Observed economic policies in developing countries differ sharply from those in developed countries and from those forecast by existing models of optimal policies.

• Position: Conferences

Observed economic policies in developing countries differ sharply from those in developed countries and from those forecast by existing models of optimal policies. For example, developing countries rely little on broad-based taxes, and make substantial use of tariffs and seignorage as nontax sources of revenue. Gordon and Li contrast the implications of two models designed to explain such anomalous policies. One approach, on which they published in 2005, focuses on the greater difficulties faced in poor countries in monitoring taxable activity, and explores the best available policies given such difficulties. The other...