“The Public Finance research program will foster understanding of what makes states effective in raising revenues, procuring goods and services, providing public goods, and affecting distribution of income. It will answer two types of questions: how do government policies affect the economy? How should policies be designed to maximize welfare?”
The program will combine economic theory with rigorous empirical research that explicitly incorporates and analyzes the informational and administrative constraints faced by governments. Examples of such constraints include imperfect enforcement in the face of a large informal sector. Research carried out under the program on tax policies will evaluate the effects of government policies on the economy and the implications of imperfect enforcement for the tax structure and the way governments can lift these constraints by improving enforcement. This research will study the deterrence effect of tax audits and penalties as well as examining ways to effectively collect information on tax bases. The program will look at the effect of changed incentives for taxpayers and tax collectors, study the effect of changed systems of tax collection, and carefully examine beforehand whether a tax system change works.
This program will also take a critical look at the extent of government activity given the consensus view among economists that government is inefficiently small in developing countries. It will look at the spending policies to further theoretical and empirical understanding of the way government affects the allocation of resources and the distribution of income. It will thus extend rigorous thinking to the pressing policy questions, and explore creative ways to find out what works. Some of this work is likely to be informed by working with government agencies, including tax authorities, to undertake properly evaluated randomized interventions.
Program Director: Adnan Qadir Khan