In an article in the last issue of Finance and Development Adolf J.H. Enthoven showed how accountancy has through its history continuously responded to new needs. In this article he indicates how he believes it should now respond to the requirements of the developing countries.
DEVELOPMENT POLICY has, until recently, been concerned primarily with stimulating economic growth. In light of the widely accepted view that economic growth was a precondition for a more equal distribution of income, little attention was given to the highly unequal income distribution that prevails in the less developed countries. These inequalities, however, are becoming less and less acceptable politically. Concern with the income distributional aspects of development policies has thus acquired new respectability. As Mr. Robert McNamara, President of the World Bank Group, stated at the Annual Meeting of the International Monetary Fund and the International Bank for Reconstruction and Development in 1972: “When the highly privileged are few and the desperately poor are many—and when the gap between them is worsening rather than improving—it is only a question of time before a decisive choice must be made between the political costs of reform and the political risks of rebellion” (McNamara, 1972, p. 26).1 He added that “shifts in the patterns of public expenditure represent one of the most effective techniques a government possesses to improve the conditions of the poor…. Governments can best begin … by initiating surveys on the effects of their current patterns of disbursement…. The Bank will assist in such surveys and, based on them, will help design programs, to be financed by it and others, which will improve the distribution of public services” (McNamara, 1972, p. 28).
International Monetary Fund. External Relations Dept.
Over the years, African policymakers have become knowledgeable about the reforms needed to promote investment, but they continue to have difficulty implementing them. A high-level seminar, organized by the IMF Institute under the auspices of the Joint Africa Institute in Tunis, Tunisia, and held on February 28–March 1, looked at how some of the main obstacles to investment—infrastructure, tax systems, access to finance, and governance—were hindering the implementation of reforms.
Inflation affects individuals and income classes in many ways—as consumers, taxpayers, wage earners, savers, asset holders, lenders, borrowers, and so forth. Because of this multiplicity of influences, it is difficult, and perhaps impossible, to assess the total economic impact of inflation. For this reason, empirical studies have limited themselves to analyzing the impact of inflation on individuals or income classes in their roles as consumers, savers, or wage earners. This partial approach does not answer the question of whether the total impact of inflation is or is not beneficial to individuals in particular income classes, but it does provide interesting information that can be useful for policy purposes. This paper will follow this partial approach and analyze the impact of inflation on individuals in connection with the tax treatment of interest paid or received in the United States.
On september 27, 1986, the U.S. Congress passed the Tax Reform Act, and on October 22 the President signed the Act into law. The Tax Reform Act of 1986 (TRA) made sweeping changes in the structure of the U.S. tax system, by curbing tax preferences and by using the room thus created to lower marginal tax rates. In this way, it was hoped, incentives to work, save, and invest would he enhanced, and economic performance would be improved. In addition, the elimination of many tax preferences was expected to help equalize the tax treatment of different investments, thus raising the efficiency of investment. The TRA was designed to be neutral in its overall effect on revenue over the period 1987-91, but it would significantly alter the distribution of the tax burden: the tax burden on corporations would increase by US$120 billion over the five-year period, whereas the personal tax burden would decline correspondingly. Receipts were increased substantially in fiscal year 1987 but are expected to be lower than otherwise in fiscal years 1989-91.
When there are collection lags in the tax system, inflation reduces real revenues. This is often offered as an argument for less reliance on the inflation tax. But the optimal rates of other taxes should also be reconsidered in the light of collection lags. When this is done, the focus shifts from the revenues (which can be recouped by changing the rates of these taxes) to the associated costs of collection. In a benchmark case where the average costs of collection are constant, the optimal inflation tax is independent of the collection lag.[JEL E51, E62, H21]
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.
Discussions of tax administration are properly dominated by considerations derived from the theory and practice of administration and management, modified by special legal and political considerations appropriate for this branch of public administration. Tradition and expediency are also influential factors.
ECONOMISTS IN RECENT YEARS have become increasingly aware of the deficiencies in their customary treatment of the distribution of income and wealth. The conservative bias toward accepting the distributional outcomes generated by the market system, which has traditionally been common in the profession, has been sharply eroded by the accumulating evidence of market imperfections, by the new respectability of radical ideologies, and, not least, by the exposure of many economists to the pervasiveness of distributional issues in the real world. This new interest in distribution has taken many forms, from the publication of several important treatises and symposia on the theory and practice of income distribution to frequent statements by the various international agencies of their concern with distributional questions.