Republic of Armenia Public Expenditure Review : Expanding the Fiscal Envelope

Abstract

Armenia's small revenue and spending
 envelopes limit the government's ability to influence
 the economy, even while its influence through laws, rules,
 and regulations is significant. The government has an
 important role to play to reduce poverty and boost shared
 prosperity, and needs fiscal space. This public expenditure
 review (PER) analyzes and provides recommendations for the
 different dimensions of expanding the fiscal envelope. There
 are three ways of creating fiscal space: the first is higher
 tax revenue mobilization (through better administration and
 enforcement of existing taxes, higher tax rates, or new
 taxes on previously untaxed goods and services or incomes),
 second, lower spending on less productive programs, and
 third, an increase in the effectiveness of spending, that
 is, a higher output of the things the government wants
 (efficient administration, human capital, services for the
 population) for a given level of spending. The report
 highlights Armeniaapos;s limited fiscal envelope, and points
 out that key areas, such as education, health, and road
 transport, had been consistently underfunded. It suggests
 that revenue needs to be significantly improved, and the
 government will have to revisit its expenditure priorities
 to create the spending headroom needed to at least maintain
 the spending level in these areas. The structure of the
 report is presented as follows: section one gives executive
 summary. Section two focuses on quantifying fiscal
 activities. Section three analyzes a number of tax
 exemptions and loopholes. Section four analyzes ways to
 improve the impact out of every Armenian dram raised and
 spent. Section five evaluates in detail the social
 protection system's performance. Section six accompanies
 the reforms of Armenia's public service remuneration system.