Friday, January 16, 2015

16 January 2015: Taxes: Price of Civilisation or Payment to Leviathan?

Lant Pritchett
Harvard Kennedy School and Centre for Global Development and
Yamini Aiyar
Accountability Initiative and CPR

There are two dominant narratives about taxation.  One view is taxes are the “price we pay for a civilised society” (Oliver Wendell Holmes Jr.).  In this view taxes are not a necessary evil (as in the pairing of “death and taxes”) but a positive good as more taxes buys more “civilisation.” The other view is that taxes are tribute to Leviathan—a pure involuntary extraction from those engaged in economic production to those who control power producing no reciprocal benefit.  In this view taxes are a bane of the civilised.   We consider the question of taxes as price versus tribute for contemporary India and we make three points.  First, most discussions of government budgets focus on allocations across sectors and activities and discuss the accounting cost of services provided.  But if the accounting cost exceeds the economic cost (the minimum at which the good or service could have been provided) then the difference can be considered “tribute.”  Second, the extent to which government engages in activities which would not have otherwise been carried out at all but which citizens value then the “price of civilisation” is maximised but when government budgets produced goods valued at zero (at whatever cost) then most taxpayers consider this tribute.  Third, the structure of social spending between “insurance” like programs which benefit all individuals at various states or stages of life and sharply targeted transfer programs determines whether most taxpayers consider taxes to fund these expenditures a price or tribute.  The notion of a “compulsory purchase” versus “tax” helps elucidate this difference and sharp targeting is seen as raising the price to any given individual of a given degree of individual benefit.  Taken together we argue India needs more taxes as price of civilisation but less taxes as tribute, which currently dominate.  There is a currently a sharp contradiction between the needs for greater revenue mobilisation for India to continue its progress and provide the increasingly sophisticated “civilisation” that is demanded with higher productivity and incomes and the perception of the “middle class” that most taxes are tribute.  This contradiction is created by a costly and yet ineffective state the solution to which cannot be a weaker state but a better state.

Date: January 16, 2015
Time: 12:45 P.M.

Conference Hall II
Centre for Policy Research,
Dharma Marg, Chanakyapuri,
New Delhi–110021(INDIA)


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