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)| false Rosenberg, Christoph, Anna Ruoceo, and Wolfgang Wiegard, 1999, “Explicit and Implicit Taxation in Uzbekistan,”in Herausforderungen an die Wirtschaftspolitik an der Schwelle zum 21. Jahrhundert, Festschrift fur Lutz Hoffmann zum 65. Geburtstag, ed.by ( Irmgard Nublerand Harald Trabold Berlin: Duncker und Humbolt), pp. 141– 62.
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Senhadji, Abdelhak S., and laudio Montenegro, 1999, “Time-Series Analysis of Export Demand Equations: A Cross-Country Analysis,” IMF Staff Papers, Vol. 46 (September), pp. 259–73.
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The authors would also like to thank Galina Kostina for excellent research assistance and Leif Hansen, Bob Flood, Tom Wolf, Jorge Marquez-Ruarte, Oleh Havrylyshyn, Christian Mumssen, and an anonymous referee for helpful comments. All remaining errors are ours.
Among the countries of the Baltics, Russia, and other countries of the former Soviet Union, only Turkmenistan applies foreign exchange regimes similar to that of Uzbekistan.
Strictly speaking, the description of the foreign exchange regime covers only the period from January 1998 to June 2000. On July 1, 2000, and July 1, 2001, the authorities introduced a number of measures that further segmented the foreign exchange market. These changes are not covered by this paper. They do not, however, alter the substance of the analysis.
Presidential Decree UP-2010, “On Measures to Further Develop and Liberalize the Off-Auction Foreign Exchange Market.”
Sales of foreign exchange may in fact be higher, as households and enterprises build up cash foreign exchange assets. Persistently high inflation rates, restrictions in the banking system, and negative real interest rates discourage savings in national currency.
Since no estimates of the size of the curb market in 1998 and 1999 are available, it is assumed to have increased slightly to 35 percent of all transactions. Note, however, that this assumption influences the calculation of the indicative exchange rate, the U.S. dollar denominated GDP, and ultimately the size of the welfare effects described below.
For a numerical example illustrating the functioning of Uzbekistan’s quasi-fiscal regime see Rosenberg and De Zeeuw (2000, p. 10).
See, for example, the following quote from an Uzbek government publication: “There is also great demand for foreign currency from shuttle traders importing consumer goods of unknown firms, without quality certificates. This cannot be considered sound from an economic point of view. Currency regulations, including restrictions on convertibility, prevent the influx of such goods” (Chepel, 1998).
As a result, Uzbekistan’s consistently ranks low in international comparisons of transparent business practices, such as the Corruption Perception Index published by Transparency International.
Demonetization in Uzbekistan is evidenced by the decline of the ratio of broad money to GDP from about 14 percent in 1996 to less than 10 percent in 1999.
This confirms a standard result in the theory of taxation. See for example Connolly and Munro (1999, pp. 196-202).
One may argue that the short-term supply elasticity of cotton is close to zero since inputs provided under the government procurement system are fixed and state orders aim at maximizing production irrespective of world prices. In practice, however, farmers have resorted to illegal exports in order to avoid the implicit taxation through the overvalued exchange rate. Therefore, their surrenders of cotton to the government for legal exports (which are captured here) in effect depend on the producer price in foreign currency terms.
In the absence of elasticity data for Uzbekistan we again rely on recent estimates for developing countries as benchmark, Reinhart (1995) calculated a mean import demand elasticity of -0.66 for a sample of 11 developing countries in 1970-91, while Senhadji (1998) found a mean elasticity of -1.24 from a sample of 23 developing countries in 1960-93. In several developing countries their values are substantially larger, which is why we also explore an import demand elasticity of -2.0.
In addition, Uzbekistan’s foreign exchange regime has implications for economic equity. The implicit tax on centralized exports (mainly cotton) is regressive, as it levies a heavy burden on the poorest part of the population, those working in agriculture. The same applies to the expenditure side: social assistance through price regulation is not targeted to the poor, but extended to all consumers of certain commodities, including the higher income groups. Moreover, rationing of scarce capital or foreign exchange is usually associated with favoritism and outright discrimination.