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Conflict, Legitimacy and Government Reform: Equitable Allocation of ...

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60 KPI Congress XI<br />

the taxation system <strong>and</strong> improving the efficiency <strong>of</strong> the tax collection<br />

system with an aim to mitigate inequality.<br />

Second, the government must avoid a taxation system that will<br />

exacerbate inequality. Accordingly, available information clearly points<br />

out that if tax revenue is to be increased, we must avoid increasing<br />

indirect taxes but add new types <strong>of</strong> direct tax instead. Moreover, we must<br />

ponder about inheritance tax <strong>and</strong> property tax which aim to prevent<br />

people with a lot <strong>of</strong> assets from speculative hoarding. Such measure will<br />

impel people with a lot <strong>of</strong> assets to utilize these assets to boost<br />

productivity <strong>and</strong> create employment or provide opportunities to others<br />

who can utilize these assets as well. In Japan, if people who own a great<br />

deal <strong>of</strong> assets like l<strong>and</strong>s do not make any investment to generate revenue,<br />

they will not be able to keep the l<strong>and</strong> <strong>and</strong> have to sell them <strong>of</strong>f within<br />

three generations so as to pay inheritance tax, thus providing<br />

opportunities for further utilization by the people who bought such l<strong>and</strong>.<br />

Third, the government must try to abolish the subsidies that benefit<br />

the rich more than the poor.<br />

The findings <strong>of</strong> Harberger’s study (1974) assert that a fiscal policy<br />

comprising progressive taxes combined with public spending that<br />

benefits everyone can mitigate inequality, judging from declining genie<br />

coefficients as shown in Table 8. This study is applicable to both<br />

developed <strong>and</strong> developing countries.<br />

Table 8: Genie coefficients derived from different fiscal policies<br />

Calculated by Harberger, 1974<br />

Combo policies (both government<br />

revenue <strong>and</strong> spending sides)<br />

Developed<br />

countries<br />

Developing<br />

countries<br />

None 0.402 0.498<br />

Progressive tax + neutral expenditure budget 0.372 0.462<br />

Neutral tax + equitable expenditure budget 0.377 0.456<br />

Progressive tax + equitable expenditure<br />

budget<br />

0.347 0.419

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