The United States is ranked high on the Human Development Index, whereas most African states are ranked low on the same index. This disparity can in part be explained by the difference in the state’s ability to distribute public goods and carry out public services. Taxes are utilized in funding public goods and services, providing the state’s citizens with protection, education, infrastructure, and other services, all of which increase the development of a state. It is imperative that a state not only collects taxes, but also that it can tax effectively, as the presence of ineffective taxation and corruption will remove the benefits that taxation provides. Development is the ability of a state to distribute public goods and services, like the military and education, which can only occur through effective taxation without the presence of corruption.
Development is the ability of a state to effectively carry out public services and distribute public goods to those for which it is responsible. Therefore the levels of variation of development across states are a result of the state’s ability to effectively tax and thus provide public goods and services. In order to validate this claim, first this paper will delve into the reason for taxation and why it is necessary to efficiently tax without the presence corruption, in order for taxation to be beneficial. Next, this paper will explain the connection between taxation and how it funds various types of public goods and services. Finally, this paper will connect how taxation improves development levels through the provisions of goods and services of military and education.
Taxation is a necessary part of an effective state apparatus and the ability to collect funds is a significant factor in effectiveness, because without taxation the state would not be able to provide any public goods or services. Developed countries with effective taxation are not only able to create these public goods and services, but are also able to maintain and expand them. Taxes are structured in order to provide public goods and services that could not be afforded privately as no single company would benefit from providing goods and services that are both non-excludable and non-rivalrous; from a business standpoint, there would not be enough return on investment. For example, building a lighthouse is highly beneficial but costly, and there is no way to charge people for using it. Although no single company can benefit from providing public goods and services, all companies can benefit from the results they provide, including an educated society for potential employees, as well as infrastructure such as a canal for trade. For this reason, companies and individuals are willing to give up their private funds for public benefit.
Furthermore, even with proper taxation, public goods and services can still decline or even cease to exist if corruption or inefficient taxation is present. Corruption, which is fraudulent activity by those in power, will drain away resources, and most importantly funds, from the distribution of public goods and services into the hands of the elite few. This can have a dramatic impact on the distribution of public goods and services, and compromises state capacity. In a corrupt country, leaders are not working to better their state, but instead looking to increase their own power and wealth. On the other hand, inefficient taxation are taxes that on the surface might seem beneficial because it brings in capital to the state, but it in reality is hurting the state. One example of this is evident in the Herbst paper, in which majority of taxes collected are on tariffs on imported goods. Instead of paying high taxes to import goods, companies will turn to smuggling goods into the country, particularly when the state does not have active military and border control, and will thus create a black market. The citizens of the state will welcome the black market because they will be thinking in the short-term, that products are cheaper, versus the long term, that the government will be slowly losing the funding that provides the citizens with valuable public goods and services.
Corruption aside, taxation leads to development because it impacts various components of state development, such as security and human development. Through taxation, the state is able to provide the funding for creating and maintaining the public goods and services of the military, police, and education. The ability to mobilize an army is essential in providing the foundation of security and stability to the state, but requires tax funding in order to afford the necessary components, such as the training for soldiers, military equipment, and weapons. Raising a military demonstrates state strength by showing other states and its citizens that it is able to protect itself from external and internal potential threats, an essential component in creating a developed state. An external threat from an outside country threatens the very existence of the state and its people, and without a strong military, creates an environment of volatility and constant conflict. On the other hand, internal threats refer to threats from citizens from within the state, such as a rebel group with the goal to overthrow the government, which is why police are necessary. These threats cause political and economic instability and weaken nationalism, and can destroy a state from within. If a state has a powerful military and police then it will be safe and autonomous, meaning the state can make decisions for itself without risk of destruction. Primarily, there will be no influence from internal factors, such as an insurgent group, or external factors, such as outsider rule, to undermine decisions for their own gain. This autonomy creates the nurturing environment needed to progress into a more developed state, because instead of the state having to constantly defend its leaders and its citizens, it is able to focus its resources on providing more capital to advanced public goods and services for its own people.
Once a developed military ensures the basic safety of the state, more taxes can be distributed to funding education, thus expanding public goods and services and increasing development. Education increases literacy and creates a more innovative and well-informed society, which allows people to make informed decisions and helps to create accountability for the state. Once people are able to make educated decisions, particularly about leadership, the state’s leadership can be held accountable for wrongdoings through systematic elections and policymaking. Additionally, citizens are able to move away from low-income, unsustainable jobs, such as harvesting natural resources, and begin higher-income sustainable careers. This change would increase the state’s gross domestic product (GDP), providing the state with more capital since more taxes could be collected. Accordingly, the increase in GDP would ultimately increase the state’s capacity to provide public goods and services. The Human Development Index (HDI), created by the United Nations Development Program, which gives a glimpse into the way “wealth generated in a country is actually used in a way that provides a basic standard of living for all through public or private means,” fittingly takes education and GDP into account. These factors are appropriate when ranking a state’s development because this pattern of increasing education and GDP allows for a cycle of progress and constant state expansion. Through taxes funding public goods such as education, the state is able to have an educated populace that can financially contribute to the society and increase the development of the state.
Effective taxation without the presence of corruption allows for the distribution of public goods and services, which then creates a more developed state. This paper has shown that efficient taxation allows a state to flourish. Corruption redistributes essential capital into the hands of the elite, and inefficient taxation can lead to black markets, both of which reduce public goods and services. Once a state is secured by the military against external and internal threats, it can then proceed to educate its society. This education increases GDP and therefore increases the capital earned by the state, allowing for an expansion of public goods and services. Taxes play an integral role in funding the military and education, and these public goods and services lead to a more developed society and state.
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