1. Pakistan Tax Research Agenda
IGC Growth Week
Henrik Kleven, Johannes Spinnewijn and Mazhar Waseem
London School of Economics
September 21, 2011
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 1/8

2. Research Plan
Analyze impact of tax policies and incentives on individuals and …rms
how do tax policies in‡uence the tax base:
) capture e¢ ciency cost of tax policy.
) key for determining revenue-maximizing tax policy.
other responses: tax evasion, registration/incorporation, spill-over
e¤ects.
Preliminary results, but research agenda seems promising.
unique access to administrative tax data.
policy features and changes inducing compelling variation.
largely unexplored, also in developed countries.
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 2/8

3. Value-Added Tax
Modern broad-based tax, praised for enforcement and administration
properties
VAT is argued to be self-enforcing. Conjectures have never been tested.
Pakistan introduced VAT-type system in 1990.
expanded gradually to di¤erent sectors.
substantial variation in exemptions, zero-rating and tax rates.
Main goals:
estimate …rms’responses to VAT (tax base, registration, evasion...).
analyze spill-over e¤ect across the VAT chain.
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 3/8

4. Spill-over E¤ects: Gradual Expansion
In 1996, VAT was extended to the textile sector. In 2000, VAT was
extended to all services & utilities.
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 4/8

5. Tax Base Response: Zero-rating
In 2005 reform, 5 major export sectors became zero-rated, including
the textile sector. However, ginning was already zero-rated.
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 5/8

6. Corporate Income Tax
Similar goals as for VAT, analyze …rms’responses to CIT (tax base,
incorporation, ...).
Again, underexplored in the literature. Some recent reforms and
particular features of the Pakistani system provide the required
variation.
In Pakistan, corporate income is taxed at a standard rate of 35%.
However,
(advantageous) minimum tax applies as long as corporate income is
below a threshold.
small corporations are treated di¤erently, depending on the year of
incorporation.
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 6/8

7. Notched Schedule: Minimum Tax
If 0.01 turnover > corporate income tax, a minimum-tax applies
equal to 0.005 turnover.
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 7/8

8. Cohort-Based Reform: Small Corporations
A tax rate of 20% applies for small corporations who incorporated
after 2005.
Kleven,Spinnewijn&Waseem (LSE) Pakistan Tax Research September 21, 2011 8/8

9. Livestock Related Interventions in
Punjab's High Poverty Districts:
Design and Evaluation
Imran Rasul [UCL]
IGC Growth Week 2011
Pakistan Country Session

10. PEOP
• The Punjab Economic Opportunities Programme
(PEOP) 2010-15
• Worker skills and livestock based interventions
• Targets four of the poorest districts in Punjab:
Population Poverty
Out of which
District (Census, ‘98, Headcount Poor (Total)
Rural Poor
‘03) Ratio
Bahalwalnagar 2,322,116 51.3% 1,249,763 84%
Bahawalpur 2,831,590 55.1% 1,577,479 80%
Muzaffargarh 2,912,319 51.7% 1,762,535 88%
Lodhran 1,172,000 50.4% 627,840 87%
Total 9,238,025 - 5,217,617
IGC countries with similar HCR in these years: Bangladesh, Ghana, Kenya

11. PEOP Organization
Gov. of Punjab DFID
Pak Rs £5 million
Equivalent of £25 £25 million
million
Technical
PEOP Assistance
(£5 million )
Programme Coordination Unit (PCU)
* Baseline, RCT
(by CERP)
£25 million (50% * Advisory
£25 million (50%
GoPunj & 50% support for skills
GoPunj & 50% and L&D
DFID)
DFID)
* Poverty focused
Livestock & Dairy Development research for pro
Department of Gov of Punjab poor policies and
Punjab Skills Development Fund regulations
* Capacity building
and institutional
strengthening for
PSDF and L&D
- Marginalized farmers and non-farmer women and men
- Suppliers of skills, livestock and dairy services and facilities

12. Agriculture in Pakistan
• Sixth most populous country in the world, with annual population growth
of 2%
• Agriculture constitutes 45% of total employment (72 million individuals)
• Yet contributes only 11% of GDP
• Within agricultural sector:
– livestock related production contributes around 50% of total value of
output
– 12 million farming households
• Interventions targeted towards this sector can have large impacts on
welfare and growth: can we asses the potential for growth?

13. Intervention Target 1: Raising Productivity
Potentially large misallocation of resources: better documented for
manufacturing sector comparing US to China/India [Hsieh and Klenow 2009],
potential TFP gains 30-60%

14. Intervention Target 2: Market Linkages
PEOPs
intended
beneficiaries
Overconsumption?

15. Raising Incomes and Wellbeing in the Livestock Sector:
Individual Based Interventions
• Input availability and mix:
– livestock breeds
• provision of livestock (goats) to households without animal assets
• asset transfer: move away from exotic breeds
• more controversially, selective culling of low yielding livestock
– improved knowledge and techniques related to inputs:
• fodder storage, fodder types, tying animals
– microfinance (low levels of penetration to date)

16. Traditional Patterns of Fodder Crops in
Irrigated Punjab

17. Microfinance Penetration
• As of June 30, 2011: % of active borrowers, savers and policy holders from
livestock and dairy sector by PEOP district:
Active Active Savers
Districts
Borrowers (%) (%)
Bahawalpur 27.7 2.3
Bhawalnagar 19.7 2.0
Lodhran 8.9 1.4
Muzaffargarh 0.2 0
• Of those with MF accounts, women more likely than men to be active
borrowers [PEOP has some targeting focus on women]

18. Community Based Interventions
• Common inputs: vetinerary services
• prevalence of bacterial, viral and nutritional diseases that reduce animal
productivity
• improved diagnostic facilities, timely vaccination
• availability of artificial insemination techniques – promotion of cross breeds
• Method of delivery:
• network of vetinerary centres (raises issues for evaluation)
• assignment of trained livestock workers to villages (first stage advertizing
intensity)
• Community level infrastructure for market linkages:
– provision of milk chillers
• potential to compare public, NGO and private providers
• evaluation: different bundles offered by provider types
– collective bargaining of farmers
• requires cooperation across wealth classes

19. Comparison of Cow Breeds
Fatter milk
commands
higher price
Provision of artificial insemination that facilitates production of cross
breeds can help raise productivity

20. PEOP Baseline Survey
• Designed to provide information on
– who should be targeted in interventions
– design of interventions on demand and supply side
– baseline outcomes for RCT evaluation
• Types of surveys
– separate male and female household surveys
– community survey and mapping exercise
– employer and training providers surveys
– livestock supply side survey
• Level of detail achieved by these surveys is far greater than in
existing household data sets for Punjab, or the agricultural census
for example

21. Basic Outcomes for RCT Evaluation
• Core household survey modules cover:
• household demographics
• work and skills
• household assets and consumption
• livestock activities
• skills, expectations and aspirations
• perception of public and private services, health, time
allocations etc.
• anthropometrics
• [60 page + survey]

22. Livestock Module Detail
• Ownership (including Shirikat – akin to sharecropping but for
livestock)
• Rearing (trades/purchased)
• Input availability, practices and prices (feeding, AI, livestock
tying, use of chillers etc.)
• Milk production (morning/evening)
• Egg production
• Income expectations (from milk production, other livestock
rearing)
• Provides detailed descriptive evidence on livestock
productivity, and input related constraints that interventions
might loosen

23. Additional Outcomes for RCT Evaluation
i. perception of public and private sector providers (important
because both the livestock and skills side are going to roll out the
programme through a mix of public and private providers);
ii. attitudes towards community and civic life (important for the
design of community based interventions)
iii. health (anthropometrics) of young children and females
iv. perceptions about gender equality (targeting women is important
for both the skills and livestock interventions)
v. self confidence (important as an outcome but also important for
targeting)

24. Sampling of HH and Community Surveys
• Sampling split into two phases:
• Phase 1 : 6,130 households from 194 PSUs (villages/urban enumeration blocks)
• community and household surveys
• Phase 2: approx 45,955 households from 667 villages/enumeration blocks
• community and household surveys
• Within phase 2 we will have 150 “in-depth” surveyed PSUs. In these PSUs we will
conduct:
• community surveys
• short census to all households (average PSU size 350 hhs)
• detailed household survey to 200hhs per PSU (slightly longer than surveys in Phase 1)
• HH survey will place emphasize on network linkages between households in PSU
– 30,000 hhs in in-depth sample [+Phase 1 hhs panel: 2011-13-15]
– 15,955 households in remaining 517 Phase 2 PSUs [panel: followed six monthly,
short survey instrument]

25. Immediate Timeline
Year Month Activities
2011 Sept Start of baseline HH and community surveys (Phase-I)
Design of training providers’ survey
Oct Completion of baseline HH and community surveys (Phase-I)
Start of baseline employers and training provider surveys
Nov Analysis of data from Phase-I
Start of baseline HH and community surveys (Phase-II; to be
completed by Mar-Apr 2012)
Completion of baseline employers and training provider
surveys
Writing of baseline HH report for PSDF and L&DD partners
Dec (Phase-I)
Intervention design for RCT-based evaluation and re-calibration
Jan Writing of baseline Employers and Training Providers’ report

26. Existing Evidence Base
• What priors do we have on the effectiveness
of the kinds of individual and community
based interventions discussed?
• Livestock research team have been involved in
the evaluation of another large-scale RCT in
livestock sector in Bangladesh
• IGC has facilitated knowledge transfer across
these settings

27. Program Interventions
• Bangladesh, we evaluated the Ultra-Poor programme, operated by
BRAC
• Targets poorest 10% of households in rural Bangladesh
– recall HCR in Punjab of 50%
• RCT evaluation including 25,000 households (2007-9-11), with a
small number of in-depth villages
• Intervention design:
– Asset transfer (unlike in Pakistan, many HHs without livestock at
baseline)
– Intense two year training period: training provided by BRAC workers
– proposed alternative for Pakistan: assignment of trained livestock
workers to villages
– No interventions related to market linkage in Bangladesh: in Pakistan
we want to try and compare different provider types

28. Lessons Learned 1:
Transformation of Occupational Choice

29. Lessons Learned: Transformation of
Occupational Choice

30. Lessons Learned 2
• Increase in annual hours worked
• Household income rises significantly
• Increase in scale of livestock related activities: either
thought land rented/owned, or purchase of animal
sheds etc.
• PCE increases by 10%, price per calorie rises by 5%
• CBA analysis reveals program yields a high RR than
equivalent cash transfer
• Program replication in 10 countries yielding cautiously
optimistic results in short run

31. Factors To Build into
PEOP Design and Evaluation
• Heterogeneous effects across HHs depending on the activities they
specialized in at baseline
– Optimal set of households to be targeted
– Interplay with skills interventions
• Detailed intervention design:
– separating importance of assets, from other input uses/practices, from output
prices
• Spillover effects onto other poor non-beneficiary households
– Changes in occupational structure of other poor households
• Do networks matter (in-depth PSUs) and what is the role of the
community (identifying the poor, conflict resolution) in making effective
interventions?

32. Organisation of Production and
Innovation in Pakistan’s Electrical
Fan Sector
Theresa Thompson Chaudhry And
Christopher Woodruff

33. The Fan Sector
• Nearly all firms located in Gujrat and Gujranwalla
(Punjab)
• 450 firms
– Of which only are 4-6 large scale
• Industry output of around 10 million units/year
• Exports have more than doubled over last 5
years, to around $40 million
- Markets include: Bangladesh and Middle East
• Fan quality generally superior to Chinese fans:
Metal vs. plastic; New vs. recycled metal

34. Organisation of production
• Production in even the largest firms in Pakistan is
organised as batch production rather than
assembly lines.
– A series of steps, with inventories of semi-finished
goods held between each step.
• A Coasian factory: A significant role for the
ustaad, or foreman.
– All work performed at factory, using equipment
owned by the firm.
– Contracts:
• Payment to Ustaad: Payment per piece for packing, winding assembly,
painting; contract given to ustaad who puts together teams and pays
them. (Determines rate? Hiring / firing?)
• Payment to Team Members (based on pre-decided shares): Again
piece rate – fixed shares to people on a team. Ex. 15% to ustaad, etc.

35. In the largest firms:
• For each part of the production process, there are two
or three teams.
– Number of units assigned to team depends on team size
(which can vary for same process), experience of ustaad,
etc.
• Apparent advantages:
– Foremen, ustaads, and production workers mostly
originate from same village. Foremen use these
relationships to try and reduce absenteeism
• Question: Does the decentralisation limit
managements capacity to provide incentives to
workers?

36. Quality Control
• Re-work rates are fairly high in some processes
– winding of the motor
– painting
• Piece-rate quality control workers (firm’s own,
not part of production teams) do quality
checks (for example voltage) at different points
of production process
– Teams not paid for defects, but otherwise no penalties

37. Machinery Breakdown and Rejection
issues
• Breakdown:
– Machinery breaks down excessively
– Team of technicians responsible, but also production
teams are not informing about poor performance
• Rejection:
– The motor is susceptible to damage (particularly the
copper wire) as it moves from workshop to workshop.
– Also, the units are stacked up on top of each other in
front of each worker or on the floor, waiting to be
moved/worked on.
– An assembly line would help with this…

38. Issues with assembly line
• Workers satisfied with piece-rate, like the flexibility of
batch
– Work for a number of days each month, take off other days
to do other jobs
– Can take breaks (tea/smoke) during the work day at their
leisure
– Batch skills are transferable between firms
• Would require re-building of factory, which is currently
a series of rooms or process specialized “workshops”
• Electricity - frequent outages
– In batch work, workers can switch to manual processes
during outages
– In the summer, when outages frequent and long,
electricity may be rationed between shops

39. Changing habits
• Thinking about an RCT which would Increase
measurement, provide stronger incentives for
quality, attendance, etc.
– Are just beginning to assemble and analyse the
data on quality and production by work group.
• We should be optimistic that improvements
can be made

40. Step by step, or a leap?
• But…will the incremental improvements be
sufficient?
– Production lines vs. batch production
– Vertical integration vs. standardisation
• Will these large transitions be required to
remain productive?
– If so, green field or brown field?