Asia’s Fiscal Landscape and Challenges

Analysis drawing on newly compiled data shows that while tax revenues in developing Asia steadily rose in the 2 decades before the COVID–19 pandemic, they continued to lag well behind high-income economies and some developing peers. The region relies on indirect taxes, creating a relatively efficient but less progressive tax structure, while government expenditures on education and health were comparatively modest.

Eugenia Go, Samuel Hill, Maria Hanna Jaber, Yothin Jinjarak, Donghyun Park, Anton Ragos

Analysis suggests that short- and long-run tax buoyancy in developing Asia were close to one before COVID-19, indicating fiscal sustainability. The study estimates that in 2020 the pandemic caused these economies to lose average excess tax revenue equal to half a percentage point of 2019 GDP. It also finds that tax-to-GDP ratios are projected to improve toward 2030 in a majority of developing Asian economies, other things held constant.

Samuel Hill, Yothin Jinjarak, Donghyun Park

Tax revenue can be increased by improving the collection of existing taxes as well as tapping new areas. On average, economies in the region could boost tax revenues by up to 3% to 4% of GDP.
 
More revenue can be raised through personal income and property taxes. Governments can also raise taxes on harmful products, put a price on carbon emissions, formalize the shadow economy, and collect taxes on the fast-growing digital economy.
 
Fiscal reforms in developing Asia should be supported by better tax administration to make it easier for taxpayers to pay taxes, as well as high-quality public spending to secure public support.
Large Fiscal Episodes and Sustainable Development: Some International Evidence

It finds patterns in the linkages between large fiscal episodes and sustainable development outcomes. The findings suggest that domestic resource mobilization should consider differences in the tax base and government expenditure and their linkages with the sustainable development outcomes.

Joshua Aizenman, Yothin Jinjarak, Hien Thi Kim Nguyen, Donghyun Park

Asian countries have been facing various environmental problems, ranging from air and water pollution to climate change. At the same time, many people seek higher income and further economic development, which requires more government revenue. This paper introduces carbon pricing, environmental tax, and emissions trading schemes, all schemes that can help achieve the two objectives: environmental conservation and revenue raising. The paper reviews experiences from the implementation of these policy instruments from the perspective of raising revenue and the effectiveness in environmental conservation with focus on Asia. Specifically, the experiences in India, Japan, the Republic of Korea, the People’s Republic of China, and Singapore show that governments can raise revenue while reducing emissions. We conclude our paper with policy implications.

T. H. Arimura, M. Chattopadhyay, N. Dendup, and S. (G) Tian

This paper discusses how fiscal policy can help foster more inclusive growth in developing Asia. On average, government expenditures in developing Asia are higher, as a share of gross domestic product, than those in Latin America and the Caribbean. Relative to Latin America, developing Asia spends more on social benefits, but less on education and health. While general government revenues have risen since 2000, they are still not sufficient to fully fund targeted transfer programs and provide adequate in-kind benefits to the population. Against this background, this paper discusses priorities for policy reforms as countries in the region seek more inclusiveness and confront the effects of the coronavirus disease (COVID-19). The paper finds that eliminating inefficiencies in health, education, and public investment, for example, would generate the equivalent of 3% of gross domestic product. Savings from curtailing subsidies for fossil fuels would also generate resources for expanding redistributive spending. Reallocating health spending toward primary care, and education spending toward primary and secondary education, would help lead to more equitable growth. There is also scope to raise spending on social benefits and better target them to the poor.

B. Clements, S. Gupta, and J.T. Jalles

This paper discusses the evolution of key taxes in the past 20 years in developing Asia and fiscal challenges that these countries face in light of the coronavirus disease (COVID-19) pandemic. It presents estimates of tax capacity and tax potential, and discusses the productivity of key taxes in the region. The paper finds that developing Asia has potential to raise more revenues—of up to 4% of gross domestic product on average. While corporate income tax productivity is high vis-à-vis other regions, the same does not apply to personal income tax or the value-added tax. There is potential to raise more revenues by improving the compliance and design of the value-added tax. It is important to ensure that the tax systems in developing Asia become more progressive with expansion of personal income and property taxes. Increased allocations and better targeting of social spending would help offset some of the regressivity stemming from indirect taxes. An important source of revenue leakage is tax expenditures granted by countries in the region.

Sanjeev Gupta, João Tovar Jalles

Corrective taxes are viewed as an effective tool to reduce or deter harmful consumption of alcohol, tobacco, and sugar-sweetened beverages (SSBs), including as “best buys” for the prevention and control of noncommunicable diseases (NCDs) complementing other harm reduction measures, e.g., regulation and health promotion and information. Corrective taxes also support domestic revenue mobilization.

Christopher Lane

The main objective of this paper is to extract practical lessons on increasing tax revenue effort that are relevant to developing countries. Specifically, it focuses on insights from two dimensions: the political economy requirements to generate public support for reform, and the technical factors (nuts and bolts) of substantially increasing tax revenue effort. The general topics covered include the political economy preconditions that facilitate tax reform, how and by whom tax reform should be implemented, the timing of reform efforts, determinants of current tax effort, tax policy choice options, tax administration options, and the enhancement of tax morale and compliance norms. The paper also profiles successful examples of recent tax reforms from 29 countries worldwide. It concludes with lessons from both the literature and these countries’ experiences, empowering reform-minded politicians and administrators to shape their own jurisdictions’ strategies for increasing tax revenue effort.


Jorge Martinez-Vazquez

The rise of the digital economy has challenged the traditional tax systems for all the major taxes, with particular concerns about tax planning by multinational enterprises. The challenges with the taxation of the digital economy have led to tax reform initiatives that could significantly reform the current tax systems and enhance the taxation of the digital economy. This paper considers these reforms and the response of developing Asia to these reforms, and finds that the response has been mixed, with developed countries more likely to adopt the reforms. Despite these reforms, the revenue impact for developing Asia will likely be small. The paper concludes by setting out tax reform strategies that could be adopted in developing Asia to address the taxation of the digital economy.


Peter Mullins

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