Macroeconomic Dimensions of Public Finance: Essays in Honour of Vito Tanzi

By Mario I. Blejer; Teresa Ter-Minassian | Go to book overview

NOTES
1
This chapter draws on material presented at greater length in McLure (1984), (1986), and (1987) and (often in similar terms) in papers on Australia (1993a), Brazil (1993b), Russia (1994a) and (1995), Ukraine (1994b), and South Africa (forthcoming), which contain more complete references to other literature on tax assignment.
2
Obvious offsetting considerations include problems of under-revelation of preferences for publicly provided goods.
3
This chapter generally refers to setting ‘the’ tax rate, even though more than one rate may be at issue, as in the case of the progressive individual income tax. The meaning is generally clear from the context.
4
There in no universally accepted terminology in this area. The terminology used here has the advantage of clear description.
5
There is very little good to say for an approach in which the national government levies surcharges on subnational taxes. The costs inherent in independent legislation and administration would be compounded by the inequities of non-uniform national surcharges.
6
Alternatively, tax sharing can be seen as a particular form of surcharge in which surcharge rates of all subnational governments are constrained to be equal.
7
In another paper I have contrasted the small park where a commuter eats lunch with the park where his or her children play.
8
Actually, the tax is not assigned to the states; rather, the US constitution allows states to rely on virtually any revenue source they choose, subject only to very broad limitations such as due process and non-interference with foreign and interstate commerce.
9
See also the papers in McLure (1984) and (1986). A similar but more complete discussion appears in several of the papers cited in note 1, which argue that corporate income is not an attractive tax base, especially for subnational governments. In reality, the absence of other good instruments of subnational taxation may compel its use.
10
Earlier France had gradually been evolving toward a VAT; it did not adopt the tax from scratch. Post-war Japan had adopted the VAT following the Shoup Mission, but never implemented it. Other countries had VATs of various degrees of purity.
11
At a conference held in Sao Paulo in September 1993, Antonio Delfim Netto, who was Minister of Finance at the time the VAT was adopted, said he had warned of this problem, but was over-ruled.
12
Actually, both the central government and local governments also levy limited forms of VATs. The state VAT is by far the most important of the three.
13
The conceptual case for public spending in Musgrave’s allocation branch can be traced to two phenomena: pure public goods (of which external benefits is a less extreme case) and goods produced in processes involving decreasing average costs. There is no conceptual reason that the provision of public goods must involve capital investment, but one of the most important sources of decreasing costs is the lumpiness (indivisibility) of investment. While some lumpiness involves economies of scale in essentially contemporaneous provision of services to multiple users (e.g., a bridge that can accommodate many users, once it is provided for one), much involves economies of scale across time (one does not build a new bridge each day; bridges are commonly built—at lower average cost, in present value terms—to last many years). The achievement of economies of scale across time requires capital investment.

-108-

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