The nature of social and economic reality\u00a0shape fiscal outcomes moves reality to conform more closely to such\u00a0perceptions, thus reinforcing the initial ideas.<\/p>\n
<\/p>\n
The critical point seems to be that adequate feedback mechanisms are in\u00a0place to warn when sustainable limits are being breached. Such mechanisms may take the form of the \u20ac\u02dcexit\u20ac\u2122 mechanisms favored\u00a0by economists, as when overtaxed resources flee a jurisdiction. Or they may\u00a0be the voice mechanisms stressed by political scientists, as when governments\u00a0are changed to put into power those who will carry out more prudent\u00a0policies.<\/p>\n
But whatever form they take, such mechanisms must exist if any\u00a0tax system is to be sustained in a country. Of course, no government is always\u00a0competent; none is omniscient; and not all are always well intentioned. Mistakes\u00a0will be made. A central problem facing all societies is finding ways to\u00a0minimize the severity of such mistakes.<\/p>\n
In this regard, redistributive\u00a0policies that in themselves might be unsustainable in the long run\u00a0as a result of the excessive distortionary costs on resource allocation they\u00a0impose are thus made sustainable both by spending wisely (in ways that\u00a0encourage growth) and by taxing wisely (reducing the distortionary costs\u00a0of taxation).<\/p>\n
Let’s ask, how\u00a0can the UK\u00a0simultaneously have both low taxes (and hence high\u00a0reward to effort) and high tax rates on more elastic factor supplies (thus less\u00a0pro-growth policy)?<\/p>\n
Has the United States adopted low taxes to encourage\u00a0efficiency and growth but done so in so inefficient a way that it may have\u00a0decreased both?<\/p>\n
History matters in understanding not only why countries\u00a0adopt different policies but what the effects of such policies are in the particular\u00a0settings in which they have been adopted. To disentangle such issues,\u00a0much more work is needed to resolve such conundrums for example,\u00a0by focusing in detail on such questions as the differential marginal tax rates\u00a0applied in different countries to male workers between the ages of 25 and 45.<\/p>\n
Meaningful use of comparative international data requires close attention\u00a0to such critical details.<\/p>\n
What does all this mean with respect to understanding tax policy and\u00a0especially the role of VAT in developing and transitional countries?<\/p>\n
A recent\u00a0study of American tax history concluded that the search for the right balance\u00a0is an endless process. The consensus supporting the legitimacy of\u00a0the income tax is likely to remain undisturbed. But its progressive nature\u00a0will always be debated as long as we care about reconciling the competing\u00a0demands of social equity, economic incentives and the need to pay for an
expanding government.<\/p>\n
Looking at Balkans\u00a0with this perspective in mind, no real consensus\u00a0on the right balance for tax policy appears as yet to have been achieved.<\/p>\n
Some developed countries, notably the UK, may now be groping\u00a0toward a new, less progressive consensus with respect to taxation. But this implies nothing with respect to what may be right\u00a0for other developed countries. Every country has to develop its own viable\u00a0consensus on the right balance between equity and efficiency in taxation.<\/p>\n
One point is clear: developed countries have clearly reached different\u00a0equilibrium positions. Despite all the talk about globalization, there has\u00a0been surprisingly little convergence in either tax levels or structures among\u00a0OECD countries in recent decades. Nor is there much reason to expect such\u00a0convergence in the near future.\u00a0Equally,\u00a0there is no reason to expect strong tax policy convergence among emerging\u00a0economies in Balkans\u00a0or elsewhere.<\/p>\n
As always with public policy, no\u00a0one size fits all. What is right or at least feasible for France\u00a0or Greece,\u00a0for example, is likely to continue to differ from what may be sustainable in\u00a0Albania\u00a0or Bosnia.<\/p>\n
What matter are not only how high taxes are (revenue adequacy), but\u00a0also how the tax level has been (implicitly) chosen, how the taxes are actually\u00a0imposed, and how the funds thus raised are used. History suggests,\u00a0for instance, that one critical factor is the clarity of the linkage between\u00a0expenditure and revenue decisions established in the budgetary and political\u00a0process.<\/p>\n
Allocative decisions\u00a0in the public sector will be made efficiently only if they are financed efficiently.<\/p>\n
What this means is that benefit taxation broadly understood in\u00a0this context as taxes deliberately chosen to finance specific expenditures in\u00a0the full knowledge of the allocative consequences of both expenditures and\u00a0taxes is in principle the best way to run a country from either an economic\u00a0or a political perspective.<\/p>\n
Such a good tax\u00a0system would only be politically sustainable provided that the resulting distribution\u00a0of income and wealth accorded broadly with what was politically\u00a0acceptable. What is considered to be a just distribution of income may be\u00a0very different in different countries, but the distributive outcome is always\u00a0and everywhere a high-profile matter.<\/p>\n
The central question of tax policy is decisions to\u00a0reflect people\u2019s real preferences as closely as\u00a0practically feasible,\u00a0which will\u00a0be made on both sides of the budget. This\u00a0concern\u00a0cannot be separated from the question of the perceived justice of the system\u00a0or the institutional structure how democratic it is within which political\u00a0decisions are reached and expressed.<\/p>\n
The only way we know to help relevant\u00a0decision makers make right decisions is to ensure that they\u00a0 and ideally all\u00a0those affected are as aware as possible of all the relevant consequences.<\/p>\n
The\u00a0key to good fiscal outcomes in any country is thus to have a public finance\u00a0system that links specific expenditure and revenue decisions as transparently\u00a0as possible. What all this really means is that if any country is to have a better\u00a0tax system better in the sense of giving the people what they want it must\u00a0have a better political system that translates citizen preferences into policy\u00a0decisions as efficiently as possible.<\/p>\n
In the end if a country needs or wants\u00a0better VAT or tax policy or administration, it can have it: the answer lies in their\u00a0own hands.<\/p>\n","protected":false},"excerpt":{"rendered":"
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