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Submitted by Obeid on

Your point on the need to study the general equilibrium effects of such interventions is well taken; however it seems a bit contradictory when the meat
of the blogpost is about not being able to address the Chief Ministers
concerns.

Unfortunately the CM is also not concerned with the GE effects of such an
intervention, he wants the biggest and quickest bang for the buck or rather vote
for the buck. And it seems he has figured out that the answer to that lies in large
road and transport infrastructure projects.

Also im glad you mentioned the welfare impacts of taxation as thats what the
real policy issue on taxation should be. Again however its not something that the
CM is interested in. In the current political economy, all the talk in Pakistan is
about increasing tax collection and improving the tax to GDP ratio. To meet WB
and IMF benchmarks the government has focused on the more politically viable
deepening of the tax base instead on the more optimal widening of the tax base.
In such an environment talking of the welfare impact of taxation will fall on deaf
ears.

Also on your very reasonable expectation that the intervention should be
compared to other alternatives, we can look at two policies that the punjab
goverment tried to implement to improve tax collection. Firstly the rather
arbitrary luxury tax on large house , which thankfully has been taken to court and
currently under litigation) http://www.nation.com.pk/business/06-Sep-2013/lhc-
asks-punjab-why-luxury-tax-imposed-on-houses-in-selected-areas

Secondly an attempt to increase property tax rates has failed to pass through
parliament because of the politics surrounding such policies. http://www.dailytimes.com.pk/punjab/15-Feb-2014/old-property-tax-rates-restored-pa-adopts-punjab-finance-bill

Compared to these two policies, tax farming may be the most feasible and least
disruptive. Even though it represents low hanging fruit when it comes to ways to
increase tax revenue.