• Economy

    Why Use Behavioral Sciences in Nepal’s Policy-Making?

    The “Economics in Crisis” theme has become one of the favorite themes of discussions among the journalists, economics commentators and the academicians. All of them, in particular, take examples of failure of modern economic theories to correctly predict Global Financial Crisis 2007-2008, Brexit and Trump Presidency in the US and their overall consequences on world economy to justify their arguments.

    As a consequence, there has been an ongoing debate that seeks to try to integrate theories from other academic disciplines into the mainstream economic theories to design more holistic policies that result in better policy outcomes. A 2017 work by Neil Irwon, a senior economics correspondent for The New York Times also highlighted this changing shift in economic thinking and policy-making in the US and other major world economies. These shifts in economic thinking became even more evident after Professor Richard Thaler received last year’s Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics. Professor Thaler was long been considered as one of the main critics of economics, especially after he published his much debated paper – Toward a Positive Theory of Consumer Choice.

    These recent changes in economic thinking, especially those related to incorporating behavioral science components into the long-standing economic theories, go beyond simple debates and have long been affecting lives of the people across the world. The governments, private institutions and policy makers in different parts of the world have long been using behavioral science theories to better the net outcomes of their economic and related public policies. Some of the countries that have been using and also benefiting from behavioral science theories include USA, The Netherlands, UKSingapore and Turkey. Furthermore, besides their considerable influence in economic policies, behavioral science theories – Professor Thaler’s Nudge Theory in particular – also have significant in framing a variety of public policies. For example, countries like Austria, Belgium, France and Spain have proved that effective use of Nudge Theory in organ donation campaigns not only encourages more people to voluntarily donate their organs but also makes overall campaigns more efficient.

    In the light of these issues and Nepal’s existing realities, I see ample opportunities for concerned stakeholders in the country to invest in and also engage in researches and discussions focused on identifying applicable behavioral science theories that could best be utilized in ameliorating present economic theories. I have tried to highlight some of these issues in one of my past opinion pieces for The Kathmandu Post.

    We all are well aware that Nepal started adopting liberal policies as early as in early 1990s. However, country’s growth since then has been minimal. As expected, people normally blame the decade long Maoist insurgency (1996 – 2006) and ten more years of political transition (2007 – 2017) as key reasons for Nepal’s more than two decades of stagnated growth. But I think, besides aforementioned crises, our failure to update our policies and also formulate new policies as per the changing national and global circumstances also played their roles for minimal growth of the country. I am sure that some of these issues will also be highlighted in World Bank’s upcoming Nepal – Country Diagnostic report. Thus, it is high time that we start discussing about usefulness of behavioral science theories in developing and adopting proper policies that not only drive country’s growth but also help us to maintain existing social, cultural and environmental harmony. What do you think?

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  • Obtaining Tax Clearance Certificate in Nepal

    The infographic depicts the process of obtaining tax clearance certificate from Inland Revenue Office.  A taxpayer has to go through a number of steps before he finally obtains tax clearance certificate. Out of all the steps, some of the steps seems redundant and they can be clubbed into a single step without affecting the efficiency of the entire system. For example the Dues section checks if any previous dues are left or not. If previous dues are left, the tax payer has to go the bank and pay the due amount, and present a photocopy of the payment slip at tax office. Again, the Tax payment Unit, verifies if the self- assessed tax amount payable by the tax payer is correct or not. If the self- assessed amount is lesser that the amount to be actually paid, the tax payer again has to go to the bank and pay the remaining amount and bring a photocopy of the payment slip.

    Here, we can see that if a taxpayer has his previous dues left and if his/her self- assessed tax amount falls short of what is actually to be paid, he/she has to go to the bank twice. If checking previous dues and correcting the self- assessed tax amount can be done in a single step, the taxpayer would be spared from having to visit bank twice for similar purpose. This will reduce total time required to pay taxes and will also make tax payment process more easy and convenient.

    Currently, a taxpayer has to allocate an entire day for obtaining tax clearance certificate (given no previous dues are left and self- assessed tax amount is correct). But, if previous dues or left and/or self- assessed tax amount is incorrect, it can take up to 2- 3 days to obtain tax clearance certificate. The large amount of time required for just paying taxes and obtaining tax clearance certificate has increased the cost of doing business. Therefore, it is essential to reduce the number of processes and time involved in obtaining tax clearance certificate so that entrepreneurship would not be discouraged.

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  • The Power of a Gentle Nudge!

    RINGG. RINNGGG. RINNNGGGG. Snooze. Repeat.

    Most of us are unfortunately too familiar with this scenario: we set the alarm for early morning with the intention of getting some extra work/study done, squeezing in a run before getting to work or hitting the gym. However, we end up either hitting snooze till eternity or turning off the alarm altogether.

    Being the rational people we are set out to be, shouldn’t we be making the most efficient choices? In this case, getting up bright and early to tackle our tasks head-on!

    Richard H. Thaler’s Nobel Prize-winning Nudge Theory explains with refreshing clarity that we as human beings are wired to act on convenience rather than rationale. Simply put, we opt to do what’s easier than what’s wiser.  It comes as no surprise then that the “far-sighted Planner” in us – who roots for our long-term welfare – is generally at odds with our “myopic Doer”, battle-stricken in a tightrope act of temptation vs. self-control. Continue reading

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  • Special Economic Zone: Not So Special?

    The concept of Special Economic Zone (SEZ) has become ubiquitous as an infrastructural facility. These SEZs provide a combination of tax and tariff incentives, streamlined custom procedures, and less regulation by offering an investment climate that attracts both foreign and domestic investors to invest and establish industrial and business units. With an aspiration to promote and diversify the export market, the GoN, in 2016, had introduced the SEZ Act which evoked immense interest among the investors’ community in Nepal. But it seems that the much-hyped SEZ is losing its appeal among the domestic investors. Continue reading

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  • FREEDOM OF MOVEMENT OF PEOPLE

    In today’s dynamic era of nation building, the European project has been hailed as a new step towards creating a free world. The same is echoed by the ‘four freedoms’ that serve as the foundations of amalgamating societies across lines of culture, traditions, history and geography. With Brexit in 2016 and the following negotiations thereafter, one of the four freedoms has come under heated debate, the free movement of persons. While the British Prime Minister has been vehemently opposing this freedom, the EU Leaders have been stressing their strong support to this freedom. While the negotiations continue, its interesting to see how the world fares on the free movement of persons.

    From the start of 1900s till date, an approximate of ten such agreements exist all over the world with the first being Britain and Ireland in 1923 with the enactment of the Common Travel Agreement. Apart from the EU (Schengen Agreement), Russia and Belarus have a similar arrangement under the name of Union State (1996), the Nordic countries signed a passport union (1954) while the Andrean Community, CARICOM, Gulf Cooperation and the East African Community are a product of the 21st century. While every single arrangement is varied in text and composition, two other such relationships exist, ones not only based on economic rights but also on the ideals of friendship. The Friendship Treaty that exists between India-Nepal (1950) and India-Bhutan (1949) are one of their kinds and certainly one of the first amongst developing nations. That is a feat in itself that even the EU cannot claim as the pioneer having begun the process via the Treaty of Rome signed in 1957 and enacted in 1958.

    The friendship treaty between India and Nepal does not limit to free movement of persons but also in matters of property, trade and commerce and residence. The result of which is that Indians and Nepalis have made their homes on either side of the border, people transcend the abstract notion of borders whereby the great Nepali Sherpa hero, Tenzing Norgay took his last breath on Indian land while the ex-crown prince found his princess in India. However, in recent times the relations between the two nations have come under heavy criticism. Flared up by nationalistic notions on both sides of the border, petitions have also called for a wall and stricter border controls. I do not wish to comment on the political face of the issue, rather, I would take a look on the economic advantages and disadvantages that the open border brings.

    Countries are prone to experience labour shortages, especially when the case of specific skilled positions are required in the rapidly advancing age of technological progress. The National Health Service of the UK is a fine example to be quoted here, about 10% of the staff at NHS are not British. Similarly, in an economy, there may appear shortages in certain professions such as teaching and nursing. These vacancies can take a long time to fill because of the time taken to undertake training. If there is free movement of labour, qualified workers will be attracted to fill these vacancies making the economy more flexible and overcome shortages quicker. Countries which suffer from lack of workers due to a rapidly increasing ageing population also see benefits from countries rich in demographic dividends.

    Moreover, if an economy experiences labour shortages, it will put strong upward pressure on wages; higher wages can easily lead to inflationary pressures. Free movement of labour means rising wages will attract more labour into a country and this will prevent excess wage inflation. Remittances according to Pew Research Centre’s latest report indicates the survival of many countries depend on this very income coming from migrant workers abroad and help the home country. Nepal is known to be a very big beneficiary of about 31% of the GDP. Apart from these, migration is also know to create additional demand in the host country boosting consumption and hence the GDP. Additionally, it saves huge costs of maintaining force for verifications at borders and from creating them in the first place.

    However, freedom of movement of persons does create certain lags in economic terms. Large net flows of people cause infrastructure problems especially for housing. Further more, due to increase in immigrants, a high population density may create problems of congestion leading to a decrease in quality of life. Furthermore, the labour market theoretically might see a dip in wages due to over supply of labour. However, the same has seen contrary results by academicians such as Manacorda, Dustmann and, Nickell and Saleheen as they note, “Empirical research on the labour market effects of immigration to the UK finds little overall adverse effects of immigration on wages and employment for the UK-born…The less skilled are closer substitutes for immigrants than the more highly skilled. So any pressures from increased competition for jobs is more likely to be found among less skilled workers. But these effects are small.” There is also the case for shortage of workers and brain drain cases in under developed economies. A fine example of the same could be seen in Dhadhing in Nepal which did not have workers for the reconstruction work post the 2015 earthquake.

    While no extensive study is available on the case of economic implications of the India-Nepal free movement of people, nationalistic rhetoric has caused injury to a feat that India-Nepal achieved at the very beginning of their respective contemporary histories.

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  • Candidates chosen by People vs Political Parties

    Total elected persons chosen to govern Nepal at Federal, State and Local Levels

    Acronyms

    NA: National Assembly (Upper House, Federal Parliament)

    HoR: House of Representatives (Lower House, Federal Parliament)

    FPTP: First-Past-the-Post, (Directly elected majority vote, people choose candidates)

    PR: Proportional Representation (People vote for political parties, parties choose candidates)

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