Skip to main content
SpringerLink
Log in

Development Economics and Public Economics: Emerging Analytical Interface and Practical Policy Implications

  • Chapter
  • First Online:
The Palgrave Handbook of Development Economics

Abstract

This chapter addresses the theoretical and practical relationship between public economics and development economics from a critical perspective. The state has always been central to economic thought and theory as the leading collective actor in the process of structural transformation. Accelerated by the impact of the global financial crisis on both ideas and policy, over the past two decades a new approach has begun to displace the conventional orthodoxy of public choice theory, deregulation and fiscal minimalism. The emerging analytical approach is based on the integration of modern theories of market failure, income inequality and endogenous growth on the one hand, with the recent practice of emerging market economies in managing structural change, welfare provision and integration to the world economy on the other. This Chapter therefore aims to contribute to this overdue revision of the conceptual place of public economics in development economics. Section 2 explores the recent shift towards proactive management of structural change, reduced inequality and resilience to external shocks; while Sect. 3 addresses the way in which the public sector mobilizes the resources necessary to undertake these tasks. Sections 4 and 5 analyse the fiscal transformation caused by economic globalization, the opening of capital markets and the determination of corporate tax rates by international competition. Section 6 concludes by sketching the implications of the analysis in this chapter for the design and implementation of public economic policy in developing countries. The underlying theme of this chapter is thus the renewed need for an active ‘developmental’ state to control sufficient fiscal resources to ensure economic sustainability and social cohesion while mitigating the uncertainty caused by the global economy.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 189.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 249.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 249.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Similar content being viewed by others

Notes

  1. 1.

    Such as Chap. 10 on inequality, Chap. 9 on structural change, Chap. 18 on the environment and Chap. 17 on technological innovation.

  2. 2.

    These transfers have major consequences in terms of the redistribution of income and account (along with progressive income taxation) for most of the observed difference between the Gini coefficients for disposable household income in developed and developing countries respectively.

  3. 3.

    Hopefully in reliable and tested techniques of ‘public administration’ rather than the now fashionable ‘governance’.

  4. 4.

    The canonical contribution is of course Harberger (1962) whose simplistic yet convenient analysis has been endlessly repeated ever since by supporters of business interests.

  5. 5.

    See, however, Chap. 15 in this volume.

  6. 6.

    There are many important dimensions of this interaction which are not discussed in this chapter because they are addressed elsewhere in this volume, particularly capital account management (Chap. 20), trade and investment (Chap. 21) and the international monetary system (Chap. 23).

  7. 7.

    Known to market traders as the ‘Quick Ratio’.

  8. 8.

    For a full formal exposition, see Babilis and FitzGerald 2005.

  9. 9.

    See Chap. 20 in this volume.

  10. 10.

    See Chap. 23 in this volume.

  11. 11.

    Or indeed it could in principle be negative—a subsidy to investors.

  12. 12.

    That is, the residence principle in the ‘OECD Model’ rather than the source principle in the ‘UN Model’ (FitzGerald 2002).

  13. 13.

    See Chap. 23 in this volume.

References

  • Agénor, P.-R. (2012). Public capital, growth and welfare: Analytical foundations for public policy. Princeton: Princeton University Press.

    Book  Google Scholar 

  • Aghion, P., & Howitt, P. (1998). Endogenous growth theory. Boston: MIT Press.

    Google Scholar 

  • Babilis, S., & FitzGerald, V. (2005). Risk tolerance, home bias and the unstable demand for emerging market assets. International Review of Applied Economics, 19(4), 459–476.

    Article  Google Scholar 

  • Bovenberg, A. L. (1994). Capital taxation in the world economy. In F. van der Ploeg (Ed.), Handbook of international macroeconomics (pp. 116–150). Oxford: Blackwell.

    Google Scholar 

  • Clausing, K. A. (2012). In search of corporate tax incidence. Tax Law Review, 65(3), 433–472.

    Google Scholar 

  • Crivelli, E., De Mooij, R., & Keen, M. (2015, May). Base erosion, profit shifting and developing countries (IMF working paper WP/15/118). Washington, DC: International Monetary Fund.

    Google Scholar 

  • Das, U. S., Mazarei, A., & van der Hoorn, H. (2010). Economics of sovereign wealth funds: Issues for policymakers. Washington, DC: International Monetary Fund.

    Google Scholar 

  • Deane, P. (1989). The state and the economic system: An introduction to the history of political economy. Oxford: Oxford University Press.

    Google Scholar 

  • Faccio, T., & FitzGerald, V. (2018). Sharing the corporate tax base: Equitable taxing of multinationals and the choice of formulary apportionment. Transnational Corporations, 25(3), 67–89.

    Article  Google Scholar 

  • FitzGerald, V. (1978). Public investment planning for developing countries. London: Macmillan.

    Book  Google Scholar 

  • FitzGerald, V. (1996). International markets and open economy macroeconomics: A Keynesian view. International Review of Applied Economics, 10(1), 141–156.

    Article  Google Scholar 

  • FitzGerald, V. (2001). Short-term capital flows, the real economy and income distribution in developing countries. In S. Griffith-Jones, M. Montes, & A. Nasution (Eds.), Short-term capital flows and economic crises (pp. 29–51). Oxford: Oxford University Press.

    Chapter  Google Scholar 

  • FitzGerald, V. (2002). International tax cooperation and capital mobility. Oxford Development Studies, 30(3), 251–266.

    Article  Google Scholar 

  • FitzGerald, V. (2003). The instability of international demand for emerging market assets. In R. Ffrench-Davis & S. Griffith-Jones (Eds.), From capital surges to drought: Seeking stability for developing economies (pp. 191–213). Basingstoke: Palgrave for UNU/WIDER.

    Chapter  Google Scholar 

  • FitzGerald, V. (2005). Policy issues in market based and non-market based measures to control the volatility of portfolio investment. In C. J. Green, C. Kirkpatrick, & V. Murinde (Eds.), Finance and development: Surveys of theory, evidence and policy (pp. 241–274). Aldershot: Edward Elgar.

    Google Scholar 

  • FitzGerald, V. (2007). International risk tolerance, capital market failure and capital flows to developing countries. In A. Shorrocks (Ed.), Advancing development: Core themes in global economics (pp. 299–318). Basingstoke: Palgrave Macmillan for UNU/WIDER.

    Chapter  Google Scholar 

  • FitzGerald, V., & Siu, E. (2019). The effects of international tax competition on national income distribution. In J. A. Ocampo (Ed.), International policy rules and national inequalities: Implications for global economic governance (pp. 243–272). New York: Colombia University Press.

    Google Scholar 

  • Folkerts-Landau, D. (1985). The changing role of international bank lending in development finance. IMF Staff Papers, 32, 317–363.

    Article  Google Scholar 

  • Haksar, V., Moreno-Badia, M., Pattillo, C., & Syed, M. (2018). Assessing fiscal space: An update and stocktaking (IMF executive board policy paper). Washington, DC: International Monetary Fund.

    Google Scholar 

  • Harberger, A. C. (1962). The incidence of the corporation income tax. Journal of Political Economy, 70(3), 215–240.

    Article  Google Scholar 

  • IMF. (2013, October). Fiscal monitor 2013: Taxing times. Washington, DC: International Monetary Fund.

    Google Scholar 

  • IMF. (2014a, April). Fiscal monitor 2014: Public expenditure reform. Washington, DC: International Monetary Fund.

    Google Scholar 

  • IMF. (2014b, October). Spillovers in international corporate taxation (IMF policy paper). Washington, DC: International Monetary Fund.

    Google Scholar 

  • IMF. (2015, October). Fiscal monitor 2015: Tackling inequality. Washington, DC: International Monetary Fund.

    Google Scholar 

  • IMF. (2018a, April). Fiscal monitor 2018: Capitalizing on good times. Washington, DC: International Monetary Fund.

    Google Scholar 

  • IMF. (2018b, October). Fiscal monitor 2018: Managing public wealth. Washington, DC: International Monetary Fund.

    Google Scholar 

  • Independent Commission on the Reform of International Corporate Taxation. (2016). Four ways to tackle international tax competition. www.icrict.com

  • Kalecki, M. (1937). A theory of commodity, income, and capital taxation. The Economic Journal, 47(187), 444–450.

    Article  Google Scholar 

  • Klemm, A. (2009). Empirical evidence on the effects of tax incentives (IMF WP/09/136). Washington, DC: International Monetary Fund.

    Google Scholar 

  • Klemm, A., & van Parys, S. (2015). Fiscal policy and long term growth (IMF policy paper). Washington, DC: International Monetary Fund.

    Google Scholar 

  • Lewis, K. (1999). Trying to explain home bias in equities and consumption. Journal of Economic Literature, 37, 571–608.

    Article  Google Scholar 

  • Mirrlees, J. A. (1976). Optimal tax theory: A synthesis. Journal of Public Economics, 6(4), 327–358.

    Article  Google Scholar 

  • OECD. (2010a). Tax policy reform and economic growth (Tax policy studies no. 20). Paris: Organisation for Economic Cooperation and Development.

    Google Scholar 

  • OECD. (2010b). Promoting transparency and exchange of information for tax purposes. Paris: Organisation for Economic Cooperation and Development.

    Google Scholar 

  • OECD. (2015). Countering harmful tax practices more effectively, taking into account transparency and substance. Action 5 – 2015 final report. Paris: Organisation for Economic Cooperation and Development.

    Book  Google Scholar 

  • OECD. (2017). Government at a glance 2016. Paris: Organisation for Economic Cooperation and Development.

    Google Scholar 

  • Ostry, J., Berg, A., & Tsangarides, C. (2014). Redistribution, inequality and growth (IMF staff discussion note SDN/14/02 2014). Washington, DC: International Monetary Fund.

    Google Scholar 

  • Stern, N. (2002). Towards a dynamic public economics. Journal of Public Economics, 86, 335–339.

    Article  Google Scholar 

  • Stiglitz, J. E. (1976). The corporation tax. Journal of Public Economics, 5, 303–311.

    Article  Google Scholar 

  • Stiglitz, J. E. (1998). Redefining the role of the state. Tenth Anniversary MITI Research Institute Lecture. Tokyo: Ministry of International Trade and Industry.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. St Antony’s College, University of Oxford, Oxford, UK

    Valpy FitzGerald

Authors
  1. Valpy FitzGerald
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Valpy FitzGerald .

Editor information

Editors and Affiliations

  1. Department of Economics, School of Oriental and African Studies University of London, London, UK

    Machiko Nissanke

  2. Banco de la República, Bogotá, Colombia

    José Antonio Ocampo

  3. Columbia University, New York, NY, USA

    José Antonio Ocampo

Rights and permissions

Reprints and permissions

Copyright information

© 2019 The Author(s)

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

FitzGerald, V. (2019). Development Economics and Public Economics: Emerging Analytical Interface and Practical Policy Implications. In: Nissanke, M., Ocampo, J.A. (eds) The Palgrave Handbook of Development Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-14000-7_5

Download citation

  • DOI: https://doi.org/10.1007/978-3-030-14000-7_5

  • Published:

  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-030-13999-5

  • Online ISBN: 978-3-030-14000-7

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation