Fiscal Reform and Structural Change: Macroeconomic, Political Economy and Thematic Issues

G. PERRY, G. MCMAHON Y G. ROZENWURCEL

Structural Change in Developing Countries

MacMillan

Lugar: Gran Bretaña; Año: 2000; p. 1 - 17

There are a great variety of tax systems to be found in the different countries of the world, even among countries at similar levels of income. While at first glance this observation suggests that many or most systems are not very efficient or rational – in the sense of being based on economic theory – this is often not the case. Tax systems can be different for a variety of reasons, bad policy being just one of them. Historical factors or initial conditions, institutional matters, economic structure, the macroeconomic background, political economy considerations, as well as different social welfare functions also matter. Therefore, any assessment of a tax system for a particular country which does not take all these elements into account is likely to be widely off the mark. On the other hand, there does seem to be a tendency for tax systems in developing countries to converge in recent years. Does this mean that countries are becoming more similar? Or that there is a new-found economic wisdom based on efficiency considerations which are common to countries with very different economic structures, institutions and initial conditions? Or that similar challenges, such as the one posed by a greater integration into world markets, particularly at the financial level, are driving the tax reforms and thus leading to similar policy answers? Or perhaps this convergence is only a temporary one as developing countries around the world recover from the large shocks and fiscal deficits of the 1980s? Through a series of country studies and broader thematic chapters, a major goal of this project has been to shed light on some of these questions. In this synthesis chapter we will try to bring attention to some of the key issues developed in the various chapters, with the hope that a careful examination of the evolution of fiscal systems in a number of countries will result in a clearer understanding of the trends that we are perceiving in developing economies in the 1990s. We begin in the next section with an examination of the role that macro- 1 economic considerations have played in fiscal reform. In particular, the role of fiscal deficits in macroeconomic instability and the reverse causality are discussed. Fiscal reform has also often been an integral part of structural adjustment. We then examine the interaction of structural reform and fiscal reform, with an emphasis on the roles of trade reform and tax incentives in the adjustment and growth process. Following that we will go into more detail on two of the emerging issues, environmental and sustainable development taxation and fiscal federalism, followed by a discussion of issues commonly referred to as political economy. In particular we will emphasize income distribution. The final two sections will discuss the role that tax administration considerations have played in the recent trends and debate and examine their interface with economic structure, with some brief conclusions.