Christopher Heady

Tax Policy for Economic Recovery and Growth

This paper identifies tax policy that both speeds recovery from the current economic crisis and contributes to long-run growth. This is a challenge because short-term recovery requires increases in demand while long-term growth requires increases in supply. As short-term tax concessions can be hard to reverse, this implies that policies to alleviate the crisis could compromise long-run growth. The analysis makes use of recent evidence on the impact of tax structure on economic growth to identify which growth-enhancing tax changes can also aid recovery, taking account of the need to protect those on low incomes.

The Effect of Child Labor on Learning Achievement

Abstract This paper analyzes the effect of children’s work on learning achievement. Its particular significance is that it goes beyond the analysis of the effects on school enrollment or attendance by using measures of skills learned in reading and mathematics. The results show that work outside the household has a substantial effect on learning achievement. Although they confirm the accepted wisdom, they introduce a new view of how that arises. A large part of it is direct, and not through school attendance. The direct link could exist because of exhaustion or because of a diversion of interest away from academic concerns.

Socially relevant policy analysis : structuralist computable general equilibrium models for the developing world

Economist Lance Taylor is an advocate of aggressive government management of developing economies. The models described in this book are are easy to set up and manipulate on microcomputers and should dominate the development debate. Taylors detailed discussion of structuralist COE models is followed by contributions that take up their application in specific countries.This collection of work reviews the results of using CGE models since the early 1970s, with an emphasis on models that encompass broad structural factors such as distribution of income and wealth, land tenancy relationships, foreign trade, production, markets, and control of the means of production that are fundamental to the behavior of developing economies.Chapters explain the macro constraints on Indias economic growth and describe Plan Austral and other heterodox shocks, describe the application of a structuralist model to Nicaragua, to Mexican food consumption policies, and to the food market in Colombia. They discuss a model with portfolio choice for Thailand, resource mobilization through administered prices, and conflicting claims and dynamic inflationary mechanisms in India, short-run energyeconomy interactions in Egypt, policy options for growth and the alleviation of poverty in Sri Lanka, currency devaluation in Mexico, and medium-term growth projections for Kuwait. The book concludes with a manual for a structuralist macro model program.Lance Taylor is Professor of Economics at MIT.

Taxation and Economic Growth

This paper investigates the design of tax structures to promote economic growth. It suggests a “tax and growth” ranking of taxes, confirming results from earlier literature but providing a more detailed disaggregation of taxes. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact. A revenue neutral growth-oriented tax reform would, therefore, be to shift part of the revenue base from income taxes to less distortive taxes such as recurrent taxes on immovable property or consumption. The paper breaks new ground by using data on industrial sectors and individual firms to show how re-designing taxation within each of the broad tax categories could in some cases ensure sizeable efficiency gains. For example, reduced rates of corporate tax for small firms do not seem to enhance growth, and high top marginal rates of personal income tax can reduce productivity growth by reducing entrepreneurial activity. While the paper focuses on how taxes affect growth, it recognises that practical tax reform requires a balance between the aims of efficiency, equity, simplicity and revenue raising. Fiscalite et croissance economique Ce document examine la meilleure elaboration du systeme fiscal afin de promouvoir la croissance economique. Il suggere une classification des impots selon le modele « fiscalite et croissance », venant etayer des resultats deja connus dans des publications anterieures, mais proposant une ventilation plus detaillee des differents impots. Il s’avere que les impots sur les societes grevent le plus la croissance, suivis par les impots sur le revenu des personnes physiques, et ensuite les impots sur la consommation. Les impots sur l’immobilier semblent les moins nocifs. Une reforme fiscale sans incidence sur les impots et orientee sur la croissance consisterait a transferer une partie de la base imposable des impots sur le revenu sur des impots moins generateurs de distorsion, comme les impots recurrents sur l’immobilier ou ceux sur la consommation. Ce document est innovant dans la mesure ou il utilise des donnees sur les secteurs industriels et les societes individuelles afin de demontrer que le fait d’elaborer une nouvelle fiscalite au sein d’une large categorie d’impots pourrait, dans certains cas, permettre un gain d’efficacite non negligeable. Par exemple, des taux reduits d’impots sur les societes pour les petites entreprises ne semble pas augmenter favoriser la croissance; de meme, des taux marginaux eleves d’impots sur les revenus des personnes physiques peut reduire la courbe de la productivite en reduisant l’activite entrepreneuriale. Alors que ce document est centre sur la maniere dont les impots affectent la croissance, il reconnait qu’une reforme fiscale pragmatique necessite un equilibre entre efficience, equite, simplicite et levee d’impots.

Poverty and Social Exclusion in Europe

There are estimated to be almost 60 million people living in poverty throughout the European Union. This bleak statistic underlines the value of this important book which explores the nature and extent of poverty and social exclusion in six European countries, namely: Austria, Germany, Greece, Norway, Portugal and the UK. The book focuses on four ‘life course’ groups who might be considered particularly at risk: young adults, lone parents, the sick and disabled, and the retired.

Distributional and revenue raising arguments for tariffs

This paper presents and analyses distributional and revenue raising arguments in favor of tariffs and other trade taxes. It shows that such an argument depends crucially on the domestic tax powers that are available to the government. Conditions that must be satisfied by optimal tariffs are obtained and interpreted. These conditions are then applied to a simplified model in order to gain greater insight into the determinants of the optimal tariffs. Finally, the arguments are illustrated by some numerical examples which show that these tariffs can be far from negligible, and demonstrate their sensitivity to various parameter changes.

Restricted redistributive taxation, shadow prices and trade policy

Abstract This paper reports on the use of an algorithm to compute optimal policies in the areas of commodity taxation, international trade and public shadow pricing for a government which is interested in redistributing income but has limited powers of taxation. The algorithm is applied to selected LDC data using a highly simplified general equilibrium model. Some insight into the relationships between constraints on taxation and other areas of government policy is provided by analyzing models where domestic tax restrictions can make inefficient public production or tariffs on international trade desirable.

Natural resource sustainability and poverty reduction

This paper uses a model of an inland fishery in Bangladesh to investigate the relationship between poverty and resource sustainability in a specific case. It makes use of detailed fieldwork to build a numerical model of fishery decision making, which incorporates extensions to standard fisheries models. In particular, it includes fish migration between lease units and models the choice of fishing gear, as well as fishing effort, over the year. The modelling of fishing gear choice allows an analysis of the effect of management policies on employment in the fishery, a major factor that influences poverty in the locality. The numerical results show that while some simple policies to improve sustainability are likely to increase poverty, it is possible to design policies which affect gear choice and lead to reduced poverty without harming the sustainability of the resource.

DESIGNING TAXES WITH MIGRATION

This paper analyzes the design of optimal taxes in less developed countries that suffer from excess rural-urban migration and reports results from a numerical model. These results illustrate the importance of both restrictions on the governments tax powers and the nature of the migration process in determining the optimal pattern of taxation. They also demonstrate that, under a very wide variety of circumstances, the existence of a fixed wage in the urban area makes wage subsidies desirable even if they have to be financed by taxes on the poorest sections of society. Copyright 1987 by Royal Economic Society.

Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research

Abstract This paper reviews the literature on taxation of the informal economy, taking stock of key debates and drawing attention to recent innovations. Conventionally, the debate on whether to tax has frequently focused on the limited revenue potential, high cost of collection, and potentially adverse impact on small firms. Recent arguments have increasingly emphasised the more indirect benefits of informal taxation in relation to economic growth, broader tax compliance, and governance. More research is needed, we argue, into the relevant costs and benefits for all, including quasi-voluntary compliance, political and administrative incentives for reform, and citizen-state bargaining over taxation.