The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Presumptive taxation has been adopted in many countries to tax hard-to-tax activities and reduce evasion. Further, in view of the possible efficiency gains from such techniques, a case can be made for adopting presumptive taxation of global income. This paper addresses two questions. First, could revenue be increased by adopting presumptive tax methods? Second, would presumptive income taxation contribute to macroeconomic instability because it lacks the automatic stabilizer property of standard progressive income taxation? Two simple models suggest that there is scope for increasing revenue under presumptive taxation without necessarily undermining economic stability. The relevance of the first model for presumptive excise taxation in Pakistan is also examined.