Collect More and Spend Better: The Role of Capacity Development
Panelists discussed the role of capacity development in helping governments improve revenue collection and make spending more efficient. They noted that the emphasis on domestic revenue mobilization was demand driven, responding to countries’ interest in raising their revenue collection rates. Panelists highlighted the need for cooperation, including on international taxation issues.
Capacity Development and the IMF
In her introductory remarks, Ms. Grasso underscored the need for more revenue collection and better spending by governments as a key pillar of the Sustainable Development Goals and the Addis Ababa Action Agenda, and noted the role of capacity development in helping countries achieve their goals.
The Managing Director highlighted the Fund’s role in providing capacity development. She pointed out that around 90 percent of the Fund’s membership benefit from technical assistance and training and a quarter of the Fund’s total budget is allocated to capacity development. In addition to the 15 regional training and technical centers, the Fund also provides training through digital means in a number of languages. She stressed that the Fund will continue to increase the range of training courses available online to facilitate capacity building in developing countries. She also highlighted the demand-driven nature of capacity development, noting that the demand for capacity development has increased by 40 percent over the past five years.
Building Better Fiscal Institutions
Birdsall distinguished between ‘individual capacity’ and ‘organizational capability’, noting that public institutions may have capable individuals, but the incentives for efficiency are not there.
Ba highlighted the role of ‘peer learning’ for the better implementation of technical assistance recommendations. Learning from other countries’ experiences contributes to achieving ‘buy in’ from the different stakeholders.
More Domestic Revenue Mobilization and Better Spending
Gaspar noted that empirical evidence suggests that a tax to GDP ratio above a certain threshold is linked to improved indicators of state capacity, legal capacity, and compliance, and a broader taxation base. He underscored the benefits of the double-sided accountability contract that can result from having strong tax compliance and capacity. As taxpayers deliver on their part, taxpayers demand accountability, and governments must account for the use of resources. This creates a virtuous circle. Accountability also enhances distribution and can contribute to better protection for the poor.
Birdsall cautioned against a donor push for increasing domestic revenue mobilization, noting the difference between enhancing the efficiency of revenue collection and simply raising tax rates. She highlighted the difficulty in achieving progressivity through VAT and consumption taxes, which poses an issue of equity, and risks ‘taxing the poor’.
Rudischhauser underscored the need for improving domestic revenue mobilization given that the available ODA resources are insufficient to fulfill development needs. Beyond raising rates, Postel highlighted the need to capture the people who are not covered by the system, while Segura underscored the need to fight tax avoidance. Birdsall noted the challenges of enforcing compliance, particularly of taxes that impact the rich.
Segura emphasized the need to ‘spend better’, including by enhancing the quality of performance budgeting programs, finding operational efficiencies, improving allocation efficiencies, and prioritizing better. He noted that the quality of spending is related to the quality of public goods.
Ba noted the importance of international cooperation, while Rudischhauser noted the need for a change in the international tax system to make sure developing countries are able to collect the taxes that are due to them.
Gaspar highlighted the role of collaboration with other international organizations such as the World Bank, the OECD, and the U.N. on international taxation to develop frameworks that can be applied around the world, including tools for BEPS implementation and joint diagnostics. He noted that the major players in capacity building are joining forces and emphasized the Fund’s constructive engagement in these efforts.
“It is important to distinguish between individual capacity and organizational capability […] as capable people are operating in systems in which the incentives are not there [to be] productive.” --Nancy Birdsall, President, Center for Global Development.
“…what you see when you go above the [tax-to-GDP] threshold is that indicators of state capacity, indicators of tax compliance, indicators of legal capacity become significantly better. […] When you build capacity in a dimension, and it seems tax capacity is special, you actually see significant improvements across the board.” --Vitor Gaspar, Director of the Fiscal Affairs Department, IMF.
“If developing countries raise their tax income by 1 percent, they will raise 1 trillion U.S. dollars in a year. Overall ODA is 100 billion dollars. So just 1 percent more tax income would be 10 times global ODA.” -- Klaus Rudischhauser, Acting Director General, DG-DEVCO, European Commission.
“We need to establish cooperation with all the international organizations—the IMF, the World Bank, the OECD, USAID, and the European Union. All these international organizations have their role to play in supporting developing countries…and we need to coordinate the work of all these institutions so that we can help our countries to increase the tax base.” --Amadou Ba, Minister of Economy, Finance and Planning, Senegal.
“The international tax system has to change, because as long as the international tax system does not change we will have these illicit flows, we will have tax evasion…We are calling for the international tax system to work better on money laundering, illicit flows, and corruption.” --Klaus Rudischhauser, Acting Director General, DG-DEVCO, European Commission.
“We have substantially reduced tax evasion in Peru, but tax evasion in sales taxes is still estimated at about 30 percent and tax evasion in income taxes is estimated at about 50 percent […] so that’s where capacity building comes in […] and that’s why we have squeezed all the technical assistance possible [from the IMF]” --Alonso Segura Vasi, Minister of Economy and Finance, Peru.
Opening remarks: Christine Lagarde, Managing Director, IMF
Christine Lagarde is Managing Director of the International Monetary Fund since July 2011. She held various ministerial positions within the French government, including Finance and Economy Minister (2007–11), Minister for Foreign Trade, and Minister for Agriculture and Fisheries. She has also been Chairman of the Global Exchange Committee and Global Strategic Committee of Baker & McKenzie.
Introduction: Carla Grasso, Deputy Managing Director, IMF
Carla Grasso, a dual national of Brazil and Italy, is Deputy Managing Director and Chief Administrative Officer of the IMF. She oversees all the IMF’s administrative functions, coordinates the budget, HR, technology, general services, and internal audit, and oversees the IMF’s capacity building and training work. She worked for 14 years at Vale S.A., one of the world’s largest mining companies, as VP for Human Resources and Corporate Services.
Moderator: Domenico Lombardi, Director, Global Economy Program, CIGI
Domenico Lombardi is the Director of the Global Economy Program at the Centre for International Governance Innovation (CIGI) in Ontario, Canada. He also serves as Chair of The Oxford Institute for Economic Policy; as Vice Chair of the New Rules for Global Finance Coalition, and advises the Bretton Woods Committee, the G20 Research Group, the G8 Research Group, and the Canadian Institute for International Affairs. He is a member of the Financial Times Forum of Economists and Editor of the World Economics Journal. Prior, Dr. Lombardi was a Senior Fellow at Brookings and has also served as a member of the Executive Boards of the IMF and the World Bank.
Vitor Gaspar, Director, Fiscal Affairs Department, IMF
Mr. Gaspar, a Portuguese national, has held a variety of senior policy positions in Banco de Portugal, including most recently as Special Adviser. He served as Minister of State and Finance of Portugal during 2011-2013. He was acting director-general of the European Commission’s Bureau of European Policy Advisers during 2007-2010 and director-general of general research at the European Central Bank from 1998-2004.
Mr. Gaspar holds a Ph.D and a post-doctoral agregado in Economics from Universidade Nova de Lisboa; he also studied at Universidade Católica Portuguesa.
Amadou Ba, Minister of Finance, Senegal
Amadou Ba has been Minister of Economy, Finance and Planning of Senegal since September 2013. Between 2006 and 2013, Minister Ba served as Senegal’s Director General of Taxation and Fields. He has also lead the Center for Large Businesses and the Department of Taxation and has held senior posts at the Department of Audits and Surveys, the Department of Insurance, and the Centre for Tax Services. Minister Ba has a background as accountant and taught accounting and taxation in the 1990s at the Ecole Nationale d’Administration, the West African Training Center for Banking Studies, and at the Central Bank of West African States.
Nancy Birdsall, Founding President, Center for Global Development
Nancy Birdsall is the founding president of the Center for Global Development's. From 1993 to 1998, she was executive vice president of the Inter-American Development Bank, where she oversaw a $30 billion public and private loan portfolio. Before that she worked 14 years in research, policy, and management positions at the World Bank, including as director of the Policy Research Department. Prior to launching the Center, she served for three years as Senior Associate and Director of the Economic Reform Project at the Carnegie Endowment for International Peace. She is the author, co-author, or editor of more than a dozen books and many scholarly papers. Ms. Birdsall received her Ph.D. in economics from Yale University and an M.A. from Johns Hopkins School of Advanced International Studies.
Klaus Rudischhauser, Acting Director General, DG-DEVCO, European Commission
Klaus Rudischhauser has been the acting Director-General of the European Commission’s Directorate General for Development and Cooperation (DG DEVCO)–EuropeAid since March 1, 2016. As such, he oversees general coordination, inter-institutional relations, budget, and communication, among other areas. Mr. Rudishhauser served as Deputy Director-General at DG DEVCO–EuropeAid for the last four years, overseeing EU development policy, sustainable growth and development, human and society development, and quality and results. Mr. Rudischhauser has also held senior posts at the Directorate-General for Development and Relations with ACP Countries.
Alonso Segura Vasi, Minister of Economy and Finance, Peru
Alonso Segura Vasi is the Minister of Economy and Finance of Peru, where he previously was Chief of Staff. He has been Chief Economist and Head of Strategy at Banco de Crédito del Perú (BCP), Peru´s largest bank; Chief Economist at Banco Wiese Sudameris (now Scotiabank Peru); Advisor to Executive Director for the Southern Cone and Economist at the Financial Affairs Department at the International Monetary Fund; among other positions. He has also held teaching positions at the University of Pennsylvania, the Pontificia Universidad Católica del Perú and Universidad del Pacífico in Peru.
Eric G. Postel, Associate Administrator, USAID
Eric G. Postel is Associate Administrator of USAID (since 2015) and Assistant Administrator for the Bureau of Economic Growth, Education and Environment (since 2011). He also serves as the USAID coordinator for the government-wide Partnership for Growth program and is an Alternate director to the Millennium Challenge Corporation. Prior, Mr. Postel worked in the private sector in investment banking and consulting focused on emerging markets incl. the former Soviet Union and Africa.