Efficiency, transparency, and effectiveness in tax collection and public expenditure are important elements for the successful implementation of public policy. Given a tax policy framework, the tax administration system must mobilize resources from the private to the public sectors in a way that minimizes transaction costs to taxpayers, while maximizing the probability they will comply with their tax obligations. Adequate service and an environment where tax evasion is risky for the taxpayer will incentive voluntary compliance. A low level of tax evasion and reasonable administrative costs of collection are indicative of a proper tax administration authority.
Budgets, on the other hand, are the main instruments through which the resources obtained are applied to achieve public policy objectives. Budgets have to be prepared with a clear vision of what is to be achieved, adequately reflecting national development strategies, quantifying outputs and outcomes, analyzing costs, and operating under a technical and fiscal framework that facilitates decision-making and ensures fiscal sustainability. For their successful implementation, budgets need to be fully integrated to other financial management processes, such as debt management, public investment, treasury, and accounting. Only this way can the objectives of allocative and operational efficiency be both achieved. In addition, transparent budgets enhance good governance by allowing society (including through its representatives in the legislative branch) and supreme audit institutions to monitor government performance and hold it accountable, reducing the opportunities for corruption.
What the World Bank is doing in this area
The World Bank supports client countries' public finance reform agenda through analytical work on tax administration and public expenditure policy and management issues (e.g., public expenditure reviews), technical assistance loans to support institutional development (e.g., restructuring of tax administration authorities or implementation of reforms to the budgeting process) and modernization of systems (i.e. integrated taxpayer information platforms or integrated financial information systems). The Bank also supports policy and legislative reforms related to public finance through its fast-disbursing, policy-based loans. Increasingly these loans are taking medium-term programmatic perspectives to support countries' institutional development agenda.
During the last decade, the BankÕs support to tax administrations in Latin America and the Caribbean has focused on establishing solid, well-managed, and sustainable tax administration authorities, enhancing taxpayer service and assistance processes and systems, combating evasion through improved organizational intelligence and enforcement processes, and developing cutting-edge information technology platforms to support overall institutional efficiency and effectiveness. In the area of public expenditure management, support has been focused on improving budgeting processes through the implementation of programmatic structures and medium-term expenditure frameworks, implementing integrated financial management systems to improve expenditure control and transparency, modernizing treasury and accounting processes, and supporting collateral systems such as procurement, human resource management, and debt management.
Reforming and modernizing the public finance framework in our client countries involves multiple challenges. It is a complex domain where knowledge of specialized techniques (e.g., tax auditing, government accounting) and technological requirements (e.g., information systems) is needed for effective intervention. For the years ahead, the Bank will need to support continued next-generation reforms in terms of allocative efficiency, as well as ensure that those reforms implemented with our support are sustainable and cost-effective in the long run.