Tuesday, July 11, 2006

implicit taxation

This paper is interesting - basically the authors argue that China's system of channelling private money through state-run banks into public works is a more efficient form of taxation than income tax, given the disparities of income and the low level of banking participation amongst the poorest in the country.

It puts me very much in mind of the IPO frenzy in the Gulf. Raising money for government-controlled companies through IPOs may not have been the most efficient in terms of the transaction costs, but given the lack of democratic participation income taxes are politically untenable. Raising the cash through IPOs helped engender a sense of participation and accountability, and it's hard not to see that the social/political value of those feelings would outweigh the social/political costs of taxation (though the Dubayyi govt does play with the idea of VAT quite often).

Of course, that begs the question of what impact the stock market collapse has had on Gulfi politics. It would be nice to find the time to do a properly structured survey of investor sentiment and of political sentiment and see how that correlates, but it would be pretty hard to conduct the latter part. That might have to be reliant on analysis of press coverage and interpretation of the significance of elite political acts, which is always quite difficult to pull off robustly.