Agricultural Taxation and Rural Development in Developing Countries

Winfried Manig



The financing of economic growth and development in developing countries requires considerable financial means. Some of the necessary investments for economic growth are made by private investors. Other investments, by no means a small amount, have to be made by the government according to the development goals. Furthermore, the government also has to secure the financing of its administrative activities, of improvements in the infrastructure, and of social and institutional change. These extended government activities are necessary on account of the considerable infrastructural, social, personal, and institutional  limitations in developing countries which assign to the government the active role for initiating and implementing development

The financing of theses multiple development tasks makes it necessary for the government to supply considerable means. The most important source of obtaining these means is TAXATION.

Tax policy, in addition, influences economic growth and development directly in their direction and intensity, beginning with the volume of capital formation, factor utilization, factor transfer between the sectors and income distribution.

In the following, the effects which a few selected tax measures have in the agricultural sector will be analysed in the view of their effects on rural development. On the other hand, those financial instrument should be examined which can be, and have been, used to achieve specific objectives in several developing countries. However, before the analysis is dealt with, the actual importance of agricultural taxation in developing countries and the factors influencing the extend of tax revenues will be described.



An important source for financing development is taxation. As to the extent of the incidence of tax in the agricultural sector, there are, indeed, considerable differences in opinion from a theoretical point of view. In reality, the tax burden on the agricultural sector in developing countries is less than its importance within the economies of these countries otherwise. This has a number of causes among which is the administrative inability to enforce the existing tax laws in rural areas. Taxation emits, however, multiple direct effects to direct economic growth and development. A few of these effects have been discussed in connection with the factor proportion within agriculture, the factor transfer between the sectors, the direct influence of the agricultural production pattern, and the agrarian structure.

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