Question

Based on what you have learned in this course about the various taxes, their advantages and their drawbacks, devise a tax system for a poor country that has no natural reserves. In other words, what combination of taxes would you use to raise enough revenue to provide essential public services and yet not stall the country's economic development? You must back up your choices with explanations.

Answer 1

A tax system for a poor country without natural reserves should incorporate progressive income taxes, consumption taxes on non-essential goods, and environmental taxes to raise required revenue while promoting equitable growth and sustainable practices.

Step-by-step explanation:

To raise sufficient revenue for a poor country with no natural reserves and to provide essential public services without hindering economic development, a blend of progressive income taxes, consumption taxes, and environmental taxes could be utilized. Beginning with income taxes, applying a progressive structure ensures that individuals contribute according to their ability to pay, fulfilling the principle of equity. Lower income brackets could be taxed lightly or not at all to protect the most vulnerable from undue financial burden.

Value-added taxes (VAT) or sales taxes on non-essential goods could serve as a consumption tax that contributes to revenue without disproportionately affecting the poor. Care would be taken to keep necessities lightly taxed or exempt to avoid placing a regressive burden on low-income citizens. Additionally, environmental taxes on pollution and non-renewable resource usage would provide incentives for more sustainable practices and can potentially generate additional revenue. Through this combination, the fiscal policy aims to mobilize domestic resources effectively, encourage equitable growth, and ensure the long-term stability of the country's finances.