Tax policy and the size of the government5 min read . Updated: 19 Oct 2012, 12:32 PM IST
The directional size of the govt currently needs to go up, with or without the need to close the fiscal deficit
As we saw earlier, if we admit the possibility that the redistributive cash transfers implied by the National Rural Employment Guarantee Act (NREGA) are an OK policy by themselves, we are left with the corollary possibility that the fiscal deficit is a result of not raising tax rates, rather than the spending itself. To paraphrase the 19th century British economist Alfred Marshall, asking whether spending or taxes are responsible for the deficit is a bit like asking which blade of the scissor does the cutting. However, tax policy is the sine qua non of the political and commercial legitimacy of the state, and is hence a question as much of political philosophy as of economics. Ethical judgements are indispensable and I’m positing the view that the increased government spending for redistribution is perhaps ethical, so that what is truly ‘unethical’ (or unsustainable, coming back to the more grounded economics of the fiscal deficit) is the lack of corresponding increase in taxes.