27 September 2007

Third World Tax Policy

In developing countries . . . A modestly progressive tax on wage income and a comprehensive low-rate tax on capital income (at both corporate and individual levels) is likely the most one can or should aim for in such countries. Along these lines, one apporach for a personal income tax for developing countries would be one with a roughly equal constant marginal rate imposed upon a broad schedular base. Such a tax (coupled with a corporate income tax at the same rate) together with a broad based VAT, appropriate excise taxes, more use of local and benefit financing, and above all, improved expenditure policy, seems likely to provide many developing countries with much firmer footing for redistributive policies than the fifty-year-old model of the one-size-fits-all highly progressive personal income tax imposed upon a comprehensive base.

From here.

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