Public Finance and Economic Development : Reflections Based on the Experience in China

Low tax revenue and slow economic growth are two central concerns in developing countries. However, policies that raise tax revenue also harm economic growth. With tax revenue coming mainly from large capital-intensive firms, and with a large infor...

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Bibliographic Details
Main Author:	Gordon, Roger H.
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2017
Subjects:	AGRICULTURE ALLOCATION OF CREDIT BANK DEPOSITS BARRIERS TO ENTRY BENEFICIARIES CAPITAL INVESTMENT CASH ECONOMY CASH TRANSACTIONS CHECKS COMMODITY CONFIDENCE OF INVESTORS CONSUMPTION TAXES CONVERSIONS CORPORATE INCOME TAX CORPORATE INCOME TAXES CREDIBILITY CREDIT CARDS CRITICAL INFRASTRUCTURE CURRENCY DEBT DEFICITS DEFLATION DEVELOPING COUNTRIES DEVELOPING ECONOMIES DISCOUNT RATE DISTRIBUTION OF WEALTH DOMESTIC MARKET ECONOMIC ACTIVITY ECONOMIC DEVELOPMENT ECONOMIC DOWNTURN ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMIC LOSS ECONOMIC REFORM ECONOMIC REFORMS ECONOMIC RESEARCH ECONOMICS LITERATURE ENVIRONMENTAL BENEFITS EVASION EXCISE TAX EXCISE TAXES EXISTING INFRASTRUCTURE EXPENDITURE EXTERNALITIES FINANCIAL CRISIS FINANCIAL SECTOR FISCAL DEFICIT FISCAL POLICIES FISCAL POLICY FLOWS OF CAPITAL FORECASTS FOREIGN COMPETITION FOREIGN EXCHANGE FOREIGN OWNERS FREE TRADE FUTURE GROWTH GDP GDP PER CAPITA GLOBALIZATION GOVERNMENT DEBT GOVERNMENT EXPENDITURES GOVERNMENT FINANCES GOVERNMENT POLICIES GOVERNMENT REVENUE GROWTH RATES GROWTH THEORY IMPLICIT TAX INCOME INCOME TAX INCOME TAXES INCOMES INDIRECT TAXATION INFLATION INFLATION RATE INFLATION RATES INFORMAL ECONOMY INFRASTRUCTURE DEVELOPMENT INFRASTRUCTURE INVESTMENT INFRASTRUCTURE INVESTMENTS INFRASTRUCTURE PROJECTS INTEREST RATE INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL ECONOMICS INTERNATIONAL FINANCE INTERNATIONAL TRADE LENDERS LEVEL OF DEBT LEVEL OF INFLATION LICENSES LOAN MACROECONOMIC ENVIRONMENT MARGINAL COST MARKET INTEREST MARKET INTEREST RATE MARKET PRICES MARKET REFORM MARKET REFORMS MONETARY POLICY MONOPOLY NATURAL RESOURCES NEW MARKET NEW MARKET OPPORTUNITIES NEW PRODUCTS NOMINAL INTEREST RATE OPTIMAL TAXATION OUTPUT POLICY RESPONSE POLITICAL ECONOMY POLITICAL STABILITY POLITICAL SYSTEMS PREFERENTIAL ACCESS PRIVATE FINANCING PRIVATIZATION PROBABILITY OF DEFAULT PUBLIC PUBLIC ECONOMICS PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC POLICY RAPID ECONOMIC GROWTH RAPID GROWTH RATE OF INVESTMENT REAL GDP REAL GROWTH RATE REAL INTEREST REAL INTEREST RATE REGISTRATION FEES REPAYMENT RESTRICTED FOREIGN OWNERSHIP RESTRICTIONS ON ENTRY RETURN ROADS SKILLED WORKERS TARIFF REVENUE TARIFF REVENUES TAX TAX BASE TAX CHANGES TAX COLLECTION TAX COMPLIANCE TAX EVASION TAX POLICIES TAX POLICY TAX RATE TAX RATES TAX REFORM TAX REFORMS TAX REVENUE TAX STRUCTURE TAX STRUCTURES TAX SYSTEM TAXATION TELECOMMUNICATIONS TRADE BARRIERS TRADE LIBERALIZATION TRADE LIBERALIZATIONS TRADES TRADING TRANSACTION TRANSFER PAYMENTS TRANSFER TAXES TURNOVER TURNOVER TAXES UTILITIES UTILITY FUNCTION VOLATILITY WAGES
Online Access:	http://documents.worldbank.org/curated/en/493491468151473073/Public-finance-and-economic-development-reflections-based-on-the-experience-in-China http://hdl.handle.net/10986/28023

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Summary:	Low tax revenue and slow economic growth are two central concerns in developing countries. However, policies that raise tax revenue also harm economic growth. With tax revenue coming mainly from large capital-intensive firms, and with a large informal sector, policies that aid large firms and policies that discourage entry of new firms both help increase tax revenue. Entrepreneurial activity as a result is discouraged, lowering growth. There is a basic tension in policy design between current tax revenue and economic growth. In fact, a loss in tax revenue can itself reduce growth, due to less spending on education and infrastructure. It can also undermine political support for the reforms from the poor and from government bureaucrats, both of whom are key beneficiaries of government expenditures. What policies encourage growth without undue loss of current expenditures? One is debt finance, but this creates the risk of a financial crisis if tax revenue rises too slowly to repay this debt. A second is user fees, but such fees still undermine political support from the poor. A third is partial reform, maintaining both higher taxes on and some protection for easily taxed firms, even while barriers to entry are eased.

Public Finance and Economic Development : Reflections Based on the Experience in China

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