Appendix Regression Results1
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
This chapter was prepared by Jeanne Gobat (ext. 34413). The simulation model was constructed by Jonathan Millar, when he was a Summer Intern at the Fund in 2000.
Hong Kong Population Projections: 2000–29, Hong Kong Census and Statistics Department.
This estimate accords with a mutual agreement between Hong Kong SAR and the Mainland that took effect in 1995, which places a daily quota of 150 arrivals.
Aging of the population also affects welfare spending, but in Hong Kong SAR income support for the elderly is not expected to rise sharply as it is mostly means-tested.
After education, housing is the second largest public spending item. Although housing is integral to the government’s social policy agenda, it is not included in social spending in this paper. For details on housing policy, see Dubravko Mihaljek, “1998 People’s Republic of China—Hong Kong Special Administrative Region—Recent Economic Developments,” IMF Staff Country Report No. 98/41.
The consultancy report—“Improving Hong Kong’s Health Care System: Why and For Whom?” Harvard Consultancy Report, 1999, Health and Welfare Bureau, Hong Kong SAR prepared by the government also projected a similar figure.
These reform measures were released in the Consultation Document on Health Care Reform on December 2000.
Among these initiatives are: formulating a five-year strategy to promote the use of information technology in schools; building additional schools to raise the percentage of students in whole-day primary schools; introduce a comprehensive school curriculum reform; and enhance support for teacher training. At the tertiary level, efforts are being undertaken to substantially expand education opportunities at the sub-degree level, improve innovation and promote Hong Kong SAR as regional education center.
The government launched a new land policy in 1998 aimed at helping stabilize prices.
It should be noted, however, that the exercise was conducted on a partial equilibrium basis and did not take into account the economy-wide impact of the structural changes on aggregate savings, capital accumulation, participation rate, and factor productivity, and the subsequent feedback effects of these variables on the budget.
The consolidated budget records expenditure by the statutory funds and the GRA. A broader measure of public expenditure would include quasi-governmental bodies such as the Housing Authority and trading funds. Expenditure by these bodies is only included to the extent of their subventions from the GRA. Expenditures by institutions where the government has an equity stake (e.g., the Airport Authority) are not included.
The projected stamp duties are highly sensitive to the assumptions about whether volume turnover rises or not. The historical data shows large swings and no discernible pattern in volume turnover.
The coefficients estimated to project tax revenue (salary and corporate taxes) may be somewhat biased since they fail to take into account the effect of recent tax relief measures.
Participation rates were left unchanged. Also, no changes were made to the official projections of demographic developments, which are based on official estimates of fertility and mortality rates, and immigration flows.
For simulation purposes the proceeds from a GST was taken on a net basis, i.e., administrative costs were excluded from the exercise. In practice, the set-up and subsequent administrative costs will have to be taken into account to assess the net impact of the tax.
Based on the consumption of goods and services (especially financial) that are taxable.
User fees are assumed to differ by income group with the burden of absorbing the increase in health care costs expected to be borne by higher income groups.
A11 variables are expressed in real values and are logged. Values in parenthesis denote t-values. Del indicates that the log real variable has been time-detrended and then differenced against the 1993 fiscal neutral base year. DEL variable can be understood as the cyclical deviation of the variable of interest from its 1993 neutral base year. SQ—used where variables are modeled based on a second order Taylor approximation—is the square of the deviation from the base year (or the variance).
In the model, medical subvention per capita grows in line with population, growth.