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Efraim Sadka

When the effect of high inflation on the tax system is taken into account, the overall revenues from inflationary finance may well be negative. The strength of this contention is weighed against measures taken in Israel in an attempt to construct an inflation-proof tax system. The paper concludes that, despite these measures, the Israeli experience suggests that it is more appropriate to talk about the “inflation subsidy,” rather than the “inflation tax.”

Mr. Vito Tanzi

The sensitivity (i.e., elasticity and built-in flexibility) of the U. S. individual income tax to changes in national income is of great interest to researchers and policymakers. However, the direct measurement of this sensitivity—that is, the measurement obtained from time-series observations of the relevant variables—has always been difficult, and even at times impossible, because changes in the legal structure of the tax have been too frequent to provide enough observations that relate to the same legal structure to allow statistically significant coefficients to be determined. This was particularly true in the United States before 1954, when the rates were changed frequently; it has also been true since 1963, when important changes occurred in rates, personal exemptions, deductions, and other features. In contrast, during the period between 1954 and 1963, hardly any significant statutory changes occurred in the tax.

Mr. Jonathan Levin

The author shows how economic analysis of the base for a sales tax in Colombia revealed the tax’s potential value, and suggests that similar analyses might be used to evaluate the bases for other types of taxes in other developing countries.