THE ENORMOUS governmental expenditures for war, reconstruction, and economic development during the past fifteen years have required considerable revision of traditional revenue-raising devices. Economists and politicians agreed that a large portion of the military expenses should be financed through borrowing; but the costs of war and its aftermath could not be entirely bequeathed to a reluctant posterity. Consequently, methods were hurriedly devised to raise increased amounts of revenue currently through taxation.
Prior to World War II the world's tax revenues were derived primarily from easily administered, indirect taxes on the manufacturing, consumption, and use of commodities and by direct taxes on land. Since indirect taxes are not normally imposed on the necessities of life, there are practical limits to the revenues which may be raised by these taxes. To increase the tax burden by broadening the excise tax base penalizes the poor, who in most underdeveloped countries are already existing on marginal or submarginal subsistence standards and must be subsidized by the government.
In most underdeveloped countries ambitious programs of economic development are now requiring vast governmental expenditures. Traditionally, the domestic borrowing capacities of these countries are limited because large amounts of domestic capital are frozen in land investment as a hedge against inflation. Investors' unfortunate experiences with foreign securities during the 1920's and 1930's