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Owen Barder sets out four reasons why innovative aid finance mechanisms are good in a recent terrific blog. They can improve intertemporal optimization (the International Finance Facility for Immunization); create a commitment technology (Advance Market Commitments); change incentives; and improve the allocationof risk.
Too bad he then proceeds to write off the Tobin tax (which Dani Rodrik likes) and presumably other (mostly French) ideas for earmarked “global” taxes, on the grounds that they distort rational decision-making on taxing and spending. True any global tax is a non-starter politically in the U.S. (not only because tax is a dirty word but because Americans will never support a tax without clarity on who and how it will be spent, matters that are rarely discussed by advocates of raising “global” revenue). On the other hand, conceptually I can convince myself they are reasonable. All taxes and especially earmarked taxes are non-optimal. But we live in a second-best world. In a global system with global public goods and bads, in which the politics of raising revenue domestically to deal, say, with adaptation to climate change in developing countries is tough, a tax on global financial transactions -- or on airline tickets -- is not opportunistic as Owen suggests. It’s some odd combination of idealism and pragmatism!
CGD blog posts reflect theviews of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.