Revenue Sharing Arrangements: Options and Relative Merits (The Mahbub ul Haq Memorial Lecture)

The decades immediately after World War Two saw: (a) thespreading of ideas, rightly or wrongly attributed to John MaynardKeynes, that called for a larger government role in the economy; (b) thegrowing popularity of socialism; and (c) the creation of the UnitedNations, an event that gave a global voice to the citizens of lowincomecountries and that provided statistics that, for the first time pointedto the big differences in living standards that existed between theso-called “developed” or “advanced” countries and the “underdeveloped”,or “developing” countries, and between the rich and the poor withinspecific countries. Those decades witnessed a period of fast growth inthe activities of governments and especially in those of the centralgovernments. The central governments of many countries assumedincreasingly important and wider roles and functions. See Tanzi (2011)forthcoming, and Tanzi (2008). The governments of many countries triedto raise their tax revenue to be able to increase public investment, tocreate needed infrastructure and to provide better social services, suchas education, health, and social assistance, to their citizens. In thosedecades the importance and the revenue needs of national or centralgovernments grew and the literature on “taxable capacity” became apopular branch of economics. Especially developing countries needed moregovernment revenues and more taxes to be able to grow.