Increasing Public Sector Revenue in the Philippines: Equity and Efficiency Considerations

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Public sector revenue has declined markedly in the Philippines over the past seven years. Most observers of the Philippine economy agree that rebuilding public sector revenue will be critical to reducing deficits and ensuring public sector debt sustainability. This paper reviews several of the main possibilities for raising public sector revenue, including increases in excise, VAT, and electricity rates. It argues that most of these proposals would raise revenue in a relatively efficient manner. Using household-level expenditure data, it also finds that most of these measures would be progressive, especially if they allow the government to avoid cuts in pro-poor spending. JEL Classification Numbers: H2, H5, H6

Distributional Implications of the VAT Reform in the Philippines

“…In addition, with the exception of kerosene, petroleum products are disproportionately consumed by wealthier households. The finding is also broadly consistent with a study of household consumption patterns using earlier data (Fletcher, 2005 andDeverajan andHossain, 1998 The mitigating package partially alleviated the impact of the VAT reform on consumers and is progressive. The mitigating package of tax measures and increases in social spending reduces the average income loss from the reform across all households by about 25 percent (from 2.5 to 1.9 percent of income).…”

Historical Blocs and Democratic Impasse in the Philippines: 20 years after ‘people power’

“…A mounting and severe fiscal crisis led to calls for these measures by sections of the government and multilateral financial agencies. 38 The Ramos government was the last to try and implement tax reforms with its Comprehensive Tax Reform Package. The eventual legislation was, however, laden with exemptions and no substantive measures were taken to improve collection.…”