The international fiscal implications of global poverty reduction and global public goods provision

The mixed record on the 2015 Millennium Development Goal (MDG) targets and the focus on global public goods in post-MDG debates questions the future of traditional development co-operation (official development assistance, ODA). Meanwhile, international financial crisis and fiscal retrenchment have focussed policy makers on the international dimensions of income and asset taxation. This paper explores how these two currents of economic discourse can be combined, a decade after the Zedillo Commission proposed new forms of innovative development finance (IDF). Current IDF proposals involve new forms of hypothecated taxation (such as those on financial transactions or carbon pollution) and borrowing against future ODA commitments. These proposals have practical drawbacks, require new intergovernmental mechanisms and tend to perpetuate aid dependency. In contrast, greater international co-operation for direct tax collection (to which the G20 is already committed) would allow developing countries to ensure full income tax collection from their residents (both corporate and personal) through information exchange and the resulting clearing mechanism for double taxation resolution would provide the basis for prior collection of agreed quotas to fund global public goods on an equitable basis. Based on an expanded global income tax base (not new taxes or increased rates) such co-operation represents a more sustainable and equitable system than forms of IDF based on traditional ODA relationships. While a decade ago such an outcome seemed extremely unlikely, recent changes in the global political economy mean that such a transformation of development assistance might now possibly be feasible.