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A consumption-based direct tax for countries in transition from socialism

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  • McLure, Charles E., Jr.

Abstract

This paper suggests a consumption-based direct tax, referred to here as a simplified alternative tax or SAT, as an alternative to the standard income tax for reforming socialist economies (RSEs). The paper consists of seven sections. Section I serves as an introduction. Section II outlines some of the objectives of tax policy in RSEs and some of the constraints on the achievement of those objectives. Section III provides examples of the overwhelming complexity of the income tax. Section IV explains the basic mechanics of the SAT and contrasts the simplicity of the SAT with the complexity of the income tax. Section V describes the economic advantages of the SAT and section VI discusses some potential problems of the SAT. The final section concludes by stating that the SAT encourages saving and investment in a way that is economically neutral and avoids many of the administrative problems of an income tax.

Suggested Citation

  • McLure, Charles E., Jr., 1991. "A consumption-based direct tax for countries in transition from socialism," Policy Research Working Paper Series 751, The World Bank.
    • Handle: RePEc:wbk:wbrwps:751
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    References listed on IDEAS

    as
    1. Feige, E.L., 1991. "Socialist Privatization," Papers 1a, United Nations World Employment Programme-.
    2. Kornai, J, 1979. "Resource-Constrained versus Demand-Constrained Systems," Econometrica, Econometric Society, vol. 47(4), pages 801-819, July.
    3. Ronald I. McKinnon, 1991. "Financial Control in the Transition from Classical Socialism to a Market Economy," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 107-122, Fall.
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    Cited by:

    1. Roger H. Gordon, 1994. "Fiscal Policy during the Transition in Eastern Europe," NBER Chapters, in: The Transition in Eastern Europe, Volume 2, Restructuring, pages 37-70, National Bureau of Economic Research, Inc.
    2. Stanley Fischer, 1994. "Russia and the Soviet Union Then and Now," NBER Chapters, in: The Transition in Eastern Europe, Volume 1, Country Studies, pages 221-258, National Bureau of Economic Research, Inc.
    3. Helena Blazic & Nikša Nikolic & Mario Pecaric, 2003. "Consumer-Based Taxation at the Business Level: The Croatian Experience," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 8(1), pages 57-68, Spring.

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