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The income distribution in many developed countries widened dramatically from 1970 to 2000. Some scholars argue that income inequality contributes to a host of social ills by undermining voters' willingness to support public expenditures. In contrast, we find that growing income inequality is associated with an expansion in government revenues and expenditures on a wide range of services in U.S. municipalities and school districts. Results are robust to a number of model specifications, including instrumental variables that address the endogeneity of the local income distribution. Our results are inconsistent with models predicting that heterogeneous societies provide lower levels of public goods. Disciplines

Tax systems in developing countries, like those in more developed countries, face both new challenges and new possibilities as a result of technological change. In developing countries, taxpayers and tax administrations must cope with more diffi cult environments with fewer resources. Some issues (such as privacy, the benefi ts and costs of public/private partnerships, and corruption) are common to both developing and developed countries, but differ in relative importance in particular countries. Other issues (such as how new technology may or should infl uence the way a country's tax system or particular taxes are designed and administered) may be more important in developing countries. This paper examines the general issues facing developing countries from technological changes and provides some promising examples of technological innovation and application in tax administration and tax policy. INTRODUCTION T echnology has infl uenced the way we work, play, and interact with others. It is not surprising that technology has also affected how tax systems are designed and administered in developing countries. These changes have not always been for the better. In a pioneering study of tax administration in developing countries, Radian (1980) noted that the three decades since World War II had seen a number of cycles of ineffective reform, including computerization. Many countries shared the experiences of Trinidad, in which the Commissioner of Internal Revenue said that "since 1969 we have not produced any meaningful statistical data. In that year, we transferred our returns, processing and accounting work onto a computer" (Radian, 1980, 217). 2

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Taxes matter. People talk about them, complain about them, and try to dodge them when they can. Businesses also react to taxes, both in how they organize their activities and in where they carry them out. How people and businesses react in turn affects the level and structure of taxation. The question we consider in this paper is how emerging countries may best design and develop tax policies to achieve whatever their policy objectives might be, given the complex economic and political environments they face. We focus less on theoretical than on practical issues of tax policy in developing countries. As Keynes (1936) famously said, however,`p ractical men, who believe themselves to be quite free from any intellectual influences, are usually the slaves of some defunct economist ... soon or late, it is ideas, not vested interests, which are dangerous for good or evil'' (pages 383^384). Practical tax policy is not immune to the influence of either ideas or vested interests in any country. Ideas, interests, and institutions play a central role in shaping tax policy in emerging countries. We therefore consider briefly both some important ideas related to tax policy and some important ways in which circumstances in different countries may call for different tax policy designs. We first provide a short overview of what tax systems look like around the world. Against this background we then discuss the principal objectives that different countries may attempt to achieve through tax policy. Finally, we look briefly at the broad political-economy context within which tax policy and development issues must be designed and implemented. We do not provide definitive answers to most of the questions we raise, not least because some of them cannot be definitively answered. Our aim is simply to set out some of the basic issues facing tax policy in emerging countries and to outline some key elements to be considered in designing the best feasible tax structure for a particular country at a particular time.