Public economics

1. PUBLIC ECONOMICS

13. 12 Pattern of Tax Revenue Collection (Approximation) (Source: Wagner's Law – State takes an expanding share of GNP as per capita incomes rise.) Category of Countries Ratio of Tax Revenue to GNP i) Low Income countries 15% (per capita income Less than $400) ii) Low Middle income 20% (per capita income $400 to $1,600) iii) Upper Middle income 30% iv) High Income Industrialized countries 45%

14. 13 Pattern of Tax Revenue Collection Country GNP/Capital Rev/GDP Non-tax Rev/Rev YEAR US $ 1999 1997 1997 Nepal 220 12.60% 13.65% Bolivia 1010 24.35% 11.00% Egypt 1400 28.95% 33.55% Turkey 2900 21.95% 12.88% Mexico 4400 19.10% 14.27% Brazil 4420 37.30% 14.10% Chile 4740 25.54% 17.33% Kuwait 15000 46.90% 95.55% Canada 19320 40.19% 17.05% Italy 19710 45.40% 11.02% UK 22640 39.13% 12.45% Sweden 25040 58.90% 10.20%

15. 14 Composition of Government Revenues

16. 15 Composition of Government Expenditures

27. 26 Direct Taxes A) Income Tax: Before Reform After Reform High top rates (40%-75%) (Statutory Tax) Top rates falling (20%-35%) Many rates Very few rates Many exemptions Most exemptions eliminated

28. 27 Direct Taxes (Cont’d) B) Corporate Income Tax: Before Reform After Reform High marginal tax rates Convergence of top statutory tax rates for personal and corporate tax systems Incentives with tax holidays Elimination of special incentives Double taxation Integration of corporate and personal taxes

29. 28 Reduction of top marginal income rates since 1984 (Number in parentheses indicates the number of tax brackets) Country Individuals Corporations Before After Before After Australia 60% (5) 49%(4) 46% 39% Canada 34%(10) 29%(3) 28% 23% Finland 50% 43% 52% 40% Germany 56% 53% 56% 50% Portugal 41/48% 37% 60/68 45% Barbados 60% 50% 45% 35% Colombia 49% 31% 40% 30% El Salvador 60% 35% 30% 35% Guatemala 42% 34% 48% 34% Jamaica 58% 33% 45% 33% New Zealand 66% (5) 33%(3) 45% 28%

30. 29 Reduction of top marginal income rates since 1984 (Number in parentheses indicates the number of tax brackets) Country Individuals Corporations Before After Before After Zambia 80% 35% 50% 35/45 Denmark 73% 68% 40% 50% U.S.A. 50% 28% 46% 34% Indonesia 45% 35% 45% 35% Singapore 45% 33% 40% 33% Botswana 75% 50% 35% 40% Mauritius 70% 35% 66% 35% U.K. 60% 40% 52% 35%

31. 30 Indirect Taxes A) Sales Tax: Before Reform After Reform Many rates Value Added Tax (one positive rate and zero rate) Many exemptions Small number of exemptions Narrow base Broad base plus a selective number of excise taxes (cigarettes and liquor etc.)

36. Direct and Indirect Taxes as Share of GDP. 35

37. Direct Taxes as Share of Total Tax Revenues. 36

38. Composition of Indirect Taxes as Share of GDP. 37

43. 42 South Cyprus North Cyprus Tax Collections 2003 as Percentages of GDP.

44. 43 SOUTH CYPRUS NORTH CYPRUS Wages & salaries 10.96% 17.19% Capital Expenditure 3.77% 7.87% Debt Service 4.96% 5.09% Others (excluding social security and public pensions ) 14.96% 16.46% Total Expenditures 34.65% 46.62% Total Revenue (Excluding SSC) 31.10% 30.58% Cash Deficit -3.55% -16.04% Public Sector Expenditures, Excluding Social Security and public pensions, 2004 as percentages of GDP

45. 44 Cash Deficits of Social Security and Public Pension Systems of North and South Cyprus