Purpose – The Government of Namibia has traditionally used fiscal (especially tax) policy as an instrument for annual budget formulation. Marginal tax rates for profits and various income brackets have been changed back and forth in response to changes in economic conditions. However, to date, no attempt has been made to evaluate the effectiveness of these reforms in achieving the broad national economic goals, in general, and the potential effects on government revenue in the short, medium and long-run periods, in particular. The purpose of this paper is to fill this information gap by analysing the implication of the 2008 zero-rating of value added tax (VAT) on basic commodities for aggregate demand and government revenue. Design/methodology/approach – The study uses an analytical framework based on economic theory which posits that in an open economy, which trades with the rest of the world, aggregate demand for goods and services is made up of consumption demand, investment demand, government demand and net exports and that real sector equilibrium is attained when aggregate supply of goods and services is equal to aggregate demand for goods and services. Findings – Using the Namibia Household Income and Expenditure Survey results, the annual loss in government revenue attributable to this policy is, ceteris paribus, estimated to be N$310.4 million. With a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services is likely to increase by N$276.3 million per annum. In the medium-to-long-run, national income will have increased by N$303.9 million per annum. Taxes which are responsive to changes in the level of national income will have increased by N$85.7 million, compensating for just over one quarter of the estimated loss in government revenue of N$310.4 million. Research limitations/implications – The study has used a partial equilibrium model as opposed to computable general equilibrium model, which provides a consistent framework that meets most of the sectoral and institutional data requirements for the simple reason that a social accounting matrix which can be used readily to connect data from different sources, such as national accounts and household surveys and would thus have been ideal model for analysing the impacts of the VAT tax reform has not been developed for Namibia. Practical implications – The paper provides a number of practical policy options available for government including, but not limited to, increasing direct taxes, VAT rate on specific (luxury) goods and services and statutory VAT rate on all other commodities not zero-rated, other taxes such as taxes; and borrowing from external sources. Social implications – It is established that zero-rating VAT on all the basic commodities in 2008 reduces the VAT paid by all Namibian households by N$310.4 million per year, which represents the annual increase in the disposable income of all households. And with a marginal propensity to consume out of disposable income of 0.89, total expenditure by households on goods and services will increase by N$276.3 million per year. Originality/value – This paper presents the first attempt at evaluating the effectiveness of tax (VAT) policy reforms in Namibia in achieving the broad national economic goals, in general, and the potential effects on government revenue in the short, medium and long-run periods, in particular.
The government of Botswana is making efforts to diversify the economy away from heavy dependence on the public sector as the major source of employment and on the mining sector as the major source of growth, towards a more balanced and sustainable mix of production, in which the private non-mining sector of the economy plays a greater role in the production of goods and services and in the provision of employment opportunities. It is doing this by implementing macroeconomic policies and programmes aimed at attracting new entrepreneurs into the private sector, assisting existing entrepreneurs to expand their investments, and by reinvesting mining revenues in social and economic infrastructures, to improve profitability of private investments. A number of policies and programmes have been put in place, both in the urban and rural areas, to encourage 2000 SAJE v68 (3) p727
Effect of Financial Market Frictions and Flight toQuality on Credit Supply in Kenya 1. Introduction Frictions are understood as various disturbances in trading processes. Many authors place nonsynchronous trading, bid/ask spread, other transaction costs in a broad class of market frictions (Olbrys & Majewska, 2014). In the context of the capital asset pricing model (CAPM), this study defines a financial market friction as anything that interferes with trade. Financial market frictions cause a market participant to deviate from holding the market portfolio. By implication, these frictions can cause a market participant to be exposed to more or less risk than he/she might prefer (Mahony & Qian, 2009;Kiyotaki & Wright, 1989;Trejos & Wright, 1995). It is worth noting that the presence of frictions in trading processes confirms market illiquidity, and therefore plays a significant role in asset pricing (Olbrys & Majewska, 2014). The first fundamental theorem of welfare economics demonstrates that competitive equilibrium leads to efficient resource allocation and Pareto efficiency (Arrow & Hahn 1970). Under the neoclassical competitive equilibrium paradigm, firms are considered as a production function and earn zero economic rent in the long-run equilibrium (Arrow & Hahn 1970; Cyert, Kumar & Williamson 1993). Market frictions are manifested in a variety of ways such as market power indivisibilities leading to economies of scale, economies of scope, sunk costs, asset specificity, imperfect information, incomplete market asymmetric information externalities and positive transaction costs (Mahony & Qian, 2009). The random matching/search formalization of the friction in trade has a very classical implication: in the rare case where two agents have a double coincidence of wants and meet to trade, they will trade their goods or services directly for one another (Kiyotaki & Wright, 1989;Trejos & Wright, 1995). An analysis of some empirical implications of frictions in trading processes has been performed, especially in the case of emerging stock markets. In times of economic distress, interlinked macro-economic and capital market episodic crises and severe disruptions to credit markets, we often observe investors rebalance their portfolios towards less risky and more liquid securities, especially in fixed-income markets. Kashyap, Stein, and Wilcox, (1993) basing their argument on investment-savingand liquidity preference-money supply curves model, commonly referred to as IS-LM Model or Hicks -Hansen Model, found that following tightening of monetary
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