Taxation in Developing Countries: Six Case Studies and Policy Implications Page v (5 of 320)

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I N I T I A T I V E F O R P O L I C Y D I A L O G U E A T C O L U M B I A JOSÉ ANTONIO OCAMPO AND JOSEPH E. STIGLITZ, SERIES EDITORS Th e Initiative for Policy Dialogue (IPD) at Columbia University brings together academics, policy makers, and practitioners from developed and developing countries to address the most pressing issues in economic pol- icy today. IPD is an important part of Columbia’s broad program on de- velopment and globalization. Th e Initiative for Policy Dialogue at Colum- bia: Challenges in Development and Globalization presents the latest academic thinking on a wide range of development topics and lays out alter- native policy options and trade- off s. Written in a language accessible to policy makers and students alike, this series is unique in that it both shapes the academic research agenda and furthers the economic policy debate, fa- cilitating a more demo cratic discussion of development policies. Observed tax structures among developing countries are sharply diff erent from both those observed among developed countries and those recom- mended by conventional models of optimal tax policy. Excise taxes have played an important role among developing countries, with tax rates dif- fering substantially by industry. Yet the optimal taxation literature argues for uniform tax rates. Th e corporate income tax plays a large role, presum- ably creating large distortions to investment decisions within these coun- tries, contrary to the conventional wisdom that a country should take full advantage of gains from trade in the world capital market. Tariff s are also commonly high, raising similar questions. Th e objective of this book is to examine the economic pressures that have generated such tax structures. Th e book contains detailed studies of six developing countries: Argentina, Brazil, India, Kenya, Korea, and Rus sia. Th ese six countries constitute a diverse group of developing countries, coming from all parts of the globe, both large and small, and including some of the poorest and some of the richest among developing countries. Yet they share many key attributes of their tax systems. Th eir tax structures have been changing over time, and the chapters lay out the pressures gen- erating such changes.

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vi INITIATIVE FOR POLICY DIALOGUE AT COLUMBIA Th ect on the nature of e book includes two additional chapters that refl the economic pressures leading to observed choices for the tax structure. One chapter argues that a uniform VAT fails to take into account the implicit diff erential tax rates faced in the formal versus informal sectors. Th e other additional chapter argues that the problems of enforcing taxes, leading to a large informal economy, may be the key explanation for the seemingly anomalous choices for the tax structure, with structures evolv- ing toward those forecast by the theory as informal activity becomes less attractive. Th e intended readership is anyone interested in tax reform among devel- oping countries. Th e analysis is nontechnical, focusing instead on the many confl icting economic pressures faced by the tax authorities in these six countries. For more information about IPD and its upcoming books, visit www .policydialogue .org .

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