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International Monetary Fund
Over the past six months, a key theme has been ensuring strong follow-up to IEO evaluations, a priority stressed by the recently competed External Evaluation of the IEO. Of particular note, the Managing Director has issued a statement highlighting actions planned to strengthen the IMF’s engagement with fragile states following our recent evaluation, and this statement is being presented to the IMFC for endorsement. In addition, the IEO has completed two updates of past evaluations, advanced work on two ongoing evaluations (on IMF financial surveillance and on IMF advice related to unconventional monetary policies), and is now considering its future work program in light of the External Evaluation.
Mr. Thierry Tressel and Mr. Thierry Verdier
We consider a moral hazard economy in banks and production to study how incentives for risk taking are affected by the quality of supervision. We show that low interest rates may generate excessive risk taking. Because of a pecuniary externality, the market equilibrium may not be optimal and there is a need for prudential regulation. We show that the optimal capital ratio depends on the macro-financial cycle, and that, in presence of production externalities, it should be complemented by a constraint on asset allocation. We show that the political process tends to exacerbate excessive risk taking and credit cycles.
Tamás K. Papp and Elöd Takáts
The paper shows how tax rate cuts can increase revenues by improving tax compliance. The intuition is that tax evasion has externalities: tax evaders protect each other, because they tie down limited enforcement capacity. Thus, relatively small tax rate cuts, which decrease incentives to evade taxes, can lead to increased revenues through spillovers - creating Laffer effects. Interestingly, tax rate cuts here imply increasing effective taxes. The model is consistent with what happened in Russia, and may provide basis for further thinking about tax rate cuts in other countries.
Mr. Michael Keen

Abstract

This paper, based on the considerable practical experience of the IMF’s Fiscal Affairs Department, sets out a successful strategy for modernizing customs administration. The essence is to establish transparent and simple rules and procedures, and to foster voluntary compliance by building a system of self-assessment supported by well-designed audit policies. Having set out this strategy--and its benefits--the paper discusses in depth what is required in terms of trade policy, valuation procedures, dealing with duty reliefs and exemptions, controlling transit movements, organizational reform, use of new technologies, private sector involvement, and designing incentive systems for an effective customs administration.

Abstract

Edited by A. Premchand, this collection of seminar papers and country studies examines recent developments in government accounting and financial management in selected industrial and developing countries. The country studies include Australia, Canada, China, India, Poland, Sweden, Turkey, the United Kingdom, the United States, and Latin American countries.