compulsory lending schemes

Compulsory Lending SchemesA. R. Prest *

THIS PAPER is an inquiry into a variety of schemes by which govern-ments have in recent years compelled the private sector to make loans

to them.Section I outlines what is meant here by compulsory lending and tries

to differentiate such schemes from those that are close or distantrelatives. Section II summarizes the principal characteristics of theschemes of the countries concerned; further details are given in theAppendix. Section III is of a more analytical character, exploringthe advantages and disadvantages that such schemes might have withrespect to incentive effects, equity, administration, etc. Section IVsummarizes some of the lessons of practical experience with theseschemes in recent years. Section V asks whether there is a future forsuch devices. The general answer is that there is on balance a certainamount to be said in their favor, especially if various precautions aretaken in their formulation.

I. Definition of Compulsory Lending

Compulsory lending is a phrase that could cover a large numberof quite different schemes, and so we must clarify the exact meaningwe have in mind. We shall take a compulsory lending scheme to be onewhere all people coming under some wide classification (e.g., liabilityto pay income tax) are obliged to deposit with the government a givensum of money for a period of time, on the understanding that it willbe returned to them relatively soon. Several features of this definitionshould be stressed. First, we specify a "wide classification"; this isnecessary in order to delimit our inquiry from various types of compul-sory lending schemes applying to particular small sections of the com-munity (e.g., reserve ratio requirements for banks in the United States;directions to insurance companies to buy government bonds in Ceylon;compulsory deposits on imports, as introduced in the United Kingdom inNovember 1968). At the same time, we do not insist that the coverage

* Mr. Prest is professor of political economy at the University of Manchester.This paper was prepared while he was a visiting scholar in the Fund's Fiscal AffairsDepartment during the summer of 1968. He is the author of Public Finance inTheory and Practice and Public Finance in Underdeveloped Countries, as well asother books and articles in economic journals.

27

©International Monetary Fund. Not for Redistribution

28 INTERNATIONAL MONETARY FUND STAFF PAPERS

should be comprehensive; we are thereby able to cover schemes that, forinstance, apply to individuals but not to corporations.

Second, the notion of "obligation" is essential. This means that weexclude such schemes as those that have operated over the years in,for instance, Sweden and Brazil, whereby voluntary depositing of fundswith the government enabled firms to claim tax relief on investment; andwe also exclude the multiplicity of instances where tax relief is givenfor voluntary saving in prescribed forms. Third, it is specified that thedeposit should normally be made in money form; this enables us toleave out the issuance of government bonds in exchange for physicalassets acquired from landowners or company shareholders whennationalization of some activity takes place.

Fourth, there is the requirement that the sum deposited will bereturned to the depositor—or, of course, his heirs. This enables us todifferentiate our field of inquiry from the operations of marketingboards in West Africa and elsewhere in the postwar period. Effectively,marketing boards have at times operated as a means of imposingcompulsory lending on large groups of people, but there has never beenany rule of repaying such sums to the individual contributors.

Fifth, we stipulate that sums lent should be returned to lenders"relatively soon"; this enables us to separate the schemes that interestus from the general range of social security schemes found in manycountries in the world.1 Finally, it should be observed that we haveused the term "compulsory lending." Frequently, such schemes areknown by the name "compulsory saving"; it seems to be less misleadingto use the former term, for although governments can legislate forschemes of compulsory lending it is not normally within their power tolegislate for net additions to the annual flow of saving.

II. Classification of Schemes

The archetype of all modern schemes of this sort was that proposedby Keynes in How to Pay for the War 2 and introduced in modified

ι See Franco Reviglio, "Social Security: A Means of Savings Mobilization forEconomic Development," and "The Social Security Sector and Its Financing inDeveloping Countries," Staff Papers, Vol. XIV (1967), pp. 324-68 and 500-40.

It could also be argued that social security schemes differ from compulsorylending in that repayments do not necessarily bear any close relation to inpayments.Employer and government contributions to such funds are common; and even ifpension repayments were actuarially equal to employee inpayments for the totalityof those concerned, there would be large discrepancies for individuals, depending,e.g., on the length of time elapsing between the date of joining a scheme and thedate of death.

2 John Maynard Keynes, How to Pay for the War: A Radical Plan for the


COMPULSORY LENDING SCHEMES 29

form in the United Kingdom in World War II under the name "postwarcredits." A similar scheme operated in Canada; and the United Statesconsidered the idea seriously.3 Recently, schemes falling within ourdefinition have been operating in the years given in the followingcountries:4

Brazil 1951...Canada 1966-67Chile 1968. . .Colombia 1946. . .Denmark 1963-64Ghana 1961-63Guyana 1962-65India 1963-68Israel 1959-68Morocco 1968. . .Nepal 1963. . .Nigeria 1967...Pakistan 1966...Peru 1968...South Africa 1952. . . (intermittently)Sudan 1967Tunisia 1967...Turkey 1961...United Arab Republic 1965...

In addition, a compulsory lending scheme was proposed by onecommentator at the time of the heavy budgetary impositions in theUnited Kingdom in March 1968.5

It may be useful to set out some of the general characteristics of suchschemes.6 The basis of the contribution is usually income or, alterna-tively, taxes paid on income. Detailed practices vary widely with respectto the exact definition of income (e.g., it may or may not be the sameas that for income tax purposes) and the categories excluded from any

Chancellor of the Exchequer (London, 1940). The same proposal was made moreor less simultaneously by H.O. Meredith in "The Finance of War," The PoliticalQuarterly, Vol. XI (1940), pp. 59-73.

3 See the discussion on policy problems in the United States at that time, e.g.,Milton Friedman, "The Spendings Tax as a Wartime Fiscal Measure," Kenyon E.Poole, "Problems of Administration and Equity Under a Spendings Tax," andCarl Shoup, "Problems in War Finance," in The American Economic Review,Vol. XXXIII (March 1943), pp. 50-62, 63-73, and 74-97.

For an appraisal of wartime experience, see Walter W. Heller, "CompulsoryLending: The World War II Experience," National Tax Journal, Vol. IV (1951),pp. 116-28.

4 For an account of this device in earlier years in the U.S.S.R., see Franklyn D.Holzman, "An Estimate of the Tax Element in Soviet Bonds," The AmericanEconomic Review, Vol. XLVII (June 1957), pp. 390-96.

5 See Alan T. Peacock, The Times, London, March 16, 1968, p. 13, andMarch 22, 1968, p. 25.

6 The Appendix summarizes some particular features of different countryschemes.



liability (e.g., the exemption limit may be higher than that used fordetermining income tax liability). The degree of progression also differsconsiderably from one scheme to another. In one country (Nepal) thebasis is agricultural production, but this is understandable in view ofthe unsophisticated nature of the income tax system in that country.7

Peru's scheme developed out of a 10 per cent tax on exports. Usually,compulsory loan payments are not deductible for income tax purposes;nor are repayments taxable. But the two schemes (compulsory depositsand annuity deposits) operating successively in India between 1963and 1968 were an exception in both respects.

Bonds issued as part of compulsory lending schemes have certaincharacteristic features. They are usually for periods ranging from fiveto ten years; interest rates are usually of the order of 4 per cent to5 per cent, tax free, sometimes (e.g., in Guyana and Ghana) with alottery element as a partial substitute; and, in general, such bonds arenontransferable, though there are exceptions to this. An abortiveproposal in Chile in 1967 would have allowed transfer ability; there hasbeen a degree of transfer ability in Israel; and the scheme introduced inTurkey in 1961 legally allowed transfer ability of the ten-year bondsafter the first five years.8

Most schemes start from the premise that bonds will be repayablein cash on the due date. But some (e.g., in Chile and Brazil) haveprovided that repayment can be offset against future tax liabilities.And others have been amended in practice in such a way that, in effect,bonds had to be exchanged for bonds instead of cash. In somecountries (Brazil and Israel) there have been provisions for adjustingcapital repayments and/or interest in accordance with a price index.

Some schemes were introduced initially for a limited period andin fact did not last longer (e.g., in Denmark, 1963-64). Some wereintroduced for a limited period but were renewed (e.g., in South Africa).Others were introduced for an indefinite period and have continuedoperating (e.g., in Turkey); yet others were introduced for an indefi-nite period but were soon withdrawn (e.g., in Ghana and Guyana).And it has often been the case that the lawmakers were too ambitious,and so schemes have frequently been modified in the light of experience,usually in the direction of reducing their coverage (e.g., in India andGhana). Peru's scheme (1968) originated in a 10 per cent tax on exportsrepayable in eight equal annual installments, at no interest; an option

7 Nepal is also exceptional in allowing payment in cash or in kind.8 In fact, there were many illegal transfers before the necessary five years

elapsed. See page 44.



was then given of two-year to four-year dollar bonds carrying 7 per centinterest.

We now look at the reasons given for introducing schemes of this kind.The most usual was the macroeconomic one: that some additionalreduction in purchasing power was needed at the time. This hassometimes been in the context of financing additional expenditure(e.g., in Ghana and Morocco); sometimes in the form of stating thealternative as cuts in spending (e.g., in Brazil, 1965); in one country(Denmark) the alternative was stated to be the postponement of taxcuts that had already been announced, and in another (Canada), acompulsory loan was imposed on corporations in order to restrain capitalinvestment.

The macroeconomic reason for restraint may or may not have beenfully justified in each of these instances; but let us assume for the momentthat it was. We are then left with the further question: Why was thisparticular form of restraint chosen? This cannot be answered in anysimple way from the relevant budget statements or legal enactments,and there has to be an element of rationalization in the answer. Oneargument is that, in effect, a cruder basis for calculating liabilities ispermissible in the compulsory loan case, when people will be repaidin the future, than in the income tax case, when the contribution issunk without trace. One version is that on these grounds one can takea gross concept of income, without worrying much about exemptions,deductions, etc., as the base for compulsory lending.9 A slightly differentline would be to say that, given the crudeness of many personal incometax systems in developing countries, there is a strict limit to the amountthat one can hope to raise in income tax form; but it may be possible toraise an additional tranche of revenue if it is levied as a compulsoryloan.

Another argument that seems to lie behind these schemes is theintergeneration one. If there is some particular need for more governmentrevenue at the moment (say, to finance a major public works project),it has been maintained that, whereas a tax imposes the burden ofpayment unequivocally on the present generation, a loan arrangementwin make it easier for some future recompense to be made to thesurvivors or heirs of this generation. This possibility is alleged to haveboth equity and incentive connotations.

It has also been maintained that compulsory lending may dosomething to promote the development of capital markets, even thoughthe usual situation is that such bonds are nontransferable. Presumably

9 See Nicholas Kaldor, "The Choice of Taxes in Developing Countries," inEconomic Development in Africa, ed. by E.F. Jackson (Oxford, 1965), pp. 156-66.



the proposition is that the issuance of bonds or certificates, even ifnontransferable, will acquaint people with such financial assets andprepare them to buy and sell other financial claims.

Finally, compulsory lending is sometimes linked with specificexpenditure projects, often of a capital nature. This gets us into suchpoints as the general merits of earmarking, the argument that it ismore legitimate to borrow for capital than for consumption purposes,and so on.

III. Analytical Considerations

We must now look at the pros and cons of these schemes from a moreanalytical viewpoint. It will be convenient to consider a single act ofcompulsory lending first and look later at any complications that mayspring from a repeated process.

SINGLE ACT OF LENDING

We shall consider compulsory lending principally in relation to thealternative of an income tax. But we shall look at various otheralternatives later.

Income tax alternative

Let us take the case where one can raise revenue either by aproportional income tax applying to all incomes or by a proportionalcompulsory loan on the same basis. The loan is assumed to be repaid,with accrued annual interest, at the end of a given period of time.

In the income tax case, we raise $1.00 in year 1 and that is the endof the matter. In the compulsory loan case we raise $1.00 in year 1;as this is repaid in year n with accrued annual interest, the suminvolved will be (l+r)n, where the rate of interest paid (net of anytax liability) is lOOr per cent. For the lender the present value of this

sum in year 1 will be where r' is the subjective discount rate

which an individual applies to the prospect of repayment. Such adiscount rate must take account of any uncertainty attached to thegovernment's willingness and ability to repay, expectations of futureprice changes, and the lack of transferability of the bond, as well aspure time preference. Now if the sum of (l+r)n has to be repaid inyear n, the government must in turn find a way of raising this sum,whether by tax, expenditure, or borrowing changes that would not



otherwise have been necessary. We postulate that the present value of

any resultant imposition ií where r" is the subjective rate

of discount applicable to the finance of repayment.Schematically, the situation is as follows:

Income Tax Compulsory LoanPresent dollar value of Present dollar value of

Outgoings Repayments Outgoings Repayments

Year 1 1 0 1 0Year n 0 0

Given this situation, we now investigate the circumstances underwhich the individual will regard the compulsory loan as equivalent,first, to the income tax alternative, and second, to a pure loan.10 Itis clear from the tabulation that compulsory borrowing would be

exactly equivalent to the tax, where This

would be so where r'=r", i.e., where the subjective discount rateattached to repayment and that to finance of repayment are equal.For the compulsory loan to approximate to the pure loan case, twoconditions would have to be satisfied. First, one must be able to neglect

completely. This would be so if r">r, i.e., relative to the

rate of interest actually paid a very heavy rate of discount is appliedto the possibility of being inescapably involved in the finance ofrepayment. For practical purposes, one could then forget about thefinancing of the repayment of the loan. Second, we must also stipulatethat r'<r, i.e., the discount rate applied to repayment must not begreater than the rate of interest paid by the government. The presentvalue of repayment would then be equal to or greater than the sum lent.Given these two conditions, the compulsory loan would approximate tothe pure loan.

One or two further complications should be noted. First, interestpayments may not all be accumulated until year n but may instead bepaid in the intervening years. This does not alter the general principlesof the analysis; while it will not now be necessary to raise as much as$(l+r)w to repay the loan in year n, there will be greater financial

10 Meaning a loan to which people would have been willing to subscribe volun-tarily at the prices currently ruling in factor and goods markets.



needs in the intervening years (relative to the income tax case). So,essentially the analysis is the same. Second, we have to think about thecase where compulsory loan payments are tax deductible and repaymentsare taxable, as in India. In this instance, the analysis is simpler in thateffectively such schemes reduce to a system of paying taxes in advance;all we need to know is whether the taxpayer's subjective rate of discountis higher or lower than the net rate of interest paid by the government.11

The crucial question in judging the relative incentive effects ofcompulsory lending and income taxation is whether the former isregarded as being nearer to a tax or to a loan. It seems rather clearthat in practice it will be between the two limiting positions. On theone hand, it is reasonable to argue that the subjective rate of discountattached to the finance of repayment will be greater than that attachedto the repayment itself. Many people will surely think that they willnot be called upon to make any mandatory contributions at all (in theform of either extra taxes or smaller government benefits) towardrepayment; or that at least there will be new additions to the ranks oftaxpayers who will shoulder part of any burden at the due date.Therefore one can assert with some confidence that r" > r'\ this rules outthe equivalence of compulsory lending to a straight tax. On the otherhand, the proposition that compulsory lending can be thought of asequivalent to a pure loan or zero tax is also indefensible. If it were,presumably there would be no need for compulsion; in other words,the rate of interest actually paid by a government is likely to be lessthan the subjective rate of discount attached to repayment, when distrustof government, lack of negotiability, expectation of price rises, etc., areall allowed for.12

But having made the point that the compulsory loan is unlikely toapproximate to either extreme, it is difficult to go further and speakwith confidence about the combination of tax and compulsory loanrates to which the population would be indifferent. This is partlybecause loan market data relating to transferable bonds is irrelevant for

11 This can be seen by a numerical example. Suppose that a taxpayer has thechoice of either paying 100 in tax in year 1 and in year 2, or paying tax plus aloan of 10 in year 1 which will be repaid with interest in year 2, with consequentrepercussions on tax liabilities in the two years. Let us assume that the marginalrate of tax is 50 per cent and the gross rate of interest is 10 per cent. In year 1 histotal liability in the second instance will be 105 (i.e., 95 tax plus 10 loan), and inyear 2 it will be 94.5 (i.e., 105.5 tax minus 11 for repayment with loan interest).The question is then whether an individual prefers the combination of paying100 in both years to that of paying 105 and 94.5 in successive years.

12 If interest payments and/or repayments have a lottery element in them,further questions of risk aversion (or preference) also arise.



this case,13 and partly because lending is being imposed on people whohave never lent before in their lives. One simply cannot be dogmatichere; at the same time there is some fragmentary evidence which doessuggest that the tax element is substantial but by no means complete.14

Given this general background, what can be said about the savingsincentive effects of compulsory lending relative to an income tax? Thereseem to be some opposing considerations here. First, if people evaluatethe reduction in net worth involved in compulsory lending to be lessthan that involved in income taxation, one would expect the reductionin consumption to be less, too. So, an equal rate of compulsory loanmust be expected to reduce aggregate demand less than a given rate ofincome taxation—always subject to constraints on the ability of peopleto finance dissaving when they have no capital assets or when there isno ready access to borrowing facilities. On the other hand, there is thewell-known point that income taxation may differentiate against savingsrelative to consumption, depending on such things as the interestelasticity of savings.15 Essentially it is a matter of weighing up the capitaleffects and the price effects—the former pointing to less, and the latterto more, saving in the compulsory loan case.

There is clearly no way of pinpointing the outcome. But two otherrelevant considerations should be added. First, insofar as corporationsare subject to the additional levy, one would expect a one-year taxincrease to be borne largely out of undistributed profits, given thewell-known reluctance of corporations to cut dividends. In this instancethe whole, and not just part, of the tax increase would be at the expenseof saving. Second, the macroeconomic position may be more complexthan the simple analysis so far would suggest. In many developing coun-tries, private domestic investment may be closely tied in with privatesaving,16 and even if this is not true, private saving may be tied in with

13 See Carl S. Shoup, "Forced Loans," Chapter XI, in Curbing Inflation ThroughTaxation (Tax Institute Symposium, New York, 1944).

14 See page 44.15 See Nicholas Kaldor, An Expenditure Tax (London, 1955), and A. R. Prest,

"The Expenditure Tax and Saving," The Economic Journal, Vol. LXIX (1959),pp. 483-89.

For opposing views about the interest elasticity of savings, see Bent Hansen,"Tax Policy and Mobilisation of Savings," in Government Finance and EconomicDevelopment (papers and proceedings of the Third Study Conference on problemsof economic development, Athens, 1963), ed. by Alan T. Peacock and GeraldHauser (Organization for Economic Cooperation and Development, Paris, 1965),pp. 143-55, and M.S. Feldstein and S.C. Tsiang, "The Interest Rate, Taxation,and the Personal Savings Incentive," The Quarterly Journal of Economics,Vol. LXXXII (1968), pp. 419-34.

16 With the consequence, however, that, insofar as a reduction in corporatesaving in turn affected corporate investment, there would still be a deflationaryeffect from a tax increase.



capital exports, which may in turn affect the capacity to import. So, thefull macroeconomic position is very complex.17

In the absence of any clear indications, let us assume that, from amacroeconomic standpoint, the rate of compulsory lending would haveto be the same as the income tax rate. The relative effects on incentivesto work and to take risks would then depend on the (subjectivelyestimated) size of the tax element in the loan. Given that people do givesome weight to the pure loan element, one would expect differentialeffects on willingness to work and to undertake risks—depending onthe usual balance of income and substitution effects and (in the riskcase) the possibility of loss offsets. Insofar as tax and loan ratesare progressive rather than proportional, there would be furthercomplications of differential effects on different income groups and oftheir relative reactions.

To summarize on incentives, we can expect that a compulsory loanwill be viewed as a lighter burden than an equivalent rate income tax,though to an unknown extent. The macroeffects of equal rate impositioncould go either way, but if one assumes that they are identical, therewill be some net advantages for work and risk incentives, depending onthe usual income-effect and substitution-effect considerations.18

What of the equity side? If it is not necessary to raise the same amountof revenue by compulsory lending as by income tax, or if the incidenceof the two alternatives is different for the various sections of thecommunity, there will be immediate distributional implications. Inprinciple, either method could favor the poor more than the rich, orvice versa. But let us assume for simplicity that we do in fact raise thesame amount of revenue by either means (i.e., we abstract from anydifferential savings incentives under a scheme of compulsory lending)and that the distributional impact is initially the same. If such werethe case, any distributional differences would then depend crucially onthe method adopted for financing repayment of the compulsory lending.

The problem is a complex one in that one has to think about thedistribution of both capital and income. Suppose we consider the solutionadvocated by Keynes for World War II19—the imposition of a capitallevy at the end of the period to repay the government's compulsorycreditors. It would then be reasonable to argue that this would lead

17 It should be noted that Reviglio, on page 341 of "Social Security: A Meansof Savings Mobilization for Economic Development" (cited in footnote 1), wasable to cite some evidence that compulsory social security schemes enlarge the totalof personal saving.

18 It should be noted that Heller's conclusion was that incentive effects ofcompulsory lending in the United Kingdom and Canada in World War II were notsubstantial; see Heller, op. cit.

19 Keynes, op. cit., Chapter VII, pp. 44-51.



to a more equal distribution of private capital—in that the levies tofinance repayments would be a function of the distribution of capitaland the repayments themselves would be a function of the distributionof income, and the former distribution is normally more skewed thanthe latter. Ignoring other influences on the size and distribution of privatecapital over the period, the end result would be the same total asbefore the scheme of compulsory lending but with a more egalitariandistribution. Similarly, there would be a change in the distribution (butnot the size) of income from property with consequent repercussionson the size distribution of total income. But further complications wouldensue if the process of repayment by means of a capital levy altered thetotal of current spending; one would then presumably have to takefurther action to stabilize the economy, and this would in turn havefurther distributional effects.

To take another example, let us hypothesize that compulsory loansare repaid by means of borrowing. In this instance (ignoring, as before,other influences on the stock of private capital) the process of compulsorylending, borrowing to finance repayment, and repayment itself will tendto make the total of privately owned capital greater than before the com-pulsory lending took place. It would not seem, however, that one can bespecific about the degree of concentration of this larger total: this willdepend on the distribution of ownership of the newly raised loans, as wellas of the repayments. The same conclusion must therefore follow for theeffects on the distribution of income, quite apart from any complicationsowing to changes in goods and factor prices associated with theborrowing process.

On the basis of these examples—which could be multiplied indefinitely—one must conclude that the effects of compulsory lending, relativeto income taxation, on the size distribution of wealth and income areby no means clear cut. It may be that the need to repay sumscompulsorily borrowed would force through some major and unequivocalfiscal measure, such as a capital levy, which would not otherwise havebeen possible; but unless this is so, one must be very guarded about thelikely consequences of a compulsory lending scheme for the sizedistribution of income or capital.

There is one further matter. The finance of repayment at the end ofthe period may well fall on people irrespective of whether they werecontributors or even born when the lending originally took place. Thisimplies the likelihood of some increase in the wealth of the "old" (orthe heirs of the "old") relative to the "young." This seems to be a muchmore certain conclusion than any of those above about size redistribution,



and it is where the kernel of truth lies in the notion of "passing on theburden to future generations." 20

It is sometimes argued that, from an administrative viewpoint,schemes of compulsory lending have much to commend them. Forinstance, whereas an income tax must normally be refined, taking intoaccount the number of dependents and so on, a compulsory loan canbe levied on gross income without worrying about such niceties.There are two comments to make on this. First, if there is a refinedincome tax already in existence, the above argument cannot apply tothose covered by it; it will therefore be relevant only for those newlycoming into the net under the temporary surcharge. Second, even thoughthere may be administrative savings at the time of imposing the loan,there will presumably be administrative costs in issuing certificates andregistering loan holdings, in transfers between one holder and another(e.g., at death), and in the process of financing and making interestpayments and capital repayments. So it is very difficult to conceive thatthere is much left in this argument for administrative convenience.

Last, arguments have sometimes been put forward about the needto avoid "tax friction," i.e., unnecessary fluctuations in tax rates.21

This is another old chestnut, like the analogous one about the need tosmooth out the price fluctuations that would otherwise result from thestrict application of short-run marginal cost-pricing principles to publicenterprises. There may well be something in this, but all the same onemust question whether people would regard a compulsory loan as sodifferent from, say, an income tax, that one should allow it to countheavily in the scales.

Other revenue alternatives

Let us now look at one or two possibilities other than the incometax alternative to compulsory lending.

20 Three further points need to be made on this. First, insofar as older peopleown more capital per capita than do the young, this element of transfer mightwork in the wrong direction from a short-term egalitarian viewpoint (a life-cycleview might be a different matter). Second, a system of compulsory lending is notthe only way of securing such a redistribution. One could finance some extraor-dinary expenditure by income taxation and still have a subsequent levy and grantsystem that would secure the same distribution between "old" and "young." How-ever, this would be a complex operation administratively; and the inescapablenecessity to finance repayment is much more likely to lead to action. Third, weabstract from the question whether compulsory lending is more likely than incometaxation to pass on a burden to future generations in the classical sense, i.e., byleading to a lower rate of growth of the capital stock in an economy.

21 See Richard A. Musgrave, The Theory of Public Finance: A Study in PublicEconomy (New York, 1959), p. 567.



Suppose that we compare the latter with a sales tax of some kind.One obvious difference is that a sales tax (or, at any rate, a tax limitedto consumer goods and services) cannot be argued against as implying adouble taxation of savings—with repercussions on the relative ratesof tax and compulsory lending that are equal from a macroeconomicviewpoint. More generally, there will now be a different distributionof initial payments with all sorts of possible consequences for incentives,income distribution, and so on. If one accepts the view that the sales taxis likely to result in higher market prices than the income tax system,there will presumably be differential effects on any cost-push inflationarymechanism.

As another possibility, assume that the government has reached whatit considers, rightly or wrongly, to be the limits of taxation yield, andso it simply has to borrow to finance additional expenditure. Borrowingfrom abroad may be possible to some extent; internal borrowing thatdoes not involve adding to the stock of money may also be possible tosome extent; and even if there is an addition to the money stock, theremay be spare capacity in the economy. But the most likely alternativesare compulsory borrowing or borrowing involving an addition to themoney supply in a situation where there is no spare capacity. Anycomparison between these two alternatives must start from the proposi-tion that the amount of borrowing will tend to be less in real terms,22

but greater in money terms, if the borrowing is noncompulsory. We mustalso expect the distribution of claims on the government to be differentin the two instances, depending on the distribution of gains in moneyincome in the inflationary process and the savings propensities of differ-ent groups. The most likely result will be a less egalitarian distributionof the increase in private wealth in the inflation case. The further likelyrepercussions on work and savings incentives, the product-mix, and thebalance of payments need not be discussed in detail here, important asthey may be. One point, however, should be made. The inflationaryalternative might be more conducive to capital formation than a com-pulsory lending scheme, whether one thinks the main driving forcebehind capital formation is expected profitability or availability of funds.Whether such additional capital investment would take the form ofluxury housing, etc., is another matter.

A revenue-expenditure package

Another comparison is that between raising a compulsory loan andspending it on some government project, on the one hand, and doing

22 Insofar as progressive taxation leads to a larger tax/income ratio in an infla-tionary situation.



without both, on the other. Although the proposition could be exploredwithout designating any particular form of government spending, it islikely to be stronger if one does. So let us arbitrarily say that theexpenditure would be on a dam.

There are varying arguments to disentangle here. One is whether thenet social benefits of the package outweigh the social opportunitycosts;23 this is a factual question that must be investigated separatelyin each case. Another is that people will more readily accept a cut inprivate investment or consumption if it is for the sake of a specificrecognizable outcome from government spending. However, the relevantquestion here is whether, say, a compulsory loan-dam package is moreacceptable than a tax-dam package. A priori, it is not easy to see whythis should be so. There is also the naïve proposition that governmentborrowing in general, and compulsory lending in particular, is morejustifiable if associated with capital than with current spending. Butwe need not explore the fallacies in that argument.

Alternative bases for compulsory lending

We have assumed thus far that compulsory lending is based on somemeasure of income. This is not inevitably so. Nepal's system is basedon agricultural production, and there are clearly other possible systems.

Suppose, for instance, that compulsory lending were on the basis ofnet worth. This is not in fact very likely, partly because of difficultiesof assessment and partly because some of the people whom one maywant to catch may not have any net worth. But if this were the basis,one could then compare it with a tax alternative. There would obviouslybe advantages relative to an income tax—on the basis of the usualcomparisons of capital tax and income tax. Relative to a net worth tax,the advantages are less obvious; presumably the prospect of repaymentwould encourage dissaving in the loan case relative to the tax one.

Another alternative basis might be consumer spending, e.g., purchasesof stamps, redeemable at a later date, might be made compulsory withretail purchases. Compared with a straight retail sales tax, this wouldagain tend to reduce voluntary saving. But given the very limitedknowledge of and control over retail trading transactions in mostdeveloping countries today, one cannot regard such comparisons asvery relevant at present.

23 It should be remembered that curtailment of private saving in developingcountries may have repercussions on the level of private investment or on the levelof capital exports.



REPEATED LENDING

Let us now abandon the assumption of a single act of lending andimagine that we have a repetitive process, so that the alternatives arean income tax of $1.00 for each of n years or a series of one-yearcompulsory loans successively renewed through time. Essentially, themain basis of the comparison remains the same; it will depend on therelative sizes of r, r', and r".24 And the same will hold true in the morecomplex cases, such as where the process is an intermittent one, addi-tional levies being made in some years but not in others.

The comparison between the income tax and compulsory loan alterna-tives does not remain totally unchanged, however. First, if the prospectis one of a long-continued process of lending and repayment insteadof a once-for-all effort, it may well be thought that net worth isdiminished less, relative to the income tax case, than earlier—thoughthe precise result will depend on expectations about methods of financingrepayments. But on this basis there may easily be some net reductionin the deflationary effects of loans relative to taxes, compared with theonce-for-all case. Second, it is sometimes argued that in a country witha growing level of money income per capita (whether owing to risingoutput or price inflation) for a given population or with a growingpopulation with given money income per capita, or both, the amount ofcompulsory lending in any one year will tend to exceed the principalrepaid, even though rates of contribution remain unchanged. The exactresult will be a complex one,25 but the general point is clear: compulsorylending can easily be a way of permanently reducing the level of privatedemand relative to potential output below what it otherwise would be.However, the question is not the deflationary effects of a continuingborrowing and repayment process but these effects relative to thedeflationary effects of an income tax levied at unchanging rates in thecontext of money income increases, population increases, etc. In thiscontext, it is by no means clear that the deflationary effects of one devicerelative to the other are markedly different in the continuing case fromwhat they were in the once-for-all case.

24 For example, with interest paid annually the present value of the repaymentstream will be

and that of the finance of repayment stream

25 For example, it would depend on whether the sector covered by compulsorylending is growing, relative to other sectors of the economy.



As far as incentives to work and to take risks are concerned, theargument would seem to remain substantially as it was before, i.e., itwill depend on the size of the tax component of the compulsory loanand on the income and substitution effects of switching from one to theother.

IV. Practical Experience

Ideally, one would like to be able to test some of the propositionsenunciated in Section III and see whether there is any reason to thinkthat in practice the schemes operating in recent years have been betterfrom an incentive or equity point of view than the most relevant alterna-tives. In reality, we cannot do anything of the sort: quite apart fromany questions of methodology or appropriate procedures, the data andrecords simply do not exist for any scientific and exhaustive examination.What follows must necessarily be of an incomplete and even impres-sionistic character.

One point on which there is certainty is that schemes of the sortdiscussed have not usually been important sources of revenue. Forinstance, lending of this type was equivalent to only 1 per cent of totalcentral government current revenue in India in 1963/64, and to only2 per cent in South Africa in 1966/67. Very exceptionally, receipts inNepal in 1964/65, the peak year of that scheme, were equal to onethird of current revenue; but the Nepalese scheme differs from all theothers in a variety of ways. Perhaps the Ghanaian experience should besingled out as an example of what can be done by a country that usesthis device in a determined way. Receipts were equal to 10 per cent ofcurrent revenue in 1962/63. But the scheme operated for only two yearsthere, and it may be questioned whether this pace could have been keptup for long.

The overwhelming impression derived from an examination of theseschemes is that they were introduced as an emergency measure to copewith some financial crisis. Thus, various countries essentially introducedthem for a year or so at a time when there was a need for a measureof deflation. Canada wanted to cut back corporate investment in 1966;Denmark was faced with possible inflationary problems in 1963; Nigeriawas engaged in a war in 1967. Indeed, it is possible to go a bit furtherand suggest that, by and large, a compulsory loan is a device taken upby countries already making high tax efforts and suddenly faced with aneed for greater revenues. One can obviously debate the measurementof tax effort interminably, but if one takes the findings of Lotz and



Morss 2e on tax effort in 52 low-income countries, corrected for inter-country differences in per capita income and openness, the result is thatof 11 countries 27 with compulsory lending schemes 3 were in the hightax effort group, 7 in the middle group, and only 1 in the lowest. Thismay give some limited support to the notion that compulsory lendingis a device adopted mainly by countries that are already pushing towardtheir taxable capacity limits.28

Another feature of these schemes, to which we alluded earlier, istheir ephemeral nature. As can be seen from the Appendix, a number ofcountries have used this technique for only a short time; and amongthose having longer records there have often been major changes in theoperation of the schemes. Thus, the scheme in the Sudan operated pro-visionally for a few months in 1967 but had to be abandoned whenthe parliament refused to pass the law authorizing it. That in Guyanawas introduced early in 1962 but came to an end some three years laterwhen it was declared unconstitutional by the courts. And in othercountries (Denmark and Canada) it was intended from the beginningthat such schemes should only be temporary.29

Major changes have been introduced in a number of countries. Thusin Ghana, Guyana, and India, the exemption limits had to be raisedand/or various classes of people originally within the schemes had to beexcluded at a later date. It should be noted that it has been overwhelm-ingly a matter of excluding some people originally included rather thanincluding some originally excluded; this suggests that the various taxauthorities have consistently underestimated the political and/or admin-istrative difficulties of compulsory lending. There have also been avariety of instances where there were major changes in the laws govern-ing the schemes, e.g., in Brazil in the 1950's and in India and Turkeyinthe!960's.

By and large, these schemes have been closely tied in with theexisting income tax systems, in providing lists of lenders and bases ofcontributions. L.A.Y.E. (lend as you earn) has also been a commonfeature. However, there are some cases where coverage has beennarrower, and others where it has been wider. Thus, foreigners have been

26 J0rgen R. Lotz and Elliott R. Morss, "Measuring 'Tax Effort' in DevelopingCountries," Staff Papers, Vol. XIV (1967), pp. 478-99.

27 Only 11 countries, out of the 19 covered in this paper, were among the 52covered by Lotz and Morss.

28 If it is felt that crude tax-income ratios, unadjusted for per capita income oropenness, are more appropriate, we find 3 in the highest group, 5 in the middleone, and 3 in the lowest. But in our view the adjusted ratio is the more relevantone in this context.

29 It should be added that the Canadian one was abandoned earlier thanoriginally intended.



exempted frequently (e.g., in Nigeria), and even when they have beensubject to the levy, there has usually been provision for repayment ondeparture from the country. On the other hand, attempts have beenmade to widen the coverage, e.g., by including payers of a flat-ratedirect tax (in Nigeria) or cocoa farmers (in Ghana). Exceptionally,Turkey applies the system to receipts from many types of capital trans-actions, lottery prizes, gifts, and inheritances, as well as to incomes, butthe comprehensiveness of the coverage achieved is not known.

Quite apart from the indirect evidence presented by the "on-off"character of some of these schemes, there have been some specificreferences to administrative difficulties. Thus it has been reported thatthe system of presenting coupons for interest payments in Turkey wasfar from satisfactory. And in Ghana, considerable doubts were expressedabout the accounting control of the scheme, and instances were quotedwhere local authorities had deducted contributions from employees'wages and salaries but had not handed them over to the Central Gov-ernment.30

On the important questions of incentives, it is not possible to sayanything with certainty. However, there are some pointers to people'sviews about the relative importance of the pure tax and pure loancomponents in these schemes. Although bonds issued in Turkey underthe 1961 law 31 were not legally transferable for the first five years, it isunderstood that they were commonly changing hands at about 30 percent to 33 per cent of face value, notwithstanding tax-free interest pay-ments at 6 per cent per annum. This point was expressly taken cognizanceof in 1967 32 when among the major changes enacted was a provisionthat all old bonds must be exchanged for new ones, with a penalty taxon those who could not prove that they were the original owners. Asanother piece of "evidence," it is reported33 that in October 1961the compulsory loans levied in Brazil, under legislation of 1951 and1956,34 were being sold on the Rio de Janeiro Stock Exchange at adiscount of 40 per cent of the face value.

Obviously, there were many influences at work affecting the priceat which people were willing to dispose of assets—not least the factof the illegality of transference—but, as a minimum, one can say that

30 See Ghana, Report and Financial Statements by the Accountant-General andReport Thereon by the Auditor-General for the Year Ended 30th September, 1962(Accra, 1964) and Report and Financial Statements by the Accountant-Generaland Report Thereon by the Auditor-General for the Year Ended 30th September,1963 (Accra, 1965).

31 Law No. 223 of 1961.32 Law No. 980 of 1967.33 Gertrude E. Heare, Brazil: Information for United States Businessmen (U. S.

Department of Commerce, Bureau of International Programs, Washington, 1961).34 Law 1518, November 24, 1951, and Law 2973, November 26, 1956.



people did not regard the bonds as worthless on either of these occasions.So, there was some element of loan in them in most people's minds. Onthe other hand, there is certainly no evidence to suggest that, wherepermissible, anyone ever voluntarily took up more of the bonds thanthe minimum required of him.

Informed observers with whom the matter has been discussed haveunanimously taken the view that there are psychological advantages forincentives to work, etc., in giving people bond receipts rather than taxreceipts. Whether these advantages can be retained for long is anotherquestion. It would certainly appear to be the case in Nepal—where thereceipts were re-lent for specific purposes, mainly agriculture—thatthe scheme was judged to have worked fairly satisfactorily. But, asexplained before, the Nepalese scheme is so different from the rest thatno generally applicable conclusions can be deduced from it. And itshould be noted that an assessment of wartime experience in the UnitedKingdom and Canada did not reveal any important incentive effects.35

Nor, finally, can we come to any certain conclusions on the equity effects,as these would inescapably involve the reconstruction of what mighthave happened to the fiscal pattern in the absence of compulsory lendingschemes.

V. The Future

It is easy enough to mount a case against compulsory lending schemes.It might be argued, first of all, that their raison d'être is to be foundin the prospect of a short, sharp need on the part of a government toincrease its revenue intake, the pre-eminent example being a warthat is expected to last for a short time. And if the postwar period islikely to be one of slackness in the economy, thereby facilitating re-payments, the case is pro tanto stronger. On the other hand, the commonsituation in developing countries is not this at all, but rather a longslow haul during which necessary steps toward modernization may betaken; nor is the prospect of Keynesian underemployment equilibriumat all likely in the near future for most of them. War and developmentconditions are not necessarily mutually exclusive (e.g., the Nigerian civilwar that began in 1967), but in general it is true to say that the conditionsunder which the original Keynes plan of 1940 was derived have littleapplicability to most developing countries.36

35 See Heller, op. cit.36 The point could be made, however, that real private investment and consump-

tion are likely to grow faster in a nonwar situation, thereby making easier thefinancing of repayments of compulsory loans.



Another proposition might be called "the dilemma of the income taxlist." In order to operate a compulsory lending scheme, one has to havea clearly defined list of people on whom the levy can be imposed in thefirst instance. One of the few sources of such a list in many countriesis the record of income-tax payers. But if this is the only list, whatis the strength of the argument for collecting a loan rather than moreincome tax? In other words, without a long list one cannot introducecompulsory lending; with a list, one may not need to.

In support, it might be further argued that one is simply deluding one-self in thinking that anything effective can be done by compulsorylending to develop capital markets in developing countries. If it isinsisted that bonds be nontransferable and that they carry rates ofinterest of the same order of magnitude as those prevailing in moredeveloped countries, then it might be said that one is doing very littleto unify the capital market or to break down the barriers among itsdifferent segments.

On the equity side, if one seeks a conservative view one cannot dobetter than refer to a statement by the Board of Inland Revenue inthe United Kingdom in 1940 apropos the social aspects of the Keyneswartime proposals.

These factors do not, in the Board's judgment, warrant the abandonment ofwell-established principles of taxation for ones which are unsound and whichinvolve enormous administrative difficulties.37

When one adds to these arguments the general record of such schemesin recent years (low yield, short-lived experiments, administrativedifficulties, and so on), it is small wonder that some are inclined to writethem off as being a time-expired survivor from a bygone age. Whenasked to explain why such schemes are repeatedly taken up afresh, thereply might well be that finance ministers are prone to take an easy wayout even though they may be storing up trouble for their successors whohave to finance the repayments; or, alternatively, that such schemesare a reflection of the assiduity with which the finance department inone country studies innovations in the revenue system in another—butwith a lag of two or three years.

The proponents of compulsory savings schemes can also deploy anumber of arguments to support their case. The first question may beto ask, What is the relevant alternative to compulsory lending? Lowerpublic expenditures may be impossible politically, whatever the eco-nomic arguments. Pure loans may involve such high rates of interestthat governments would be liable to attack on the grounds either of

87 Quoted by R.S. Sayers in Financial Policy, 1939-45 (London, 1956), p. 81,fn. 2.



favoring the propertied classes or of discouraging private investmentunduly. More help from abroad may also be impossible. In the endthis would leave the alternatives of higher taxes or the imposition ofdirect controls along with higher taxes. And both of these might wellbe even more unpopular than a system of compulsory lending. So, as aminimum, one can put up a case for saying that compulsory lending maybe the least of a number of evil alternatives.

In fact, one can go further than this. There probably is somethingin the incentives argument, and in the propositions that the holding andhandling of bond receipts will do something to familiarize people withthe institutions of the capital market, that one does not have to stickrigidly to the income tax list, and that such schemes should more properlybe thought of as being slightly avant-garde rather than as discreditablegimmicks.

Perhaps a fair over-all view is to say that although such schemesshould not be regarded as hailing the dawn of the new Jerusalem,38

neither should they be dismissed as being completely worthless. If thisbe the case, we must try to make suggestions about the most appropriatedirection in which they should go if used in the future.

One general principle that affects such schemes in a variety of waysis that the connection with the income tax system should be minimized.Unless this is done, people are obviously much more likely to putemphasis on the tax, as distinct from the loan, element in compulsorylending. This means, for instance, that one should not have income taxpayments as a base for compulsory loan levies. It is preferable to haveincome as a base, and even more preferable to have some concept nearerto gross income (before exemptions, etc.) rather than to whatever isthe precise net concept used for tax purposes. Where it is possible toextend the coverage of the compulsory loan beyond the populationcovered by the income tax system, this is desirable, but one must recog-nize that there are sharp limitations to this. Similarly, if it is possible toavoid making compulsory loans collectible from wages and salaries inthe same way as income tax, this is also desirable. If, for instance, thereis a separate social security system to which employers and employeescontribute, it may be better to operate through that mechanism. It isalso desirable that government accounts should treat receipts of this

38 The merits of compulsory loans have perhaps been exaggerated on someoccasions. For instance, ". . . the scheme outlined must not be considered in thesame way as taxation, since the amounts taken are fully repayable with accruedinterest. The contributor will benefit doubly—by saving for his own and hisfamily's future and by helping to make a future for himself and his family by thecountry's development," 1962 Budget Speech of the Minister of Finance of BritishGuiana, Sessional Paper No. 2/1962 (Georgetown, 1962), p. 28.



kind as a capital item rather than a current one,39 and also that titles suchas "income tax bonds" should be avoided.

A word or two needs to be said about interest payments. It is probablybetter, if not administratively prohibitive, to pay interest on an annualbasis rather than to allow it to accrue until the date of redemption.Whether a lottery element should be incorporated in interest payments(or bond drawings) is a more open question. Some countries havecertainly had difficulties running a lottery ingredient in a compulsorylending scheme; on the other hand, lottery schemes do play importantroles in some countries.40 This must be a matter for individual countriesto decide, without the aid of any very general economic principles. Thequestion also arises whether interest payments (and, for that matter,capital repayments) should be linked to an appropriate domestic priceindex or to a foreign currency. This raises many questions of the levelof interest rates paid on compulsory lending relative to those rulingfor other securities, the prevalence of index-linking practices generallyin a country, and the still wider question of the recorded past and theexpected future price levels.41

Various features of the bonds themselves must now be considered.The first is whether they should be transferable. One suspects that theauthorities in some countries are not facing reality on this subject: ifthey really want to encourage a capital market, they are likely to getfurther by allowing transactions in such bonds than by forbidding them.In practice, edicts about nontransferability may not work; and theclaim sometimes made that such restrictions are necessary to preventpoorer people selling them at much less than face value is somewhatdisingenuous. So there is surely a great deal to be said for negotiability.42

Whether one should countenance bearer form is another matter. Bearersecurities do undoubtedly cause all sorts of administrative difficulties,and therefore one can understand any reluctance to add to the existingstock of them. But one possible solution would be to give people a choicebetween a bearer investment, fully transferable, and a negotiable bond—

39 Practices vary in this respect (e.g., India has treated them as capital, andPakistan as current receipts).

40 Juanita D. Amatong, "The Revenue Importance of Government Lotteries"(unpublished paper, April 16, 1968).

If the idea is acceptable, it can be applied to redemptions as well as interestpayments, i.e., those successful in the lottery would get not only interest in thisform but also an early repayment of capital. This technique was used for manyyears in the U.S.S.R.; see Holzman, op. c/¿.

41 For an account of recent Israeli experience, see Amotz Morag, "Value-Linkingof Loans in Israel," Fiscal and Monetary Problems in Developing States, ed. byDavid Krivine (New York, 1967), pp. 148-60.

42 There would be no question of discounting them at the central bank, ofcourse.



the latter carrying a higher rate of interest than the former. This would,at any rate, be a less restrictive and less negative attitude than thatusually adopted.

There are a variety of other possibilities with respect to the formtaken by the loan. One might be to allow people to hold it in somespecial blocked account;43 another might be to allow convertibility atsome point into holdings in state enterprises. Perhaps the most importantpoint here is a negative one: repayment should not be bound up withthe income tax system. On those grounds, one must question thoseschemes that approximate to an advance payment of income tax (e.g.,in Chile) or those that make contributions tax deductible and repay-ments taxable (e.g., in India).44

About the length of life of loans, there is probably not much to besaid in general terms—this must very much depend on governments'requirements and contributors' reactions. One can speak with morecertainty about the desirability of a fixed date of repayment. It wouldseem likely that unless the government fixes this (at least within narrowlimits) the tax element would far outweigh the loan element in the con-tributor's eyes, even if the rate of interest were somewhat higher incompensation. On the other hand, it is also reasonable to argue that theallowable occasions for premature repayment should be kept to anabsolute minimum; otherwise, the administrative complications wouldbe legion.45

Whether schemes of this sort should be tied into specific expenditurecommitments is more a matter of psychology than economics. We preferto remain neutral on this; if it is felt that a particular scheme in a partic-ular country can be more acceptable in this way, we should not opposeit, but, on the other hand, we should not wish to do anything to encour-age the notion either.

Finally, and in some ways most important of all, schemes of this sortshould not be introduced without a good deal of preparation and discus-sion. This might seem such an obvious point as to be not worth making.But the history of so many countries is so replete with examples ofrevenue levies (both of the compulsory loan variety and more generally),which have in practice gone off at half cock, that no opportunity ofmaking such an apparently trivial statement can be allowed to slip.

43 This was originally suggested for the 1940 U.K. scheme.44 In such a situation, and with a progressive income tax system, people with

rising incomes through time are particularly caught.45 The definitive answer on this issue was given in the debate on the U.K. Finance

Bill in 1941, when the Treasury view, in response to questions, was stated to bethat such moves must be rejected on the grounds that they would represent "theencroachment of the tide," Parliamentary Debates, House of Commons OfficialReport (London, 1941), Vol. 372, No. 78, Cols. 1248-53.


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APPENDIX

Features of Recent Compulsory Lending Schemes

MaximumDuration Interest

Years of Basis of of Loan Rate PaidCountry Operation Individuals Companies Contribution (years) (percent) Special Features

Brazil1 1951... Yes Yes Income taxes 5-25 5 Indexing element; repay-(minimum) ment offset against taxes

Canada 1966-67 No Yes Corporate profits (gross) 2-3 5 —Chile 1968... Yes Yes Income taxes 7 — Repayment offset against

taxesColombia1 (a) 1946... Yes Yes Income 10 5 Earmarked for housing

(tax free) and steel(b) 1965.. . Yes No Income 10 5 —

(tax free)Denmark 1963-64 Yes No Income 7 5 Lottery element

(tax free)Ghana 1961-63 Yes Yes Income; cocoa sales 10 4 Lottery element

(tax free)Guyana 1962-65 Yes Yes Income 7 3% Lottery element

(tax free)India1 1963-68 Yes No Income 5-10 4% Payment deductible; re-

(tax free) payment taxableIsrael1 1959-68 Yes Yes Income; income tax 15 4 Indexing element; some

(tax free) transferability; lottery ele-ment

Morocco 1968... Y e s Y e s Income 5 4 —Nepal 1963... Yes No Agricultural production 5 5 Earmarked for lending

purposesNigeria 1967. . . Yes Yes Income 10 10 —Pakistan 1966.. . Yes Yes Income tax payments 10 5 Some transferabilitySouth Africa2 1952... Yes Yes Income; income tax 5-7 4VÍ-5 —

(tax free)Peru 1968. . Yes Yes Exports 4 7 Optional eight-year annual

repayment at no interestSudan 1967 Yes No Income 5 ... Scheme only in force tem-

porarilyTunisia 1967... Yes Yes Income 16 5 —Turkey * 1961... Yes Yes Income 10 6 Some transferability

(tax free)United Arab 1965.. . Yes No Income 5 5 Wage and salary earners

Republic only

1 Variety of schemes during years listed.2 Operated intermittently.



Systèmes d'emprunts forcés

Résumé

Cette étude constitue une enquête sur un ensemble de procédés parlesquels les gouvernements ont, dans les années récentes, contraint lesecteur privé à leur consentir des prêts.

La Section I définit le champ de l'étude. L'emprunt forcé est pardéfinition l'opération par laquelle toutes les personnes appartenant àune vaste catégorie sont obligées de déposer entre les mains du gouverne-ment un montant déterminé d'argent pour une période donnée, étantentendu que ce montant leur sera restitué dans un délai relativementcourt.

Dans la Section II et en Annexe sont décrites les principales caracté-ristiques des types d'emprunts forcés utilisés dans 19 pays au coursdes dernières années. Les détails donnés sur ces opérations concernentnotamment leur date, leur base, leur durée maximum et le taux d'intérêtpayé.

La Section III est une étude analytique. L'auteur établit des com-paraisons entre le système de l'emprunt forcé et les différents autresmoyens dont disposent les gouvernements, notamment l'impôt sur lerevenu, au regard des effets d'incitation, de l'équité et des formalitésexigées. En matière d'incitation, il conclut qu'un emprunt forcé repré-sente une charge plus légère qu'une imposition sur le revenu équivalente;en revanche, aucune conclusion aussi simple n'est donnée en ce quiconcerne l'équité et les formalités exigées.

La Section IV rend compte de l'expérience déjà acquise dans cedomaine. Bien que dans la plupart des pays cités de telles mesures aientété prises afin de faire face d'urgence à une crise financière, on peutnéanmoins en tirer un certain nombre de leçons.

L'avenir de ce système est envisagé dans la Section V. La conclusiongénérale est que, tout bien considéré, l'emprunt forcé présente deséléments positifs dès lors qu'un certain nombre de précautions ont étéprises.



Esquemas de préstamos forzosos

Resumen

Este trabajo consiste en el estudio de una serie de esquemas mediantelos cuales los gobiernos en años recientes han obligado al sector privadoa que les proporcionen préstamos.

En la Sección I se define el campo exacto del estudio. Se entiendeque un préstamo es forzoso cuando cada una de las personas compren-didas en una amplia clasificación están obligadas a entregar, por uncierto plazo, al gobierno una suma de dinero, en el entendido de quedicha suma les será devuelta con relativa prontitud.

En la Sección II y en el Apéndice se exponen las principales caracte-rísticas de los esquemas que se han encontrado en funcionamientodurante los últimos años en 19 distintos países. Se dan detalles, porejemplo, sobre el período de funcionamiento, la base de las contribucio-nes, la duración máxima del préstamo y la tasa de interés abonada.

La Sección III es analítica. Se efectúan comparaciones entre elpréstamo forzoso y varias otras alternativas, especialmente la delimpuesto sobre la renta en lo que respecta a sus efectos en cuanto aincentivos, equidad y conveniencia administrativa. Con referencia alos incentivos la conclusión general es que al préstamo forzoso probable-mente se lo considere como una carga más liviana que una tasaequivalente de impuesto sobre la renta; pero no existen conclusionessencillas en cuanto a la equidad y a la conveniencia administrativa.

En la Sección IV se examina la experiencia práctica. En muchoscasos estos esquemas constituyeron medidas de emergencia para hacerfrente a una crisis financiera; sin embargo, se puede obtener un buennúmero de enseñanzas.

En la Sección V se examina el futuro de este procedimiento. Unavez examinados todos los aspectos del esquema, la conclusión generales que algo puede decirse en favor del sistema de préstamos forzosos,especialmente si al establecerlo y administrarlo se toman varias pre-cauciones.


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