{"id":57471,"date":"2021-06-12T09:22:16","date_gmt":"2021-06-12T08:22:16","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=57471"},"modified":"2021-06-12T09:22:16","modified_gmt":"2021-06-12T08:22:16","slug":"we-need-a-vaccination-programme-for-the-world-and-it-is-possible-for-countries-like-the-uk-to-fund-it-from-new-taxation-the-question-is-will-we","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2021\/06\/12\/we-need-a-vaccination-programme-for-the-world-and-it-is-possible-for-countries-like-the-uk-to-fund-it-from-new-taxation-the-question-is-will-we\/","title":{"rendered":"We need a vaccination programme for the world and it is possible for countries like the UK to fund it from new taxation. The question is, will we?"},"content":{"rendered":"

I am expecting some\u00a0 modern monetary theory\u00a0 (MMT) directed criticism for having signed and posted the letter from a wide range of activists, practitioners and economists to the G7 on the need for a financial transaction tax<\/a> to help fund vaccine programmes in developing countries. This blog post is an explanation for why I have done so.<\/p>\n

There are a number of important framings for this argument. The first is that I think there are six reasons for tax:<\/p>\n

1) To ratify the value of the currency: this means that by demanding payment of tax in the currency it has to be used for transactions in a jurisdiction;<\/p>\n

2) To reclaim the money the government has spent into the economy in fulfilment of its democratic mandate;<\/p>\n

3) To redistribute income and wealth;<\/p>\n

4) To reprice goods and services;<\/p>\n

5) To raise democratic representation - people who pay tax vote;<\/p>\n

6) To reorganise the economy i.e. fiscal policy.<\/p>\n

At best most people who support MMT only recognise 1,2 and 6 here. That is a shame. It puts many who support MMT in a very unfortunate policy arena. To deny that tax plays these other roles, and that they are important, is a simple mistake: there is no other way to describe it.<\/p>\n

Second, we need to consider the role of tax in government funding. I have published on this a number of times. This article in the Real World Economic Review is readily accessible so I will use that as my reference point. As I argue there<\/a>:<\/p>\n

As Mitchell et al (2019, 333) suggest, within MMT the macroeconomic identity describing the monetary funding of government expenditure (G) can be summarised as follows, presuming T is the sum total of taxes raised in cash during a period, B is government borrowing and M is government created money, with \u00e2\u02c6\u2020 representing the change in a total during a period:<\/p>\n

G = \u00e2\u02c6\u2020B+ \u00e2\u02c6\u2020M + T<\/p><\/blockquote>\n

That, I suggest is an identity: it must hold true in a country that does not receive development aid. In that case, if D is spending on development aid in a country and R is non-development spending (so that D+R = G) then in a country spending on development aid:<\/p>\n

D =\u00e2\u02c6\u2020B+ \u00e2\u02c6\u2020M + T - R<\/p><\/blockquote>\n

D here is, of course, a spend.<\/p>\n

The first noted identity is changed in countries in receipt of this aid. It becomes:<\/p>\n

G = \u00e2\u02c6\u2020B+ \u00e2\u02c6\u2020M + T +D<\/p><\/blockquote>\n

Here D is income.<\/p>\n

So the question is why might development spend need to be funded by tax?<\/p>\n

One is simple refusal to increase borrowing or increasing money creation. Another is refusal to reduce other spend. Although glaringly obviously not true a government may argue that \u00e2\u02c6\u2020B, \u00e2\u02c6\u2020M and R are at their limits. This is not true in any developed country at present. It does not mean that the argument will not be used.<\/p>\n

There is another reason. That is that the economy is at full employment. Additional spend does require that space be created within the economy to permit additional government spending on a productive activity, on this occasion vaccine manufacture, if inflation is to be avoided. \u00a0This is an MMT consistent argument as to why tax must be used. Again, this not true in any developed economy right now. But that does not matter in political terms: the argument is being made that there is an inflation risk at present and in that case this issue kicks into play.<\/p>\n

So although MMT says there are other options for developed countries when funding development spending, politically they are not feasible.<\/p>\n

The developing country that is in receipt of aid also needs to be considered.\u00a0Remember that for MMT to work there are pre-conditions:<\/p>\n