Tax and Spend, Please

Excessive taxation can dull incentives and hinder growth. But so apparently does too little. Governments with meager tax revenues can't provide basic public goods. Worse yet, low tax revenues in poor countries often result from defects in the tax collection systems (rather than low tax rates) that also promote unproductive enterprise. The case of India illustrates the importance of a well-designed tax system. For instance, in the city of Bangalore, Information Technology companies have built world class campuses replete with manicured lawns and high speed data communication networks. Outside the verdant campuses however lie open sewers and uncollected garbage. The roads are in a state of acute disrepair, or have never been properly constructed in the first place. So whereas technology companies instantaneously transmit terabytes of data to remote continents, the local transportation of goods and people seems to proceed at an almost medieval pace.