Peasants versus City-Dwellers: Taxation and the Burden of Economic Development

In this book Nobel Laureate Joseph Stiglitz and co-author Raaj Sah address one of development's major issues. Most of today's countries face town versus country tensions of increasing severity, including such issues as who should pay how much in taxes, who should get how much in subsidies, and what forms the taxes and subsidies should take. This volume analyses these tensions and issues, taking into account the great diversity of institutions and economic environments observed in different developing countries.

From the historical perspective, the two central problems facing most of the developing countries are: Who should bear the burden of the costs of development? and How should these costs be shared between those in the urban and rural sectors? The inevitable conflicts between the two have, in fact, been a long standing theme, reflected in the debates, in Britain over the Corn Laws, in the United States over industrial tariffs, and in Russia over the size of the "scissors." The book provides for the first time a unifying framework within which these questions can be systematically approached.

From the perspective of modern public finance, this book provides the first systematic treatment incorporating the distinctive features of developing countries. Raaj K. Sah and Joseph E. Stiglitz not only show that the consequences of various tax policies are distinctly different from what they would be in a more developed economy, but they also develop a simple framework for assessing both efficiency and equity consequences of a wide variety of policies. They show how their approach can be extended to include issues of cost benefit analysis and agricultural pricing.

While the authors break new ground, the book is written to be accessible to a wider audience, including practicing development economists. Each chapter includes a nontechnical discussion of the central problems at hand and a summary of the conclusions of the analysis.

Raaj K. Sah is Professor of Public Policy, University of Chicago. Joseph E. Stiglitz is Professor of Finance and Economics, Columbia University. He was awarded the Nobel Prize in Economics in 2001.