Higher Tax Revenue Needed to Aid Poor in India, Duflo Says
Government programs funded by higher tax revenue are needed in developing countries such as India to open up opportunities for the poor, economist Esther Duflo said in a paper presented at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming.
“Countries that are growing have a window of opportunity to increase taxes without creating major political difficulties,” Duflo, an economics professor at the Massachusetts Institute of Technology in Cambridge, Massachusetts, said in the paper released today. This can occur naturally -- without raising tax rates -- as incomes rise and more workers become eligible to pay taxes, she said.
India, the third-largest economy in Asia after China and Japan, will probably grow 8 percent in the current fiscal year that ends March 31, according to the country’s central bank. Duflo’s paper supports the idea of redistributing wealth as more citizens pay taxes and expand the tax base. The Fed conference is focusing on ways to maximize long-run economic growth.
“Balancing growth with equity in developing countries will be achieved, not by trying to affect the sources of growth, but by designing policies that will allow the poor access to the opportunity generated by growth whenever it happens,” Duflo wrote. To some extent, “it will require some redistribution through government programs.”
“It seems that balancing growth with equity will require, for India and many other countries in similar shoes, a re- thinking of taxation policy, to make it both more transparent and more progressive,” she said.
The MIT economist said in an e-mail that she would like to see these changes take place in “every” developing country so that “as they become middle income, then richer, they become a modern tax system.”
To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
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