The Moorish Wanderer

Contributions to the OECD Conference : Taxation

Posted in Uncategorized by Zouhair ABH on June 8, 2009

Could taxes stimulate an open economy ?
The question on itself is a bit provocative : how could a drain –or let’s say a puncture- on a theoretically optimal production bring benefits to an economy ? A government takes money for two basic things : pay its regular expenses (as in paying its expenses and its civil servants) and its investments. There is a way in turning theses taxes into powerful means in boosting an economy : how so ?
– A common wisdom among tax experts is that an optimal taxation (in the sense of Laffer’s maximum level tax) is such that the government takes a little something from everyone creating value. The little something is a mathematical solution such that the captured part of the social surplus is so low that the expected projects of the taxed agents would not be altered. This might even go to a social consensus, where agents voluntarily give away a part of their present surplus for a bigger future one. This is not wholly irrational, it is just an example of the new Nash’s paradigm :One maximizes their personal utility, and their contribution to the social -i.e. common- utility. The main question is how agents behave so ? when they have positive expectations on the government projects : a highway project, nuclear plants for cheap electricity, universities for a larger knowledge capital, etc…
How does one calculate the ‘optimal’ taxation rate for the government’s projects ? For businesses, the problem is more or less easily solved: many firms have to spend a lot of money in some projects they have to undertake due to lack of say, infrastructure, skilled labour force, an so on. Theses firms would be relieved to give a lot less to the government for it to provide these collective goods.
– How the government spends the taxes right ? Apart from rigorous spending, it is the social consensus that the agents are putting their faith in what is now the very visible hand of ‘benevolent government’. It goes back to the very structure of market economy : there is no such thing as ‘natural markets’. It is how roles are distributed among agents : the firms, the public authorities, the labour force representatives, the households, and so on and so forth. Taxes are just the equilibrium price for what the government is providing as services: education, legislative framework, infrastructures, security.
Finally, there is only little to be feared from the impact of taxation within an open economy. One might even dream of international taxes form common international services: sea and airports might be free (sort of ‘package’ taxes)
A globalized world, a globalized taxes ?

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