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Volume :23 Issue : 4 1995      Add To Cart                                                                    Download

Public Revenues in Kuwait: Strategies for Reform

Auther : Abass AL-Megren , Aly Alabd AI-Razaq

The increasing budget deficit in Kuwait caused by the decline in oil revenues since the early eighties and by the effects of the Iraqi invasion in 1990, has prompted the government to take steps to increase its revenues and to seek alternative sources to supplement its falling oil income.

This paper argues that there is a logical sequencing that should be followed in the course of tackling the budget deficit problem in Kuwait. This sequencing is based on three criteria: the measures and policies adopted must be sustainable and enjoy continuity, they must be compatible with growth and efficiency objectives, and finally they should be part of a larger trend towards social, economic and political liberalization.

In this pursuit, the study is divided into five parts. The first part reviews the changing role of the state in the literature, and enumerates the traditional arguments that sought to justify the state’s intervention in the economy in the past, and the current counter-arguments which seek to limit such intervention.

The second part discusses the development of the role of public finance in Kuwait and the factors that led to the current setting of the state’s fiscal role and its function in the economy. The paper emphasizes that in the pre-oil era, the state revenues in Kuwait were dependent on taxes levied on the private sector, and that its expenditure was restricted to performing minimum social functions. Whereas, the current expansionary policies ha emerged as a recent phenomenon that coincided with the booming oil markets and the state ownership of the major sources of revenue in Kuwait.

In part three of the paper a general framework for reforming public finance is presented under three broad stages: (a) reducing government expenditure, (b) eliminating subsidies and increasing user charges, and (c) resorting to measures for increasing revenues through the imposition of general taxes.

Part four of the study provides a detailed discussion of alternative sources of revenues in Kuwait, namely: capital revenues derived from the sale and liquidation of public assets and enterprises; user charges and fees for public goods and services; and commodity, income, and wealth taxes. The main features of each of these instruments is discussed, as well as weaknesses from the point of view of conventional public finance, and the potential for its application in Kuwait.

Part five of the study suggests a number of recommendations and procedural steps that should be taken into account in the course of fiscal reform.

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