Sampson Yao Akligoh's Entry For The 2004 Moffatt Prize in Economics
Less developed countries dramatic, but sympathetic economic woes, as evidently clear, stemmed from policy-driven failures in the past. Incidentally, as their struggle for economic development continues unabated, it is an inevitable necessity that prudent economic policies are needed for the attainment of their developmental goals.Indeed, underdeveloped countries over reliance on international financial institutions such as the World Bank and the more developed countries for monetary assistance, is primarily because of their inability to generate enough domestic revenue. Of significance, tax revenue generated in these economies lag far behind public spending: put by Baah-Nuakoh, tax ratios in Ghana, like all other less developed countries are low. This he said reached a lowest of 5.1 percent in 1980-81in Ghana (Baah-Nuakoh, pg 267).
Since the principal source of every government's revenue is taxation, their have being frantic calls by economists for a broader tax base, as well as, rate of tax increments to enhance the balancing of the public sector borrowing requirements (PSBR) in these economies. Obviously, with high income elasticity of demand economists view public spending and services as 'normal'; as it is necessitated by 'the pressure of social progress' which intend creates tensions that could only be resolved by increase state spending in law and order, economic and social services and the state's participation in material production (Wagner, Bird 1971).
The question, therefore, is that why are governments of these economies unable to yield to the calls of these economists or even curb, to a large extent, the heavy subsidization (negative taxation) of some essential commodities like electricity, education, petroleum, and water and consequently foster their citizens to pay economic or realistic prices for them; or as it is of debate privatize them?
The fact is that, regardless of a country's size, natural resources, or level of development, countries with large population and high birth rates, with it associated low death rates face increasing problems. Less developed economies ever decreasing mortality rates due to improve health care and standard of living, and an all time high birth rates, resulting from traditionally high fertility rates, has led to explosive dependency ratios in these economies. Kenya, for instance, has a high birth rate of 41 births per thousand of its population and an ever-decreasing death rate which stood as low as 12 deaths per thousand of its population in 1995; as compared to Germany which has a birth and death rate of 10 and 12 per thousand of its population respectively in the same year (Martin Schnitzer, page 418.)
Obviously, with a traditionally high mother to child ratio averaging about 7 children to a mother and a falling mortality rate from about 24 in 1960 to 17 per thousand persons in Ghana by 1979 (Baah-Nuakoh, pg 213), extended family practices, just to name a few, most less developed countries have significantly high dependency ratios. Statistics indicate that whiles the developed world have about 2 dependants to a working person, that of the less developed world is about 6 dependants to a working person (Martin Schnitzer). This alarming demographic feature has been the concern of some well-meaning demographers with regard to it effects such as overcrowding, among a lot. However, the economic argument is that this high dependency ratio has left these economies almost destitute in domestic revenue generation.
Be Sure to Continue to Page 2 of "The Tax Base and the Dependency Ratio in the Less Developed World ".
