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 1970s SAW the rise of a field of fiscal economics called optimum income taxation. Its subject is the properties of income tax structures, or tax tables, that are efficient, hence leaving no possibility for a general reduction of tax rates, except at a sacrifice of tax revenue, and no possibility for a reduction of the burden of taxation borne by one group, except at a cost to another. Thus far, research in this field has been confined to the taxation of personal income: wages, interest, and rent; the economics of business, or company, income taxation has been left untouched. In the now standard models of optimum income taxation there are no company profits and indeed no companies at all, incorporated or unincorporated; these models are extensions of the competitive general equilibrium model of neoclassical theory.
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.
THE MAINTENANCE of a satisfactory dollar balance in world trade depends to an important extent on a continued high level of U.S. imports. Therefore, fluctuations in U.S. imports are viewed with the greatest interest all over the world. In planning economic policy, on both the national and the international level, it would clearly be of value if the magnitude of U.S. imports could be known with reasonable accuracy a certain time in advance.
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.
THE ECONOMIC SYSTEM of the United Arab Republic has been changed in the past 12 years from a predominantly free enterprise system to a largely publicly owned and regulated economy. An impressive rate of growth has been attained; since 1956/57, the gross national product (GNP) is estimated to have grown at an average annual rate of more than 5 per cent and per capita income by more than 2.5 per cent a year.
IN UNDERDEVELOPED COUNTRIES the government sector is usually more important than other sectors, not only in those countries where governments have taken upon themselves the task of increasing productive capacity, but also in those where the private sector is relied upon to ensure economic growth.1 In practically all underdeveloped countries it is now customary to have a development program, and fiscal policy is the kingpin in determining the total level of investment. Within fiscal policy, expenditure policies are important; but if tax receipts are not sufficient, governments cannot invest directly or lend to the private sector without resort to deficit financing.
THE FATE that an author should dread the most is to see his/her writings ignored. While I have experienced this fate with some of my writings, this is definitely not what has happened to my articles on the underground economy in the United States. For these I have been “flattered” by more attention than I would perhaps have liked. The three comments and criticisms discussed here are quite different: they deal in part with the methodology of my work in this area and in part with the empirical results. There are several ways in which I could deal with them but perhaps the simplest is to take the authors’ comments alphabetically. I shall allocate far more space to Feige’s “comment” than to the other two, largely because his is not just a comment on my paper but is also an attempt to “sell” his work to the readers of Staff Papers. Thus, I must inevitably discuss his method and results while attempting to answer his specific criticism of my work.