In all our talks about the Social Welfare Function (SWF), one question has always resonated in my mind. What kind of a Social Welfare Function would apply to a developing country? While opponents of economics criticize economic theory for being idealistic and not practical in a real economy, this class makes me think that even a welfare system like the SS is an idealistic notion for a developing country.
What would a SWF for a developing country look like and can a welfare function even be considered plausible in a third world, developing country. Our class has been focused on America and here the rule of law is rampant. I'm sure tax evasion happens here too but compared to a developing country it is negligible. Here is a case in point, Pakistan.
In a country where the majority of people (apart from the working middle class) evade direct (income) tax, a huge part of the rich are tax evasive, self interested individuals, and the legislators themselves are the worst apples in the orchard, is a social welfare function even applicable?
I think a social welfare function is applicable, but it is so far skewed to one side that it seems redistribution is not possible. The article reminded me a bit of living in Quito... where the president takes from all and gives little.
ReplyDeleteThis welfare function cannot function. It assumes that people consent to taxes because it increases everyone's social marginal utility. The people who are well off and more likely to give to support the public welfare have evaded this civic duty, leaving taxes to those who have the least resources and the most need.
ReplyDeleteBut in order for the utility of all members of the society to increase, social welfare needs to function. There can't be any progress such as better roadways and other types of infrastructures, hospitals, etc without taxation. And when you can't depend on your own legislative body to show that they're not above the laws they just enacted there isn't much you can do.
ReplyDeleteHow do you get people in a developing country to consent to taxation though? We are one of the wealthiest nations in the world, and look at how much we rail against taxes. The vertical taxation method seems to be the one most viable, but since the lawmakers are some of the worst offenders, it seems unlikely that things will change.
ReplyDeleteIs that actually legal? How do the top earners (one guy who makes $37 million) get away with not paying taxes? Let's just all move to Pakistan where we can keep 100% of our income. A person has to pay a tax if they make over $3400 a year? I understand our median income compared to Pakistan's is a little skewed, but it just seems that that would account for a majority of the population. And then no one actually pays it, or they choose not to without penalty, just seems like a faulty system. Higher utility I guess, more income stays with the individual.
ReplyDeleteThe society in Pakistan definitely appears to be run by an elitist system. I think it is unfair that these lawmakers and wealthy citizens are able to get away with not paying taxes while the poor citizens who can't afford to pay taxes the most, are the ones who are maintaining the tax system. It seems that vertical taxing (taxing unequals unequally)would redistribute wealth and help the overall utility of the country, but as long as these elitists continue to find loopholes for their own tax exemption, the social welfare function will remained skewed.
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