economist
http://www.economist.com/news/finance-and-economics/21642199-behavioural-argument-higher-taxes-no-representation-without-taxation
HOW can poor countries get better gov-ernments? A recent paper* by Lucy
Martin of Yale University suggests higher
taxes could help. Low-income African
countries levy taxes worth about 17% of
GDP each year, whereas the countries of
the European Union take in nearly 40% on
average. In some cases, foreign aid makes
up some of the difference: according to the
IMF it constitutes about 10% of GDP in the
Democratic Republic of Congo. In Liberia
the figure is more like 15%. In 2012 the
whole continent received $51 billion in foreign handouts.
Low taxes and high aid flows, Ms Martin thinks, are a recipe for disengaged citizens and therefore forless effective governments. Her argument hinges on “loss
aversion”, an economic proposition that
the pain of a loss is greater than the pleasure afforded by an equal gain. Most people, the thinking goes, care more about losing what they have than about getting
something extra.
A similar rationale, Ms Martin argues,
applies to aid and taxes. If aid money is siphoned off by corrupt politicians, people
are miffed, but if they discover that their
taxes have suffered the same fate, they are
furious. In other words, taxpayers feel the
loss of money they once had more acutely
than that of funds they might have received. You would therefore expect a hightax country to have more politically engaged citizens and thus better functioning
institutions than one that depended on
aid, even iftheirgovernment budgets were
a similar share ofGDP
http://www.economist.com/news/finance-and-economics/21642199-behavioural-argument-higher-taxes-no-representation-without-taxation
HOW can poor countries get better gov-ernments? A recent paper* by Lucy
Martin of Yale University suggests higher
taxes could help. Low-income African
countries levy taxes worth about 17% of
GDP each year, whereas the countries of
the European Union take in nearly 40% on
average. In some cases, foreign aid makes
up some of the difference: according to the
IMF it constitutes about 10% of GDP in the
Democratic Republic of Congo. In Liberia
the figure is more like 15%. In 2012 the
whole continent received $51 billion in foreign handouts.
Low taxes and high aid flows, Ms Martin thinks, are a recipe for disengaged citizens and therefore forless effective governments. Her argument hinges on “loss
aversion”, an economic proposition that
the pain of a loss is greater than the pleasure afforded by an equal gain. Most people, the thinking goes, care more about losing what they have than about getting
something extra.
A similar rationale, Ms Martin argues,
applies to aid and taxes. If aid money is siphoned off by corrupt politicians, people
are miffed, but if they discover that their
taxes have suffered the same fate, they are
furious. In other words, taxpayers feel the
loss of money they once had more acutely
than that of funds they might have received. You would therefore expect a hightax country to have more politically engaged citizens and thus better functioning
institutions than one that depended on
aid, even iftheirgovernment budgets were
a similar share ofGDP
High taxes, it
seems, make for high civic engagement
seems, make for high civic engagement
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