Courtesy Reuters

The importance of public revenue to the underdeveloped countries can hardly be exaggerated if they are to achieve their hopes of accelerated economic progress. Whatever the prevailing ideology or political color of a particular government, it must steadily expand a whole host of non-revenue- yielding services-education, health, communication systems and so on-as a prerequisite for the country's economic and cultural development. These services must be financed out of government revenue. Besides meeting these needs, taxes and other compulsory levies provide the most appropriate instruments for increasing savings for capital formation out of domestic sources. By providing a surplus over recurrent expenditure, they make it possible to devote a higher proportion of resources to building up capital assets.

This is not to say that poor countries could or should finance their development programs entirely by their own effort. The advanced countries with high incomes have an obligation to assist in the process by providing aid, and this obligation has been amply recognized-if not adequately implemented-in recent years. However, foreign aid is likely to be fruitful only when it is a complement to domestic effort, not when it is treated as a substitute for it.

The fact is that in relation to gross national product the tax revenue of the underdeveloped countries is typically much smaller than in the advanced countries. Whereas the "developed" countries collect 25 to 30 percent of their G.N.P. in taxation, the underdeveloped countries typically collect only 8 to 15 percent.

Is this an ineluctable consequence of their poverty? Since taxation can be paid only out of the surplus of income over the minimum subsistence needs of the population, most people believe that the proportion of the national income which a poor country can divert to communal purposes through taxation-without setting up intolerable social tensions-is much smaller than in a rich country. Two considerations show, however, that this is not the whole, or the main, explanation.

In the first place, though underdeveloped countries show enormous diversity in their economic and social

Loading, please wait...

Related Articles

This site uses cookies to improve your user experience. Click here to learn more.