In fiscal studies, as in other areas of economic analysis, the principal focus in recent years has shifted to development. As more and more government operations are expected to make some positive contribution to economic development, analysis of tax and expenditure instruments must be extended to an examination of their effects on economic development as well.
Even as these fiscal instruments are used to promote growth, however, they are themselves affected by the economic and social changes which accompany development. Accordingly, intelligent selection of workable fiscal measures appropriate to various stages of development requires a better understanding of how fiscal possibilities change as the development process unfolds.
In recent years some attention has been devoted to the differences in tax structures of countries at different levels of development. Professor Harley Hinrichs, for example, has noted the sequence of government dependence upon traditional direct taxes on property and gross income, taxes on foreign trade, internal indirect taxes, and modern direct taxes on net income, at succeedingly higher stages of development.1 What has not been fully investigated, however, is why these changes occur and how the underlying possibilities for taxation—which may or may not be used—are altered in the course of development.
One possible approach to this question lies in the study of changes in the base upon which each tax must be levied. The characteristics of a base may provide a specific indicator for the diverse effects of economic developments upon the possibilities for taxation. Because the base of a tax can exist even when the tax is not utilized, it may be studied as one fiscal dimension of the economy when the tax itself cannot.
Following this approach, and utilizing several new methods of analysis, this paper examines one major part of tax structure alteration—the changing possibilities for the application of a sales tax.2 The study is carried out primarily in the context of historical developments in one country, Colombia, which has 18 million people, an area of 400,000 square miles (roughly twice the size of France), and per capita income of about US$325 in 1966. No sales tax was imposed in Colombia until the end of the period studied (1925–65), so that this paper focuses upon the base of a hypothetical sales tax, defined essentially along the lines of the 1965 tax. To provide background for study of this base, an account is presented of two earlier consumption tax episodes as well as of the sales tax levied in 1965. The paper then considers changes over the 40-year period in the size of the base, the incidence of a tax upon it, the adequacy of actual coverage of the base by customs and sumptuary excises, and accessibility of the base to the collection of a possible tax upon it. The findings indicate substantial changes in some, but not all, of these characteristics.