Roy Bahl

Fiscal Policy in China: Taxation and Intergovernmental Fiscal Relations

In Taxation Reform in China, Roy Bahl dissects and analyzes Chinas 1994 tax reform as a case study of a major developing country attempting to modernize its fiscal system. Starting with an examination o the fundamental question of whether Chinese taxes are too low, it goes on to analyze the reform of the countrys tax structure, ax administration, central-provincial fiscal relations, and provincial-local fiscal relations. The concluding chapter looks to the next steps in tax reform. Throughout, the book features a large amount of quantitative analysis and draws parallels with the reform options followed in other economies.The 1994 reform is noteworthy because it was the most systematic and comprehensive restructuring of Chinas revenue system since the start of economic reform in 1979. Besides adapting the tax structure and tax administration to the needs of rapidly rising market economy, the major thrust of the reform was to redefine the intergovernmental fiscal relations in the country. Bahl points out that, although the reform clearly thrust the nations fiscal system toward centralization, at the same time it put in place the structure necessary to pursue a true fiscal decentralization in the future.Bahls extensive experience advising developing countries on tax reform has led to a book of great breadth and depth. It I will be of interest to students of economic development, comparative fiscal systems or of the Chinese economy.

Tax Structure and Tax Compliance

A model of individual tax compliance behavior, including evasion and avoidance, is developed and estimated. The model recognizes the importance of marginal income tax rates, payroll tax contributions and benefits, and the probability of detection and the penalty on unpaid taxes. Share equations for avoidance, evasion, and reported income are estimated using individual-level data. The estimation results indicate that the tax base rises with higher benefits for payroll tax contributions and falls with higher marginal tax rates; the base also falls with more severe penalties and more certain detection of evasion as individuals substitute towards avoidance income. Copyright 1990 by MIT Press.

Subnational Taxes in Developing Countries: The Way Forward

It is critical to emphasize that intergovernmental fiscal relations must be thought of as a system and that all the pieces in the system must fit together if decentralization is to work properly. Various theories and experiences strongly suggest that if fiscal decentralization is to produce sustainable benefits in developing countries, then subnational governments require subnational taxes than the present system. Moreover, in developing countries there are potentially sound and productive taxes that subnational governments could use. This paper reviews the literature and evidence on the most appropriate structure of regional and local taxes in developing countries. [IIB WP no.16]

Audit selection and income tax underreporting in the tax compliance game

Abstract This paper uses a game-theoretic model of the tax compliance game to estimate a model of audit selection and income tax underreporting in Jamaica. The empirical analysis make use of audited tax returns for individual taxpayers, and a random sample of tax returns for the population from which the audited returns are selected. The estimation results strongly indicate a nonrandom audit strategy, and thus provide support for the game-theoretic approach. The results also indicate that the probability of underreporting and the level of underreporting are positively related to the marginal tax rate and to income, and negatively related to marginal payroll tax benefits; in general, the underreporting elasticities are small.

State and Local Debt Burdens in the 1980s: A Study in Contrast

State and local governments have coped with major changes in their fiscal environment during the 1980s. The impact of tax and expenditure limitations (Joyce and Mullins, 1991), declining federal aid (Nathan and Lago, 1988), and changes in federal tax policy (Courant and Rubinfeld, 1987) all changed the calculus facing state and local fiscal decision makers. While the effects on their tax and expenditure structures have been studied, the impact on state and local government debt policy and management has received scant attention.

CAN INDONESIA DECENTRALISE SUCCESSFULLY? PLANS, PROBLEMS AND PROSPECTS

Indonesia is engaged in an unprecedented social and economic experiment. Responsibility for much government expenditure is being decentralised, largely to local (district) rather than to provincial governments. If this process is successful, the worlds most centralised large country could become one of its most decentralised. This paper considers the issues arising as preparations for decentralisation are finalised, and as the socialisation of its plans and practices is considered by the central government, the Peoples Representative Council, the decentralised units of government, and the public. These issues were identified partly through interviews with local government officials. They include policy and administrative matters yet to be resolved, such as local budgeting, financial management and auditing practices, personnel decentralisation, local taxation, borrowing by local governments, and the match between revenues and expenditures. A major theme is the importance of a continuing national and local discussion on the goals and processes of decentralisation.

Fiscal Federalism and Economic Reform in China

Because of history, size and economic potential China is a force to reckon with: 9.6 million square kilometers populated by 1.26 billion people. China has a varied geography. Moving from west to east, Figure 1, we start with the vast dry areas in the west, move to the mountains, valleys and higher altitudes of the center, and end up in the more temperate coastal regions which have more rain, lower altitudes, easier communication and transportation. A main theme of this paper is that in great part due to geography, but also due to overt government policies, wealth and economic well-being tend to increase monotonically from west to east. That reality conditions significantly the past, present, and future of fiscal federalism in China.

The Uneasy Case Against Discriminatory Excise Taxation: Soft Drink Taxes in Ireland

This study uses an empirical case study to investigate the revenue implications of reducing a discriminatory excise tax. The case study is Ireland, which provides a natural experiment because it has both imposed and removed such a discriminatory tax (on soft drinks) in the past two decades. The authors find that soft drink consumption is price elastic, income elastic, and sensitive to weather. They estimate that 30% of the amount of surrendered excise tax revenue is recaptured by the value-added tax and income tax. The remaining 70% loss is further reduced by a small reduction in welfare costs, elimination of administration costs, and reduced compliance costs. The rate-revenue curve has a negative slope, even though demand is price elastic, presumably because marginal costs are rising and the tax reduction is not fully captured in the price reduction. In effect, the authors find undershifting and no evidence of a Laffer effect.

Public Financing in Developing and Transition Countries

The widespread adoption of fiscal decentralization laws during the past 25 years can be mostly tracked to economic efficiency gains and nation-building objectives. Subnational governments (SNGs) in industrialized countries account for about twice the share of total government expenditures as in developing countries. Transition countries also assign more expenditure responsibilities to SNGs than do the developing countries. There has been little growth in the SNG expenditure or tax shares over the past three decades. We confirm the basic hypotheses that the SNG expenditure share is significantly higher in countries with higher incomes, larger populations, and a lower degree of corruption.

Intergovernmental Transfers: The Vertical Sharing Dimension

There are two dimensions to the structure of an intergovernmental transfer: the vertical share and the horizontal share (Bahl and Linn, 19921). The vertical share is the total pool of funds to be allocated to subnational governments, while the horizontal shares are the amounts received by eligible local governments. Most research (and most political attention) is devoted to the latter. The subject of this paper is vertical sharing. We have three goals. The first is a quantitative analysis of trends and cross-country variations in vertical sharing. In particular, we are interested in what explains the vertical share and whether there has been an increase in the importance of intergovernmental fiscal transfers and in the question of what explains the cross-country variations in this importance. The second is a description of the range of the practice in vertical sharing. Finally, we offer some criteria by which the impact of vertical sharing might be evaluated.