Governments use their taxation systems to get their hands on, and then spend, between 10 percent and 40 percent of national income.
That is a lot of money.
There is little doubt that taxing is one of the most important things that governments do.
Correspondingly, it is widely agreed that it is important that governments should get tax policy right.
When people debate and argue about tax policy, they mostly address some aspect of four big questions: -How much money should government gather as tax? It should be enough to meet public spending needs and contribute to fiscal stability, but not so much as to encourage the government itself to be wasteful or to appropriate money that could be better used in private hands.
-How should the tax burden be distributed among actual taxpayers? This issue may be argued either in terms of fairness in burden sharing, or in terms of the potential instrumental advantages of using tax policy to help achieve other public policy goals, for example, encouraging businesses to locate in poorer regions or to invest in particular sectors, or actively redistributing income or wealth from one group of citizens to another.
-How can the potential adverse economic costs of taxation be contained or minimized? Taxpayers tend to be alert to the costs that they directly incur, whether these take the less damaging form of complex and costly paperwork and record-keeping obligations, or the more malign form of harassment: arbitrariness on the part of tax collectors and the need to pay bribes.
If collectively well organized, taxpayers or their legislators may inquire into the efficiency of the tax administration itself.
-How much of the money that it raises is absorbed in the collection process? Economists also routinely focus our attention on the indirect costs of revenue raising that taxing any activity almost inevitably discourages it.
If, for example, a government chooses the easy option of raising most of its income by taxing chrome exports, it may be biasing the whole economy, in an inefficient way, against producing chrome for export.
It is probably more efficient simply to spread the tax burden broadly.
These tax policy questions are very important.
These questions will continue to dominate debate about taxation in most countries and to absorb the attentions of tax policy specialists.
However, they are not the only important tax policy issues.
In particular, there is a growing debate focused on poorer countries and on governments enjoying large incomes from grants and borrow funds or from oil, and mineral exports that addresses a different and in some ways more foundational set of questions: not ''What is good tax policy?'' but ''How does the taxation relationship between state and citizens itself contribute to the quality of governance?'' Taxation and Governance? Governments need to command the services of a large number of people and acquire substantial monetary and material resources.
Historically, governments have depended on two main kinds of material resources, extracted from the societies over which they rule: conscript manpower, mainly for military purposes, and financial resources to pay the salaries of civilian and military personnel and to meet the other capital and recurrent costs of warfare and government.
The most convincing evidence on the connections between tax dependence and governance is now emerging from comparisons between local governments within the same country.
They depend substantially but with significant inter local variations on fiscal transfers from central government and, in a few cases, local revenues from the specific region industry.
The local governments most dependent on broad taxation of their citizens had historically been more democratic.
When provincial governments were most generously supplied with financial transfers from central government or specific region industry revenues, local political leaders had been better able to buy off or suppress competition from democratic oppositions.
I have compared some economic statistics of big local governments in Albania, a country in which central and local revenue raising is often coercive.
I term ''coercive taxation 'an assessment and collection conducted in ways that are likely to be validly perceived by taxpayers as arbitrary, extractive, unfair, or brutal.
Why? There is a formal answer: Taxpayers have few rights.
But why do they have few rights? I don't have a complete answer, but I can see some reasons why public authorities in Albania are motivated to tax coercively.
The structure and organization of economy and businesses are the main reason that matters.
It is difficult actually (a) to collect taxes from middle-income services-agrarian businesses like economy of Albania is organized in small and medium size enterprises that lack formal, bureaucratic structure and operate without extensive use of banking systems and written or electronic records of economic transactions, and (b) to collect without resorting to arbitrariness and coercion.
In this model of economy, tax collecting tends to be coercive and conflictual.
The dearth of records of economic transactions and the limited use of banking systems encourage face to face interaction between taxpayer and tax assessor or collector and oblige the latter to make discretionary decisions about tax liabilities that cannot easily be independently validated.
The inspector who tells you what you owe also gets his hands on the money.
These logistical factors endow tax collectors with considerable discretionary power, facilitate corruption and perhaps extortion, increase the leakage of tax revenues into private hands, generate resentment and tax resistance on the part of taxpayers, establish taxation as the issue of choice for political rebels, and make it practically and politically difficult for governments to appropriate a high proportion of national income through taxation, especially direct taxation.
How Much Do Citizens Pay in Taxes? The potential causal interactions between the state and taxpayers are many and relatively complex, especially because government face choices between taxing broadly and thus engaging with citizens, and exploiting unearned revenues, which requires to be engaged with a narrow range of other actors and monitors or a small number of large companies, public or private, in the oil, construction, telecommunication and minerals sector.
The question of how heavily government tax citizens is distinct and conceptually less complex.
How the level of revenue demand might impact the political actions of taxpayers? We know that the political implications are not straightforward.
Increases in the tax take are unlikely to occur in isolation.
They will generally result also in increases in public expenditure, which might in turn intensify the processes through which the politics around public expenditure ''confuses'' the politics around revenue raising.
However, there are good, logical reasons, to believe that the more of their income the citizens pay in tax, the more they are likely to be politically engaged in and demanding of the government.
Marked increases in the level of tax burdens has mobilized taxpayers, as well as recent statistical evidence indicating that increases in revenue demands precede by only a few years shifts toward more democratic tax resistance.
In sum, there is compelling evidence that the dependence of state on unearned income is likely to have adverse effects on the quality of governance and that the overall level of taxes does help mobilize citizens politically.
Who and what is taxed and how are taxes assessed and collected? Government is more accountable and responsive to their citizens when dependent on them for revenue.
Does that also imply that governments are only accountable and responsive to taxpayers that is, those citizens who pay taxes? Is the policy implication that we should find ways of ensuring the poor are taxed to prevent government being accountable and responsive only to the non poor, at the expense of the poor? The answer to the last question is no.
There are two reasons: The first is cautionary: We simply do not know enough about the effects of taxation on political behavior to justify this kind of experimental social.
The second is that there is good reason to believe that the entire polity and all social groups normally will benefit from greater state responsiveness and accountability to taxpayers.
Why? Especially, in Albania with relatively fragile public institutions, politics is rarely the kind of rational public finance game that economists love to model, in which one particular definable group for example, small entrepreneurs will be calculating in detail the benefits of, say, exchanging reduced simplified profit tax for a stronger legal commitment to employees' rights.
The more that politics is like that, the more we should be concerned about the problem of accountability only to taxpayers.
However, in some of the regions with which we are concerned the poorest, and those dependent on aid and mineral resource wealth the pressure for government to be accountable or responsive to taxpayers is likely to have more positive effects at a more basic level of the polity by encouraging the creation of the kinds of stable institutions and predictable political behaviors that are often in deficit.
Poor people will normally benefit and rarely lose out when ruled by government that, because they are dependent on general taxes, face incentives to coax rather than simply extract revenues from citizens, and therefore confront restraints on their power, are motivated to protect human and property rights, and understand that they and citizens share a common interest in economic growth.
What is needed then? Take a look at the logistical advantages enjoyed by tax collection agencies in wealthier economies.
Four factors facilitate their task and help to explain the historical shifts from levying taxes on specific items (oil, tobacco, beverages, landed property, houses) to levying them according to accounting categories (especially income, value added, and profits rather than simply asset values): -Extensive written and electronic records of economic transactions help collectors to hunt down their quarry accurately and to create effective checks against misappropriation within the tax bureaucracy itself.
-The relative insulation of most economic transactions and incomes from seasonality or the weather makes it feasible to collect most taxes in regular installments over the course of a year.
-The widespread use of banking and other indirect systems of money transfer reduces the need for tax collectors to meet personally with most taxpayers.
-The prevalence of bureaucratically organized economic enterprises provides opportunities to place the collection process on the impersonal and quasi-automatic basis that underpins most contemporary company taxation and employees' pay-as-you-earn systems.
When local populations have the greatest potential economic mobility, and therefore the widest scope to flee from coercive local and national taxation, local and central government spend higher proportions of their revenues on providing services for their citizens and less on themselves.
In different ways, studies provide evidence for the balance of power hypothesis: When governments face the strongest pressures to finance themselves by coaxing rather than extracting revenues from their citizens, they are more likely to rule democratically or to spend money providing services to citizens.
It's pity, but true the fact that in Albania there are no great intellectual or organizational wars that need to be fought and won before government is in a position to change tax policies in ways that will improve governance: abolish some taxes, replace them with more modern and effective alternatives that can be levied less coercively, use widely known techniques to make the taxpaying experience less coercive, and find national revenue sources to replace the former coercive techniques in the long term.
Let's hope to see soon the change needed to go ahead.