This thesis examines the properties of optimal fiscal policy in the long-run and over the business cycle in general equilibrium models with agents that differ with respect to their skills and with production processes embodying capital-skill complementarity. To this end, the thesis is composed of four chapters which asses different aspects of optimal fiscal policy under various specifications incorporating labour skill and production differences as well as different assumptions regarding the policy instruments available to the government. The first two chapters focus on the long-run, while the last two concentrate on business cycle dynamics. The first and third chapters examine setups that allow households to differ with respect to their income and whose position in the labour market with respect to their skill is exogenously determined. In contrast, the second and fourth chapters consider setups where the labour force belongs to a single household, which guarantees consumption irrespective of skill level, and unskilled labour can endogenously acquire skills to become skilled. Chapter 1 presents a detailed numerical analysis of the effects of optimal fiscal policy in an economy where the households are heterogeneous with respect to their labour and capital income. The production structure is characterised by a CES function allowing for capital, skilled and unskilled labour. In this setup, optimal fiscal policy in the long-run implies a non-zero and positive tax rate on capital income together with highly progressive labour income taxes. Moreover, the level of the optimal tax rate on capital income and the progressivity of labour income taxes are sensitive to the weight placed on the skilled agents in the objective function of the government. Chapter 2 analyses optimal factor income taxation when there are different returns to skilled and unskilled workers, who belong to the same household, and to capital in structures and equipment, under capital-skill complementarity and endogenous skill acquisition. We find that when all factor inputs are taxed at separate rates, both capital income taxes are zero in the long-run, there is a subsidy to education and labour income taxes are progressive. The progressivity in labour income taxes is reduced if investment in education cannot be subsidised, whereas if the government can only impose a single labour income tax, the tax on income from capital equipment will be non-zero. These results remain valid even if the government is restricted to satisfy a given level of debt to output ratio, although with welfare losses. Finally, we show that the transitional dynamics of the fiscal instruments from the exogenous to optimal taxation are not affected by the restrictions to the fiscal policy menu. Chapter 3 examines how income taxes are optimally distributed over the business cycle in a model with high, middle and low income households when the government is restricted to balance its budget in each period. The findings of an empirically relevant model indicate that under optimal fiscal policy the income tax rate of the high income households has the lowest volatility and the income tax rate of the low income households exhibits the lowest counter-cyclicality. If the fiscal policy menu also includes a consumption tax, the progressivity of the income tax rates is even higher and the results regarding the volatilities of the income taxes are overturned. We further find that the progressivity of the income tax rates is optimally increased after an output-enhancing shock. Chapter 4 undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption, as well as total factor and capital equipment productivity. We also examine the properties of optimal taxation under a restriction on the debt to output ratio. Our main finding is that, an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, significantly changes the cyclical properties of optimal labour taxes. This result remains valid even in the presence of a budget rule that restricts the debt to output ratio. We show that the key to understanding this result is that the government finds it optimal to adjust labour income tax rates to alter the average net returns to skilled and unskilled labour hours.

Recent literature promotes commitment products as a new remedy for overcoming self-control problems and savings constraints. This thesis argues that the effects of commitment may be very heterogeneous, and highlights the mechanisms under which commitment may reduce welfare, rather than increase it. It also examines a new type of commitment contract: A formal commitment savings account with fixed regular instalments, introduced in a developing-country context. Chapter 1 proposes that the popularity of costly or inflexible savings mechanisms as well as of high-interest consumption loans may represent a demand for commitment to fixed instalments. Using a newly collected dataset from Bangladesh, it shows that the introduction of a regular-instalment commitment savings product was associated with a large increase in average savings contributions. The theoretical framework in Chapter 2 highlights the potential heterogeneity behind such positive average effects: Commitment improves welfare when agents have full knowledge of their preferences, including biases and inconsistencies. If agents are imperfectly informed about their preferences, they may choose ill-suited commitment contracts. I formally show that commitment contracts can reduce welfare if the commitment is not strong enough to discipline the agent, resulting in costly default. I further show that such insufficient commitment contracts are likely to be selected by time-inconsistent agents with ‘partially sophisticated’ preferences: Agents who are neither completely unaware nor fully aware of their time-inconsistency, but anywhere in between those two extremes. Chapter 3 describes a randomised experiment in the Philippines: I designed and introduced a regular-instalment commitment savings product, intended to improve on pure withdrawal-restriction products by mimicking the fixed-instalment nature of loan repayment contracts. Individuals from a general low-income pop ulation were randomly offered to take up the product, and were asked to choose the stakes of the contract (in the form of a default penalty) themselves. The result is that a majority appears to choose a harmful contract: While the intent-to-treat effect on bank savings for individuals assigned to the treatment group is four times that of a withdrawal-restriction product (offered as a control treatment), 55 percent of clients default on their savings contract. The explanation most strongly supported by the data is that the chosen stakes were too low (the commitment was too weak) to overcome clients’ self-control problems. Moreover, both take-up and default are negatively predicted by measures of sophisticated hyperbolic discounting, suggesting that those who are fully aware of their bias realise the commitment is too weak for them, and avoid the product. The study suggests that research on new commitment products should carefully consider the risk of adverse welfare effects, particularly for naïve and partially sophisticated hyperbolic discounters.

Political fragmentation has been widely recognized by political economists as an important cause for fiscal profligacy in democratic market economies because of the common pool nature of fiscal resources. These redictions, however, sit uneasily with the notion of governmental veto players’ ability to block each other’s spending plans for electoral purposes. Applying the logic of a bargaining-game between veto players in a political budget cycle framework, I first model that multiple players in the budget game are in fact likely to moderate pre-electoral budget outcomes. Empirical results from a cross-section time-series analysis in EU member states provide corroborative evidence that fiscal electioneering is indeed more prevalent among cohesive, single party settings. The findings are robust to alternative identification of elections, fiscal changes and sample selection.

The strategic potential of information technology (IT) is now well recognised, but strategic IT projects have high failure rates. The present study proposes the concept of the degree of IT intensity of SIDs and aims to answer the question of whether the degree of IT intensity matters in relation to the decision process, decision content, decision outcome and evaluation methods. Furthermore, critical factors which impact on the effectiveness of SIDs are explored, and a protocol is proposed by mapping the quantitative findings to state-of-art evaluation approaches. A structured questionnaire was developed, and empirical work was undertaken among Taiwanese manufacturers. Experts in two professional associations, the Chinese Association for Industrial Technology Advancement and the Chinese Productivity Centre, helped to identify organisations considered to be representative of the population. 270 organisations were selected and 94 responded. Of these, 80 were valid for further analysis. Several variables are found to be significantly correlated to IT intensity. The Hypotheses testing shows that interaction, the accuracy of information and strategic considerations are mediators in the linkage of IT involvement and the effectiveness of SIDs but the direct link from IT intensity to the effectiveness of SIDs proved to be weak. Consequently, the stepwise variable selecting procedure was employed to reveal the critical variables which impact significantly on the effectiveness of SIDs. The present study seeks to develop a protocol which addresses the practical aspect of SIDs and SITIDs in terms of rules and to integrate these rules to form a model for evaluation. Five major mechanisms of this model are discussed: the scanning mechanism, the strategic flexibility mechanism, the evaluation mechanism, the proactive mechanism, and the feedback mechanism.

Libya is a developing Arab State with a small population and a large geographic area. After the Alfatah revolution in 1969, the Libyan economy changed. Most activities such as agriculture, industry, investment, and other associated services were developed. Accordingly, the number of users of financial information in Libya rose steadily and has continued to grow ever since due to economic growth and flourishing business. This situation has led to an increased need for more reliable information to enable the country's authorities to exercise full accountability concerning the efficient and effective use of the available scarce resources on the part of those entrusted with administering public programmes and activities. In a response to this need, PA was required to be conducted by auditors in 1989. Consequently, PA examinations are carried out by two separate institutions, namely the Institute of Financial Auditing (IFA) and the Institute of Investigation and Public Control (IIPC). Accordingly, a comprehensive description of the nature of PA as practised by the Libyan auditors, assessing the degree to which these practices have been effectively operated and suggesting improvements in these practices, was felt necessary. A mixed-methodological design was utilized in this study. Close-ended questionnaires and semistructured interviews are the data collection techniques. The questionnaires were sent to a sample of performance auditors and public sector managers. The interviews were also conducted with a sample of performance auditors and public sector managers. The findings of this study revealed that the Libyan experience in the field of PA shares, in various instances, a common base with what has been identified in the literature or reported in the practices of other state audit institutions. The research findings, furthermore, showed that PA in the Libyan public sector is "rarely effective" or "ineffective" due to many obstacles that the current system of PA is facing, such as "ambiguity of organizations' objectives", "lack of performance measures", "lack of a sound internal control system", and "shortage of qualified performance auditors and specialized staff from different disciplines to carry out PA investigations". In addition, the findings showed that the PA system in Libya can be improved through the adoption of certain procedures, of which the most important are improving performance auditors' skills and attention being paid to PA by the legislative and administrative officials at higher levels in Libya. Lastly, in the light of these findings recommendations were proposed to overcome the reported deficiencies and to improve PA practices in the Libyan public sector.

The actions of governments are instrumental in economic development, and an important lever of policy is fiscal policy. Taxation and spending cannot only promote economic development but inhibit progress and retard the process, and nowhere is this most evident than in sub-Saharan Africa (SSA), which is the focus of this study. Promoting economic development therefore requires that policies that inhibit the process are identified and addressed. In this light, this thesis investigates two common features of fiscal policy in developing countries that may slow down economic development: the first is that government consumption is pro-cyclical even though increasing (reducing) spending in response to increases (decreases) in income worsens income fluctuations. The second feature is that the budget deficit (budget balance) increases (decreases) in response to aid inflows. We address the issue of pro-cyclical government consumption in two stages: in the first stage a coefficient of cyclicality of government consumption is obtained for each of the sample countries using an improved (equilibrium-correction) specification. Variation in these coefficients across countries is then explained within a cross-section specification in the second stage. We conclude that credit constraint and political distortion are significant determinants of pro-cyclical government consumption. However, they are not the underlying reason why pro-cyclicality of government consumption increases with income uncertainty as existing explanation has it. Rather, the latter is the result of actions taken by the government to remain solvent in economic downturns. We investigate the aid-budget deficit relationship in three parts: the first part re-visits the past evidence, using more recent data, improved methods and a sample consisting of only SSA countries. We find that, consistent with past evidence, countries with larger budget deficits receive more aid and aid induces larger deficits. However, the effect of aid on the budget deficit has improved in recent times. This suggests that, contrary to existing explanation, giving more aid to countries with larger budget deficits is not the reason why aid induces larger deficits. Rather, we show in the second part that there is a divergence in the cross-section and within-country (year-to-year) dimensions of aid determination and the effect of aid depends on the latter: aid induces smaller deficits in countries where decreases in the budget deficit are associated with increased inflows of aid over time. Finally, we use a new approach to vector equilibrium-correction models (VECMs) to investigate the relationship between aid inflows and the fiscal aggregates that underlie the contrasting aid-budget deficit relationship across countries; we use Ghana (where the relationship is negative) and Zambia (where it is positive) as case studies. We conclude that aid induces lower deficits when year-to-year disbursements are conditioned on decreases in total expenditure and domestic borrowing. Even though aid inflows attracted by increased expenditure may still induce lower deficits, the magnitude of the decrease in expenditure is over-whelmed by the initial increase that attracted aid in the first place. We therefore conclude that to induce substantial deficit reductions, aid should be conditioned on decreased expenditure and domestic borrowing, or better still on reduced deficits. Thus, budget conditions are effective when enforced.

The aim of this thesis it to explore the effects of the imputation tax system on the relationships between corporate investment and financing decision variables. Under the Capital Asset Pricing Model it is shown that except with instantaneous relief for capital expenditure at 100 per cent, the present system of capital allowances may reduce the expected return to an amount below that required by the post-tax level of risk. A complex equation is derived to show the relationship in partial equilibrium between the after-tax valuation of the levered firm and that of an equity financed firm of equivalent operating risk. This includes the effects of income tax, capital gains tax, corporation tax and risky debt. Sufficient conditions for a neutral tax system are found although these are shown to be violated in practice, with a general preference for debt finance rather than new issues of shares. In general equilibrium capital structure is found to be irrelevant under the UK tax system. For the partial equilibrium model however even in a world of certainty it is shown that the borrowing versus retention decision is complex. It is observed that financial policies may vary over time and are sensitive to the effects of capital investment decisions on (i) Advance Corporation Tax set off restrictions, (ii) debenture interest carried forward and (iii) the marginal tax rate at which debenture interest is relieved. In turn capital investment decisions are shown to be sensitive to financial decisions in a market which is perfect apart from tax complexities. To accommodate both the peculiarities of the tax rules and the simultaneous solution of investment and financing decisions, a mathematical programming model is presented although it isnoted that in practice it could be difficult to solve.

The aim of this study is to achieve a better understanding of risk management as practised by tax administrations of developed countries and to ascertain what prevents the developing countries from managing risks efficiently and effectively. Tax administrations are faced with challenges to ensure voluntary compliance with the tax law. Compliance risk that is generally faced by tax administrations in relation to the implementation of the Self-Assessment System (SAS) is further explored. A well-designed risk management strategy enables tax administrations to manage risks efficiently whilst reducing administrative costs in the process. The empirical evidence indicates that, in developing countries, the level of compliance is generally low and the administrative capability of tax agencies is relatively poor. In an effort to increase tax compliance, tax administrations in developing countries tend to adopt a traditional approach to their duties by implementing a command-and-control mechanism. The majority of tax compliance research has been written from the perspective of taxpayers. This study, in contrast, investigates the perspective of a tax administration in a developing country; hence the Malaysian Tax Administration, also known as the Inland Revenue Board of Malaysia (IRBM) has been selected as a case study. Compliance risk management by the IRBM is addressed in order to understand the agency’s activities that are designed to encourage voluntary compliance and manage compliance risk. This qualitative research uses responsive regulation theory as a concept to underpin this investigation. This study also develops a conceptual framework which combines three major themes: tax compliance, risk management and responsive regulation. Responsive regulation in the tax administrations of developing countries is considered a new concept, thus warranting further study. Responsive regulation encourages a soft approach to handling non-compliant taxpayers, resorting to a hard approach only if taxpayers refuse to comply. Empirical data was collected through face-to-face interviews with senior officials of the IRBM and tax practitioners in Malaysia to elicit the interviewees’ perceptions of risk and IRBM risk management practices. To enrich data collection, secondary data was collected from a range of published and unpublished printed materials from the IRBM. Findings from this study suggest that IRBM risk management strategies conform to responsive regulation theory. Various education programmes are conducted by the IRBM to assist and encourage voluntary compliance. The study reveals that Malaysian taxpayers’ compliance behaviour is influenced by tax knowledge, culture and their perceptions of the government administering the revenue. Knowledge gained from this study would provide insights for tax administrations in other developing countries of IRBM risk management practices in fostering voluntary compliance and self-regulation.

No description available.

Although public sector industries play a very significant role in the economy of Bangladesh, from the very beginning of their inception they have been a cause of concern. It is alleged that they have failed to meet their expectations mainly because of inefficient management. On the other hand the public sector managers do not agree that the absolute responsibility for unsatisfactory performance should go to them. It is true that public sector enterprises in Bangladesh have failed to initiate the breakthrough as to profitability and productivity, and thus the public sector managers cannot avoid their bigger responsibility in this regard since they are supposed to play the dominating role in an organisation. It was logically thought that an investigating study would be able to provide important insights into the subject matter. This empirical study has thus tried to examine the managerial world in order to draw a profile of managerial characteristics by taking into account the personal, behavioural and the contextual issues. It also has examined the progress of industrialisation and the position of professionalisation of management in the perspective of Bangladesh along with the roles that are being played by the Bangladesh managers in the industrialisation process. The study has been quite successful in identifying a wide range of interesting issues having influence on managerial performance. It was found that the Bangladesh managers are in general highly educated and relatively new generation managers having little industrial experience to their credit. They mainly came from the vast rural areas of the country. Their position is comparatively stronger with respect to job related training. But the higher education and wider training have failed to bring positive results with respect to productivity and profitability, because the education has very little relevance to the managerial profession. Again, the higher education has been mainly responsible for increasing the level of managerial aspirations with very little realisation and thus has been generating widespread frustration. Poor job description and inadequate delegation were also responsible in this regard. The public sector managers have been found very much concerned about the security of their jobs. Their dealings and actions apparently are directed towards maintaining a good superior-subordinate relationship but under careful scrutiny this apparently encouraging situation was found to be non-existent. Interestingly the public sector managers are almost united in saying `No' to any prospective changes which may affect their jobs and interests, but they are also less concerned about the changes which appeared to have no apparent adverse effect. The policies of the successive governments in Bangladesh have made the situation worse. The required power, authority and freedom has not been allowed to practice to the enterprises; instead they are expected to follow the regulations covering almost every operational area and also to follow lengthy and bureaucratic procedures. Despite the presence of preconditions the industrialisation process has not got momentum as yet. The absence of powerful elite has been mainly responsible for this situation. The symptoms of professional management were found absent there which is an indication that the management has still a very long way to go in the way of becoming a professional group. What is evident from the study is that all the revolutionary changes (as they are often labelled by the authority) have virtually failed to bring the desired results; even so the government is planning to introduce more changes, when it is almost certain that some vital aspects have continued to remain unattended throughout the period as there have been very little effort to increase the managerial capacity and to release their willingness to cooperate with the government plans. Time, money and efforts would have been worth investing if these could have been diverted towards creating a congenial environment and developing the human resources working in the Bangladesh public sectors especially the managerial personnel. Some of the 'costly' experiments would have easily been avoided and much of the criticisms of the public sectors would not have appeared if there were such efforts from the very beginning.