The Growth Commission’s reports identify the ingredients that, if used in the right country-specific recipe, can deliver growth and help lift populations out of poverty. The Commission, consisting of 19 experienced leaders and 2 Nobel prize-winning economists, has released several commission reports, thematic volumes, and background working papers. The spring 2010 volume is the final book from the Commission. The Commission is succeeded by The Growth Dialogue.
(World Bank, Washington, DC, 2009) Gordon, Roger H.
Low tax revenue and slow economic growth
are two central concerns in developing countries. However,
policies that raise tax revenue also harm economic growth.
With tax revenue coming mainly from large capital-intensive
firms, and with a large informal sector, policies that aid
large firms and policies that discourage entry of new firms
both help increase tax revenue. Entrepreneurial activity as
a result is discouraged, lowering growth. There is a basic
tension in policy design between current tax revenue and
economic growth. In fact, a loss in tax revenue can itself
reduce growth, due to less spending on education and
infrastructure. It can also undermine political support for
the reforms from the poor and from government bureaucrats,
both of whom are key beneficiaries of government
expenditures. What policies encourage growth without undue
loss of current expenditures? One is debt finance, but this
creates the risk of a financial crisis if tax revenue rises
too slowly to repay this debt. A second is user fees, but
such fees still undermine political support from the poor. A
third is partial reform, maintaining both higher taxes on
and some protection for easily taxed firms, even while
barriers to entry are eased.