Richard A. Musgrave

Proportional Income Taxation and Risk-Taking

I. Summary and conclusions, 388. — Loss offset provisions, 391. — II. The rationale of investment behavior: yield and risk defined, 393; yield and risk of an asset combination, 398; investors indifference map and investment equilibrium, 402. — III. Taxation without loss offset: effects of the tax on yield and risk, tax sensitiveness, 403; adjustment of asset combination held, 405. popular versions of the argument, 408. — IV. Taxation with full loss offset: effects on yield and risk, 409; total risk and private risk distinguished, 410; adjustment of asset combination held, 411; total risk increased as result of tax, 412. — V. The general case, taxation with variable loss offset: effects of varying tax rate and varying loss offset, 415; adjustment of asset combination to changes in tax rate, with given loss offset, 418; adjustment to changes in loss offset, with given tax rate, 419. — VI. Qualifications, 421.

The Voluntary Exchange Theory of Public Economy

I. The voluntary exchange theory: exposition, 214 — II. Discussion: (1) the underlying assumptions, 218; (2) the nature of the pricing process implied, 221; (3) the voluntary exchange theory as a solution to the problem of justice in taxation, 226; (4) the neutrality condition as criterion for the conduct of the revenue-expenditure process, 228; summary of objections, 231 — III. The planning interpretation of public economy as an alternative approach, 232. — The planning decisions, 232. — The social value scale predetermined, 233. — The analysis of direct and indirect effects, 234.

The Distribution of Fiscal Burdens and Benefits

This paper updates to 1968 levels earlier estimates of the distribution of tax burdens, expenditure benefits, and net burdens or benefits. Emphasis is on the methodological issues involved, including the role of incidence assumptions and the specific formulation of the question to be answered. The appropriate definition of the effective rate ratios and the resulting impact on distribution is shown to depend on whether the problem is formulated in absolute or in differential terms and on whether consideration is given to the introduction or the removal of the budget.

A Brief History of Fiscal DOctrine

U razdoblju vise od dva stoljeca koje smo analizirali, ekonomika javnih financija iznimno se razvila kako u sirini tako i u složenosti, prateci uvelike razvoj ekonomske analize i koristeci se njime, ali i povratno pridonoseci tom razvoju. Taj je razvoj, naravno, bio daleko od linearnog, s naizgled nenadanim javljanjima, nesajanjima i ponovnim pojavljivanjima kada je to vrijeme omogucilo. Sigurno je napravljen veliki napredak. Ipak, temeljni su problemi osali isti. Pitanja kao - sto rebaju osigurati javne služe, kako ih treba financirati i koju ulogu trea imati država u makro vođenju ekonomskih poslova - bila su ocita jos u Adamu Smithu, te i danas predstavljaju temeljni problem. Jednako tako mnogi fenomeni u javnim financijama otaju sami po sebi konroverzni. Određivanje ekonomskog djelovanja javnog sektora znaci ogranicavanje podruja koje može biti pretpussteno nevidljivoj ruci i pravilima tržista. Sva pitanja, poput podrucja postojecih svojstava, prihvatljivosti tržisnog određivanja raspodjele dohotka, oblika ostv arivanja socijalne skrbi, održavanja punog korisenja izvora, fenomena inflacije i rasta, imaju eliko znacenje u odeđivanju odgovarajuce velicine i djeloanja javnih financija. Jednbako ako i sposobnost javne politike da unutar svojih moci provede odgovarajuce ispravke pogresaka koje nastaju zbog djelovanja tržista. Navodeci niz problema i njihove veze, poreb no je istaknuti da su ovdje također prisutni ideoloski i vrijdnosni sudovi. Stovise, instrumeni fiskalne politike mijenjali su se s promjenama fiskalnih usanova. Nije iznenađenje sto se ovijest fiskalne doktrine vise bavi razvitkom ekonomske analize per se. I upravo to, barem ovom autoru povecava zanimanje za ovu temu.

ET, OT and SBT

Abstract Until recently, the normative theory of taxation has focused on the issue of horizontal equity, i.e. the equal treatment of equals. Based on the Schanz-Haig-Simons tradition, a definition of taxable income as accretion has been developed and applied to financial and legal institutions. This work has yielded important results, but certain basic problems which arise in defining an index of equality have been neglected. This paper addresses these problems as well as certain conflicts which arise in combining horizontal equity with efficiency considerations. This theory of equitable taxation is compared with the more recent writings on optimal taxation, where the issue of horizontal equity is bypassed but a more explicit reconciliation between vertical equity and efficiency considerations is achieved.

The role of the state in fiscal theory

This paper traces the nexus between fiscal theory and the theory of state as it emerged from the close of the 18th century to date. Four variants of the fiscal state are distinguished. First, there is the classical view of the service state, needed to adjust for externality-based market failure, and to do so to approximate a market solution. Next, there is the welfare state, designed to correct the market-determined state of distribution, based on what society views as a fair or optimal pattern. Attention then turns to the communal model, where individuals recognize communal as well as private concerns. Finally, note is taken of the flawed state, where maximizing behavior of governmental agents shifts attention from market to policy failure. The changing nexus between state and fiscal theory, and its place in various fiscal traditions is noted.

Excess bias and the nature of budget growth

Abstract To examine the hypothesis that budget growth has been excessive, the concept of ‘correct’ budget size must first be defined. This proves a difficult task for the level of public services, but especially so regarding redistribution and transfer payments. Next, potential sources of bias are explored, including distortions in voting, bureaucracy and political leadership. Analysis shows that bias may be in either direction, making for deficient as well as excess budgets. Institutional reform, therefore, should not prejudge the outcome by imposing limitations. The goal should be to improve the budget process, however this may affect budget size.

Taxation and economic development among Pacific Asian countries

Introduction, Richard A. Musgrave the Indonesian tax reform after five years, Malcolm Gillis the tax system and economic developmnent - the case of Japan, Keimei Kaizuka tax reform in the Philippines, Gerardo P. Sicat directions of Malaysian tax reform, Datuk Kamal Salih et al property taxation as a national policy tool in Taiwan, Chuan Lin the cost of capital and the effective tax rate in Taiwan - 1961-1985, Ji Chou and De-Min Wu effective corporate tax rates on capital income in Hong Kong, H.C.Y. Ho tax policy and business investment - the case of Taiwans manufacturing industry, Ching-huei Chang and John Riew the international dimension of Korean tax policy, Wan-soon Kim and Kwang-chul Lee tax incentives for export promotion in Japan - 1953-1964, Hiromitsu Ishi international aspects of income taxation in Taiwan, Tin-An Chen and Peter Wen-Hui Cheng financing social security through the central provident fund - the case of Singapore, M.G. Asher a new role for fiscal policy and tax finance for social development in Korea, Kye-sik Lee.

Clarifying U.S. Tax reform

This volume’s intriguing theme, contrasting the theory and practice of tax policy may be read in two ways. One refers to the increased attention now given to the practice of tax reform, turning away from the past preoccupation with theory. This may be a wholesome shift of emphasis, especially regarding the global setting in which future tax policy will have to function. But it should not be read to mean that practice is what really matters, leaving theory as a secondary, academic concern. Both matter: “theory” (here taken to mean the normative design of a good tax system) as well as “practice” (the feasibility of implementing it). Both perspectives are needed to design a sensible policy. Head taxes or randomly distributed lump sum taxes rank high on grounds of feasibility but low on grounds of theory. An accretion-based progressive income tax may be ranked high on normative grounds but low in terms of practice. Tax policy, therefore, must allow for both aspects and choose what is considered the best feasible if imperfect system. Our purpose here is to examine the relationship between these two perspectives, especially as they arise with regard to the definition of tax base and the choice of rate structure as now debated in the United States.

Comments on James M. Buchanan “The Fiscal Crisis in Welfare Democracies”

Professor Buchanan’s paper, as we have learned to expect from him, carries a strong message. The welfare State can survive only if it discards discriminatory practices and returns to its earlier reliance on general programs. Unless this is done, it will be swamped by the political pressures of particular interest groups. As one who believes in the historical contribution of the welfare State, I welcome his concern for its survival and will join hands to save it. However, the more general thrust of his paper leaves me uncertain as to how strong an ally I have found.