The Moorish Wanderer

“Regional Solidarity”: Bums and Workaholics

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on September 10, 2012

Ever wonder how much of your taxpayer’s money went to other regions? Of course, if you are from Casablanca, or Agadir, you are entitled to ask if you are from Rabat on the other hand, not so much. Unfortunately however, some budgetary constraints prevent the curious inquirer to get the raw numbers from our administration. And so, I endeavour to crunch these available numbers together to get some idea of how things are computed.

Average regional GDP per Capita in these super-regions is 21% higher than nationwide GDP per Capita.

First, I start with the standard national accounting identity: Y=C+G+I+NX. (Output = Consumption +Government Spending + Investment + Net Exports)

In fact, I can even assume that equality is simplified to Y=C+G+I since most of our exports are concentrated on two seaports at the most (Casablanca alone attracts 42% of total export/import shipping ) and use data from the MINEFI paper on regional contributions to GDP, as well as an HCP survey from 2007. It is without much surprise that 5 regions concentrate about 60% of total GDP (Casablanca, Rabat, Marrakech, Tangiers and Souss) and a little less than half of total population. We can also safely assume productivity per capita in these regions is significantly larger, paradoxically because their respective occupation level of active population would be lower.

Why would I need the national accounting identity to check which regions rely on government subsidies and transfers? Well, it is a matter of simple economics: a thriving region would not necessarily have a high regional GDP – Soussa Massa has a relatively low GDP per Capita, yet it is one of the richest regions in Morocco (4th richest not including Raba-Salé). What matters really is how their regional GDP is formed; a wealthy, productive region should produce its own consumption and pay relatively high taxes – or at least close to nationwide levels.

The following results are based on computations of aggregates per capita: there is a logical enough argument to be made that poorer regions might be over-populated; as it turned out, richer regions tend to have larger populations, they are however more productive, even more so, given the fact their active population is actually smaller, when compared to nationwide occupation rate of active population as well as those of the poorer regions. Per capita results take the demographics out of the equation, and even the odds somewhat.

The initial point made about wealthy regions stems from the standard national accounting equation: regional output is (roughly) consumed, taxes or invested. A good point can be made as to how local output matches local consumption, i.e. food and other goods consumed in one region are not necessarily made there; after all, sea-fish consumed in Marrakesh has to come from a coastal city, and Melons down South in Laayun need to come from another, cooler, watery place. Still and all, productive regions are able to produce enough output to buy them their consumption from other regions. Those too poor to afford anything will have to rely on government subsidies, or else reduce their consumption to subsistence levels. six regions emerge in this case: the Southern provinces, Tadla-Azilal and Taza-Alhuceimas. Their cumulative contribution to total GDP is less than 10%, and their average GDP per capita is roughly that of Souss-Massa.

Taxes and Government spending however are a different place; government money levied from or spent on a region stays there. Unfortunately, we do not have the exact amount of government spendings per region, though the other side of the equation is out there: there is evidence about how much each region contributes to total fiscal receipts; As it turns out, the 5 super-regions contribute about 91.5% of 2011 fiscal receipts, about 138.2Bn that is. So the initial body of evidence is there: the richest regions tend to pay more taxes than they produce output, and if Rabat-Salé is excluded from computations, the 4 super-regions account for 74% of fiscal receipts, versus a little less than half of total GDP. In simple arithmetic, every 100 dirhams these 4 regions paid 19.1 of it in taxes, and these were transferred to other regions.

What is the difference between the South and the two other poorest regions? These have less government spending with respect to their respective regional GDP

The figures at hand are not gross taxes however; these have been netted with subsidies (our Compensation Fund) which makes computations even easier; indeed, national accounting equalities tend to assume perfect funding from taxes to pay for government expenditure. Poorer regions – in this case, the bums are the Southern provinces, Taza-Alhuceimas and Tadla-Azilal would share their output between consumption and government expenditure. This is precisely the case for Taza and Tadla, where Investment per Capita (and at a smaller extent, Net Exports) make up for less than 2% of GDP per Capita. These two regions, by the way, should have received a net 1.5Bn dirhams either as tax cuts, or direct government transfers. But they did not: the local population had to make do.

On the other hand, the Southern regions are a riddle when it comes to national accounting; its taxation is a record low, and the assumption behind national accounting does not stand. And that is so because the tax aggregate used for that matter was net of subsidies. Think of it as a reversed budget balance: G – T instead of T – G. One additional step would be to propose: T - (G_0 + G_s) where G_s is government subsidies expenditure. The balance is the net government transfer the region benefits from.

So what is the score? It is always difficult in view of the numerous shortcomings of proposed methods, but it is clear the remarkably high Southern GDP per capita (30,000 dirhams) which marks these regions as the third richest is solely due to large government transfers, in this case 7.2Bn dirhams in 2011 – .89% of GDP, 17.1% of subsidies dispatched to 3.5% of total population. The bums in this case, those who benefit from government transfers, are the Southern provinces.

Regional solidarity is an admirable principle, and should be encouraged at every level of government business. But it assumes transparency in these transfers, and some kind of economic logic to it. In this case, transparency is a vain word – let us not forget the assumptions behind all these computations are very formal, and that means reality might be a lot dimmer, i.e. actual transfers are higher. And the proposed newly redrawn regional boundaries will certainly not help.

The political ramifications of unequal and unjustified (from an economic point of view, anyway) government transfers from hard-working citizens to others will exacerbate resentment, and there is no doubt unscrupulous politicians will seize upon this if and when an electoral advantage would weigh in. Another way to look at it is instead to push for larger devolution; fiscal autonomy would then show how each region actually does in terms of economic performance, and a dedicated federal fund can then be set up to support those regions with structural difficulties, on the grounds of economic support, not back-room political strategies as it is now.