IN 1967 THE BRAZILIAN STATES abolished the heterogeneous turnover taxes that they had levied for 30 years and replaced them with a unified sales tax of the value-added type. The reform was designed to overcome the defects of turnover taxation and to secure a greater degree of tax coordination among the states of the Federation.
The observation that inflation reduces real revenues when there are lags in tax collection has long been a strong argument against seigniorage. However, with the exception of Dixit, who used a general equilibrium model to reject this argument, the optimal taxation literature has not analyzed how collection lags affect desired tax structures. This paper reexamines the issue using an overlapping generations version of Dixit’s model. It is shown that depending on the size of the expenditure ratio and the specification of the collection cost function, lags may increase, leave unchanged, or reduce the desired rate of inflation.
The paper discusses a model in which growth is a negative function of fiscal burden. Moreover, growth discontinuously switches from high to low as the fiscal burden reaches a critical level. The paper provides an overview of key elements of corporate bankruptcy codes and practice around the world that are relevant to the debate on sovereign debt restructuring. It also describes the broad trends in international financial integration for a sample of industrial countries and explains the cross-country and time-series variation in the size of international balance sheets.
It is argued that taxation causes deadweight losses—from substitution, evasion, and avoidance activities—and direct, administrative and compliance, costs. Some of these social costs tend to be discontinuous and/or nonconvex. Because most models of taxation ignore some components of the social costs of taxation, their conclusions cannot be considered all-encompassing. An alternative approach to policy evaluation is to rely on a marginal efficiency cost of funds rule that can indicate appropriate directions of reforms. The paper discusses the merits, applicability, and limitation of this rule, as well as its relationship to other concepts,
Real wage declines have been common in the public sector in many countries over substantial periods of time. In several cases, such wage reductions have coincided with declines in the efficiency of the public sector. In a simple analytical framework, it is shown that higher wage levels alter the incentive-compatible equilibrium by attracting relatively skilled human capital to the government sector, which raises the quality of public output—tax revenue collection in this paper, increases in wages should complement appropriate monitoring and penalty rates for effective tax administration; prescriptions of raising the statutory tax rate alone, however, may not increase revenue collection.
IN CONSIDERING CRITERIA for a tax system in a developing country the response of tax revenue to changes in income has often been singled out as a vital ingredient.1 This response is measured by the concepts of tax elasticity and tax buoyancy, the former measuring in some sense the automatic response of revenue to income changes (i.e., revenue increase, excluding the effects of discretionary changes), and the latter measuring the total response of tax revenue to changes in income. A high tax elasticity is said to be a particularly desirable attribute, as it allows growth in expenditure, preferably related to development, to be financed by rising tax revenue without the need for politically difficult decisions to raise taxes. However, in fact, major sources of government revenue may have a low elasticity, in which case the authorities must seek additional revenue by introducing discretionary changes. Then, growth in tax revenue may come about through a high buoyancy 2—including growth through discretionary changes—as opposed to the natural growth through elasticity. Using Paraguay as an example, this paper analyzes the growth of tax revenues over the 1962-70 period—an era of conscious tax reform—by examining two major questions: (1) what was the elasticity of the system and its components, and how is the size of the elasticity coefficient explained? and (2) what was the buoyancy of the system relative to its elasticity? With respect to individual taxes, where were the major differences between buoyancy and elasticity found? These latter questions point to the effect of discretionary changes.
The financing of cities in developing countries is a complex topic, which this paper only begins to explore. The paper is divided into six sections. Sections I and II attempt to provide a basic understanding of (a) the problems faced by city governments and (b) some of the factors that determine the extent to which city authorities will, and should, be expected to solve these problems. Section I introduces the reader to aspects of the urbanization process, explains why the process is accompanied by an increasing need for government revenues and expenditure, and indicates that cities have some potential for meeting their currently unmet revenue requirements. Section II investigates the effects that the division of responsibility among governmental levels may have on the provision of urban services. This section reviews the factors influencing decentralization, examines difficulties in measuring decentralization, and considers the special status and powers granted to authorities in the largest cities in several countries.
This paper presents a report on existing international banking and credit facilities in the Economic Commission for Asia and the Far East (ECAFE) region. The report presents a background formation on the importance of intraregional trade and payments, the exchange systems of the countries concerned, and banking relationships within the region. Balance of payments statistics of the ECAFE countries are not available in a form that would permit the calculation of intraregional payments for both trade and nontrade transactions. As far as nontrade transactions are concerned, there is reason to believe that the intraregional proportion is low. Although several countries of the ECAFE region have bilateral payments agreements with countries outside the region, especially with Eastern European countries, little of the trade among countries of the region is conducted under bilateral payments agreements. A mandatory system of clearing may be established by mutual agreement of the participating members. Alternatively, each member could retain the freedom to decide whether it would require all transactions to be settled through the clearing union or would leave it to traders to choose what they regard as the most advantageous method of settlement.
In this paper, a general equilibrium model of a small open economy is constructed that reproduces the pattern of price, wage, and exchange rate behavior stressed by the “vicious circle” view in the case where the primary source of disturbances in the economy is monetary. The paper also undertakes a dynamic analysis of the issue of policy effectiveness and relates the effectiveness of monetary and fiscal policy to the speed of price and wage adjustment, the degree of monetary accommodation, and the openness of the economy. Finally, a policy that allows a country to escape from an inflationary spiral without undergoing a prolonged period of unemployment is proposed. The validity of this policy proposal relies heavily on the assumption that capital markets are highly integrated. With integrated capital markets, a policy of fiscal stimulus is shown to lead to an appreciation of the exchange rate, a reduction in the rate of inflation of wages and prices, and a temporary increase in output and employment. This policy, combined with an appropriate degree of monetary constraint, is shown to be capable, in theory, of breaking a wage-price-exchange rate spiral.
This paper examines effects of economic growth and speed of adjustment on openness, human development, and fiscal policies. The model developed in this paper postulates that learning through experience raises labor productivity with three major consequences. First, the steady-state growth rate of output becomes endogenous and is influenced by government policies. Second, the speed of adjustment to steady-state growth increases and enhanced learning further reduces adjustment time. Third, both steady-state growth and the optimal net rate of return to capital are higher than the sum of the exogenous rates of technical change and population growth.