And while we're on the subject of taxes....

Here is a discussion paper I recently wrote with one of my ECDPM colleagues. It is a "scoping paper" on taxation and development so does lots of "scoping" - scanning the horizon for interesting issues which might one day become fundable research ideas with useful inputs to international development policy processes....

I suppose in a nutshell I see the taxation issue as follows: everyone pretty much agrees on what the tax system should do, and that there are trade-offs to be made between raising revenue, promoting equity, promoting efficiency, and promoting some kind of private sector development. To add to these priorities (pretty much stemming from Musgrave in the 1960s - I'm too lazy to go back and check the date), we have the "new" contributions from people such as Mick Moore who highlight how important taxes have been for state-building in the European past and therefore might be now for developing countries.

Balancing the different demands in seeking these objectives is difficult of course, due to a lot of familiar reasons such as the structure of the economy, weak government capacity, high levels of small-scale activity, corruption etc etc. But an aspect which I think is ignored is the political economy of the processes within government and the actual incentives faced by the guy collecting the tax.

My experience of the process of tax policy formulation was pretty much as follows: i) we knew the estimated GDP growth forecast (ropey in itself) which suggested more or less how much government revenues should be; ii) we knew the amount of expected aid and the attached projects; iii) we could then make an adjustment to fit in all the different line-ministry budgets etc, with some adjustment to the revenue target depending on factors such as whether or not all the current and investment projects had been included etc. iv) the revenue target was then pretty much handed over to the tax authorities with a cheery wave, to go and collect. And as far as I'm aware, they were accountable pretty much only for achieving their revenue target.

So if some clever minister comes along and proposes increasing the GDP growth forecast by a half-percentage point or something, you raise your revenue target accordingly, and your expenditures to fit in those politically necessary additional expenditures.

So as we gayly sent our budget off to parliament, including references to how this was a budget consistent with promoting private sector development, in fact we had no idea the effect it would actually have on the private sector, and to be honest, there was little concern - it was all about having a budget that covered the expenditure side. And ttherein lies the problem. Whether the goal is state-building, efficiency, whatever, if the tax man is answerable only for reaching his target, and the target is formed on a questionable basis, then good luck in getting him to take those broader (admirable goals) into account.

That's what I think anyway. And there are 20 "key questions" too....  You can take a look at the paper for more.... (and if anyone out there has some thoughts on it, I'll be glad to hear them).....