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Introduction to Tax Policy Design and Development

Richard M. Bird and Eric M. Zolt

April 2003

This is a draft prepared for a course on Practical Issues of Tax Policy in Developing Countries, World Bank, April 28-May 1, 2003.



I. Introduction

II. An Overview of the World of Taxes

1. Tax levels

2. Tax structure

3. Recent trends

4. Conclusion

III. What Can Taxation Do?

1. Raising revenue

2. Economic efficiency

3. Fairness concerns

4. Tax administration

5. Taxation and growth

6. Taxation and decentralization

7. Using the tax system for non-fiscal objectives

IV. Conclusion -- The Political Economy of Taxation


Introduction to Tax Policy Design and Development

Richard M. Bird and Eric M. Zolt

April 2003

I. Introduction

Taxes matter. People talk about them, complain about them, and try to dodge them when they can. Businesses also react to taxes, both in how they organize their activities and, perhaps, in where they carry them out.

How people and businesses react in turn affects the level and structure of taxation. The question we consider in this introductory module is how developing countries may best design and develop tax policies to achieve whatever their policy objectives might be, given the complex economic and political environments they face.

As the title of this course suggests, its focus is primarily on "practical" issues of tax policy in developing countries. As John Maynard Keynes (1936, pp. 383-84) famously said, however, "practical men, who believe themselves to be quite free from any intellectual influences, are usually the slaves of some defunct economist…..soon or late, it is ideas, not vested interests, which are dangerous for good or evil." Practical tax policy is certainly not immune to the influence of either ideas or vested interests. Several recent studies demonstrate the influence of both...