The Political Economy of Tax Reform.

• Author: Snow, Sandra L.

As a result of the first National Bureau of Economic Research (NBER)--East Asia Seminar on Economics, cosponsored by the NBER, Korean Development Institute and Chung-Hwa Institute, held in Seoul, Korea in June, 1990, this volume consists of twelve papers, discussant comments and an introductory overview chapter by the editors. With the recent rapid economic emergence of the East Asian region and the increasing interdependence among countries during the 1980s, this seminar is timely. However, these conference proceedings focus on only one aspect of this interdependence, namely, major tax reform programs undertaken by Japan, Taiwan, Korea and the United States.

In the first of two background papers, Razin and Sadka theoretically consider linkages among International capital flows and tax interactions between economies as well as tax-induced distortions in the allocation of global savings and investment and the issue of tax coordination. With respect to tax competition, their basic conclusions are that it will lead to adoption of a residence principle of taxation in which case there will be no gains from tax harmonizations, but if restrictions such as the inability to tax capital abroad are introduced and combined with arbitrage conditions, it will imply taxes on immobile, not mobile, factors. In the second background paper, Tanzi and Shome provide a purely descriptive, yet useful and comprehensive, survey of tax structures in eight East Asian countries, specifically, newly industrialized Hong Kong, Korea, Singapore and Taiwan, oil-exporting Indonesia and Malaysia, and the Philippines and Thailand. Although there is no clear pattern of tax policy among the five most successful economies, all have experienced a stable, forward-looking government with a professional bureaucracy actively pursuing well-defined national goals via technical education and tax incentives. Even though Tanzi and Shome describe tax structures in eight East Asian countries, the remainder of the book is limited to papers concerning only the three East Asian countries of Japan, Korea, and Taiwan and a misplaced paper about U.S. tax reform. These remaining papers are organized in two parts. Part two consists of four contributions designed to analyze the political-economic interactions that supported the tax reforms in each of the four countries mentioned above, while the third part is composed of six presentations concerning individual aspects of the relationships between...