Essays in Honor of Roy Bahl
Studies in Fiscal Federalism and State–local Finance series
Edited by Richard M. Bird and Jorge Martinez-Vazquez
Chapter 1: Sustainable development requires a good tax system
Budgets are where the dreams of development planners and reformers come to be born or to die. The hopes and aspirations of any society as well as its capability to realize them are revealed more clearly by how governments spend and tax than by the declarations of politicians or the advocacy of interest groups, whether domestic or international. How a country finances its public sector is not simply about money but about such broader issues as the relation between state and society, how political institutions function in articulating and implementing social objectives, and the extent to which states succeed in achieving them. Spending and regulatory policy are of course also important but since even the best-intentioned government cannot spend revenues it does not have a critical element of development policy always and everywhere is taxation. How much a country taxes, what it taxes, how it determines its tax policy, the extent to which the level and structure of taxation are related to spending policy, how taxes are administered, and how well both policy and administration adjust to the ever-changing environment all countries now face in this globalizing world – such matters are not simply esoteric issues best left to public finance specialists. On the contrary, as historians are increasingly recognizing, they are the “sinews of power” in the important sense of being critical links between what a country may wish to achieve through its political institutions and what is actually achievable and achieved.