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Taxation in Developing Countries: Six Case Studies and Policy Implications resources

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Introduction Overview of Tax Policy in Developing Countries Roger H. Gordon Th is volume provides a detailed assessment of the current tax structure in six developing countries: Argentina, Brazil, India, Kenya, Korea, and Rus sia. Each of the six case studies lays out the current statutory provi- sions, how they have evolved over time, the resulting changes in tax rev- enue, and the key fi 1 Th e scal pressures faced currently looking forward. volume also includes two overview chapters that reassess the conven- tional wisdom about the appropriate design of tax policy in developing countries. As is seen from Table I.1, these six countries include both some of the poorest and some of the richest developing countries. As of 2004, per capita gross domestic product (GDP) in Korea and Rus sia was well over $10,000, in Argentina and Brazil it was a bit under $4,000, while India’s per capita income was only $695 and Kenya’s $469. Populations also diff er dramatically. India’s population is over a billion, Brazil is the next largest with a population of 182 million, while Korea, Argentina, and Kenya are all roughly a quarter as large as Brazil. Th e countries cover all parts of the globe. Th e three largest of these countries have a federal system of government, while in the remaining three coun- tries the national government plays a dominant role. Th e tax systems in these countries, though largely typical of those in other developing countries, are strikingly at odds with what the public fi nance literature recommends as the optimal design of a country’s tax structure. To begin with, the public fi nance literature at least since Mirr- lees (1971) focuses heavily on the optimal rate structure under the personal income tax as a means of best trading off ciency consider- equity and effi ations in the collection of tax revenue. Refl ecting this focus in the aca- demic literature, the personal income tax is typically the main source of

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