Central Government Tax Research Articles

Sofa: A simulation program for predicting and evaluating the policy effects of grants-in-aid

This paper motivates and describes a computer simulation program to predict the general equilibrium effects of grants-in-aid to local governments on the tax and spending decisions of these governments. The SOFA (Simulation of Fiscal Assistance) program explicitly incorporates the effects of family relocation (the “Tiebout” adjustment process) and the availability of competitive private market providers (e.g. private schools, hospitals, recreation facilities) on the levels and distribution of local public services. SOFA can simulate the effects of the four main forms of grants-in-aid: (1) lump-sum transfers, (2) matching aid, (3) base equalizing aid, and (4) tax relief aid. In addition to the individual city predictions on taxes and spending SOFA provides the following summary statistics: (1) mean level of spending, (2) coefficient of variation of spending, (3) values for a utilitarian, Rawlsian, and egalitarian objective functions, (4) the central government tax rate needed to finance aid, and (5) the percent of families in the region who prefer the private provision of the “public” service. A copy of the program and a program users manual containing a detailed derivation of the model as well as user's instructions are available from the authors upon request.

The Weight of Tax Revenue in the Pakistan Economy

This paper provides a general review of taxes in Pakistan with special reference to central government tax efforts. The weight of central taxes in national income and in the central budget is analysed using the tax data for the period 1948-62. Some suggestions are made about mobilizing more savings by raising tax revenues. The Case for Raising the Weight of Tax Revenue In the developing countries, we usually find a fiscal system where the relative weight of the public revenues in the total economy is meagre and limited to certain sectors. This state of affairs tends to make fiscal policy weak as well as blunt. As increasing the effectiveness of monetary policy in underdeveloped countries presupposes organization and wide dissemination of monetary institutions, so a prerequisite for an efficacious fiscal policy is enhancement of the influence of taxes in the economy1. Enhancement of the relative importance of taxation in the economy is essential for a number of reasons. First, the governments of the developing countries have to finance increasingly larger development programmes. The safe way to acquire the necessary resources is through taxes, as supply rigidities make flirtation with inflationary finance a dangerous game8. Second, power to tax brings with it the power to regulate. The government can perform its function of guiding the economy along the planned course without excessive reliance on direct controls only if it is adequately armed with effective tax powers which can touch any part of the economy accord¬ing to the need of circumstances. Third, built-in stabilizers and counter¬cyclical tax adjustments can successfully offset fluctuations in income and employment "where the ratio of taxes to national income is high, a large proportion of revenue is from net income taxes and there is a large foreign