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Mr. Roger H. Gordon

When the top personal tax rates are above the corporate rate, high income individuals have an incentive to reclassify their earnings as corporate rather than personal income for tax purposes. At least U.S. tax law imposes strict limits on the extent to which employees in publicly traded corporations can engage in such income shifting. However, entrepreneurs setting up new firms can easily reclassify their income for tax purposes. This tax incentive therefore favors entrepreneurial activity. In the United States, these tax incentives were huge during the 1950s and 1960s, though they have been much smaller since then.

Mr. Vito Tanzi

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.

Mr. Vito Tanzi

The literature dealing with the impact of inflation on taxation is so extensive that it may suggest that it would be difficult to write anything novel on this subject. Yet a close perusal of this literature shows that it has been biased by the recent experiences of the industrialized countries. For these countries, inflation has generally been associated with increases in the real value of tax revenues, so that many authors have been led to believe that the main inflation-induced problems are the prevention of this supposedly unwanted, or at least unlegislated, increase in revenue and the neutralization of the inevitable effects on the redistribution of the tax burden among income groups. The increase in real revenue is likely to occur mainly when (a) the lags in the collection of taxes are short, and (b) the tax systems are elastic. However, while these conditions seem to characterize many industrialized countries, they are not common to all countries.

International Monetary Fund. External Relations Dept.

Whither Japan? That question may not be fully answered until there is a clearer understanding of what prompted the country’s extended slow-down. In a recent IMF Institute seminar, Edward Prescott, professor of economics at the University of Minnesota, presented research undertaken with Fumio Hayashi of the University of Tokyo. They find that the decline in Japan’s economic growth rate is explained almost entirely by a decline in the rate of productivity growth. Jahangir Aziz, a Deputy Division Chief in the IMF’s Asia and Pacific Department, spoke with Professor Prescott about these findings and his thoughts on the U.S. economy.

Mr. Alexander Pivovarsky

This article investigates empirically the relationship between ownership concentration and performance in 376 partially and fully privatized Ukrainian enterprises. It finds that ownership concentration is positively associated with enterprise performance in Ukraine. The article also finds that concentration of ownership by foreign companies and banks is associated with better performance than ownership concentrated by the domestic owners. Ownership by Ukrainian investment funds and holding companies does not have a positive effect on performance. The article documents that, in contrast to predictions by many observers of early transition, privatization methods determined the long-term ownership structure of privatized firms.

Roy Bahl

THE OBJECTIVES OF THIS PAPER are to develop and to apply a method for making intercountry tax effort comparisons, in which the tax effort index derived may be related to the intensity of use of specific taxes. This methodology, designated here a “representative tax system approach,” involves application of average effective rates to a standard set of tax bases.2 Severe data limitations have led to the use of subjectively defined tax base proxies, and therefore the model presented below bears little resemblance to the representative tax system approach as used, for example, by the U. S. Advisory Commission on Intergovernmental Relations.3

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.