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Mr. Eric Le Borgne and Ms. Katherine Baer


Tax amnesties remain as popular as ever as a tool for raising revenue and increasing tax compliance. International experience, however, shows that the costs of tax amnesty programs often exceed the programs’ benefits. This paper weighs the advantages and disadvantages of tax amnesties, drawing on results from the theoretical literature, econometric evidence, and selected country and U.S. state case studies. The authors conclude that “successful” tax amnesties are the exception rather than the norm. Improvements in tax administration are the essential ingredient in addressing the main problems that tax amnesties seek to address. Indeed, the most successful amnesty programs rely on improving the tax administration’s enforcement capacity. ?Given the potential drawbacks of tax amnesties, a few alternative measures are discussed.

International Monetary Fund

participant’s “clearing fund deposits” as initial margin were insufficient to cover the loss, the following financial resources would be applied: (i) funds from participants who are original counterparties of the defaulting participant to share the remaining loss in proportion to their net settlement amount with the defaulting participant; (ii) a quarter of the retained earnings of the JGBCC; and (iii) additional funds from all non-defaulting participants. 68. The clearing fund as initial margin plays a key role in covering the loss that may arise from the default of a

Mr. Bruce J. Summers

, which triggers release of the one payment order in the queue and elimination of the unsettled balance of 10. The end-of-day result of this activity is a current account balance of 10 and an unsettled balance of zero. Table 3. Numerical Example of Operation of Swiss Interbank Clearing System Transaction Payment Orders Settlement Amounts Current Account Balance Unsettled Balance (Net Receipt) Opening of business — — 10 0 1. Receive 20 Receive 20 30 0 2. Pay 30 Pay 30 0 0 3. Pay 10 0 0

Mr. John Kiff

each other to produce a single net settlement amount. Counterparty risk can be further reduced by requiring collateral (called margin) to be posted against exposure and residual risk ( IMF, 2010 ), which can vary daily. Margin is usually composed of cash or marketable government bonds. Central clearing The regular payments and various risk-management activities during the life of a derivative contract are elements of what is called “clearing.” In bilateral contracts, clearing activities occur directly between the two counterparties, and in centrally cleared

International Monetary Fund. Western Hemisphere Dept.

million (0.7 percent of GDP). Payments of US$5.6 million (EC$15.1 million or 0.5 percent of GDP) are due between October and December 2014. 5 The Half Moon Bay settlement amounts to US$40 million (or 3.2 percent of GDP). The government is waiting for the ruling on their proposed payment schedule. 6 Systematic biases in projection of key macroeconomic aggregates could undermine the DSA assessment. 7 Excluding the resolution of ABIB the government would have a headline primary surplus of 6 percent of GDP. 8 That is, of all the

Eswar prasad and Lei Ye

clearing transactions among banks are well above 2008 levels. (billion dollars) Sources: CEIC Data; and Hong Kong Monetary Authority. Given China’s rapidly expanding trade volume, promoting renminbi trade settlement is a logical first step toward the currency’s internationalization. Since it began in 2009, cross-border trade settlement in the Chinese currency has surged. In 2011, renminbi trade settlement amounted to about 8 percent of China’s total trade in goods and services. Monthly remittances of renminbi used for cross-border settlement in Hong Kong SAR

Mr. Alain Ize, Mr. Arto Kovanen, and Timo Henckel

instructions are processed centrally at each bank and sent to other banks usually in the form of batch transfers several times each day. Banks establish bilateral credit lines to one another to cover intraday shortfalls in liquidity. Intraday credits may or may not be collaterized. 9 In 1998, average daily transactions reached US$1.2 trillion while net end-of-day settlements amounted to only US$7 billion, i.e., a ratio of 171. See Richards (1995) . 10 See Bank of International Settlements (1990) . 11 In the extreme case of continuous settlement, net

Mr. Mohammed El Qorchi, Mr. Samuel Munzele Maimbo, and Mr. John F. Wilson

/capital flight on the part of HB, who now acquires a foreign-currency-denominated balance outside country B, as recompense for a payment made in his local currency on instructions received from HA. Since no actual foreign exchange transaction (purchase/sale) has taken place in this sequence of events, the underlying exchange rate remains implicit in the relationship between the hawala remittance and the settlement amounts. “Financial settlement” in a third country illustrates (1) how connected international transactions can take place in circuitous fashion and (2) the possible

International Monetary Fund

settlement amounts to be calculated on a multilateral net basis. Until recently, card payments had been insignificant, but the card infrastructure has begun to show rapid growth in 2004, mainly in Tirana. So far, card infrastructure is not designed to allow for full interoperability though some individual card facilities are linked to international systems. In addition, the Post Office provides services for low-value domestic payments and some money transfer operators (e.g., Western Union) specialize in cross-border services (particularly remittances). In an effort to