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Retail sales taxes, critical for American government finance, embody a “narrow base, high rate” Great Depression legacy. Legislation can correct this, but technologies and new economy economic stru...

Unfunded public pension obligations represent a great challenge for policy makers in the American states. We posit that a part of pension underfunding relates to the level of public corruption. Empirical findings in the article show that funding ratios in public pension funds are inversely related to the incidence levels of corruption in the state, with other fiscal, political, and institutional covariates held constant. We show that this can happen through higher pension benefits, lower actuarially required contributions (ARCs), lower percentage of actual ARC contributions, and poorer investment outcomes. Based on empirical estimates, we find that a reduction of corruption by one standard deviation around the mean would permit the states to save on pension benefits by 10.24% annually (or US$1,894.64 per recipient), increase required ARC by 4.40%, increase actual ARC contributions by 8.46%, and improve investment returns by 4.72%. Therefore, policies to reduce public-sector corruption, or to improve the insulation of pension funds in relatively more corrupt environments, can make a significant contribution toward tackling the public pension underfunding crisis in the American states.

We examine the extent to which public corruption influences the tax structure of American states. After controlling for other tax structure influences, we find that states with greater measured public corruption have more complex tax systems, have higher tax burdens, rely more heavily on regressive indirect taxes, and have smaller shares of their tax burdens with initial impact on business.These are significant structural impacts on the tax systems.

Theories describing rent seeking in the public sector posit a number of negative fiscal outcomes that the choices of corrupt officials may generate. The evidence presented in this article shows that states with greater intensities of public corruption have higher aggregate levels of state and local debt. If corruption in the 10 most corrupt states were only at an average level, their public debt would be 9 percent lower, or about $249.35 per capita, all else being equal. Notably, institutional control measures may not have succeeded in restraining the expansion of state and local public debt in the presence of greater levels of corruption. State and local governments would achieve more efficient levels of fiscal discipline by curbing public sector corruption.

The U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. that states may require sellers without a physical presence to collect use taxes has generated much enthusiasm and dread among observers. We present new data on revenues from the state use tax between 2010 and 2017. We also present a unique monthly series of remote vendor use tax collections for Indiana before and after the Wayfair ruling and use the synthetic control method to derive a treatment effect of the policy change. While remote vendor registrations have tripled, we find there have been relatively modest impacts on state revenue.

The regions of the Russian Federation are economically disparate. Differential endowment with energy resources drives much of this disparity and this translates into highly diverse fiscal capacities. Although regions do have some independent revenue-raising authority, all taxes are administered by the national Ministry of Taxation and a sizable share (roughly 45%) of total national revenue is transferred to regional and local government. The transfers, however, are not of equal importance to all regions. This article focuses on vertical and horizontal balance in the country. It examines differential revenue capacity and the extent to which national transfer programmes mitigate fiscal disparity.

As China has experienced rapid economic growth and increased urbanization in recent decades, a crucial policy challenge for its government has been the development of urban transportation. Although conventional wisdom suggests that more infrastructure investment will stimulate economic development, empirical evidence is mixed. With the use of a panel data model (1999–2011 across Chinese provinces), transportation investment was found to have had significant impacts on economic growth, after which variables were controlled for that measured provincial openness, human capital, and government size. Transportation investment in one province not only promoted economic growth in that province but also had external effects on neighboring provinces. External effects were strong for highways, whereas internal effects were strong for urban roads. [In this analysis, highways in China meant controlled-access highways (freeways).] The results of the study can have policy implications for mechanisms used to fund transportation in China.

This paper seeks to produce evidence on the labor incidence of the taxation of machinery and equipment purchases by manufacturers under the state general sales tax. Using quarterly data on manufacturing labor from the Quarterly Census of Employment and Wages between 2001 and 2012, we exploit tax policy discontinuities among adjacent counties along state borders. The results demonstrate that on average there are no significant losses or gains to manufacturing labor, but the effects are heterogeneous across manufacturing subsectors.

Retail sales and value-added taxes both aim to tax consumption, but lawmakers, the public, and academics view them differently. Several American states have sought increased retail sales tax (RST) reliance, some have argued for a national RST, but a value-added tax (VAT) remains anathema. Conversely, international observers strongly reject the RST in favor of the VAT. This paper examines these views from the standpoints of administration, transparency, rate increases, and breadth to see how misconceptions might be involved.

This article demonstrates the impact of public officials’ corruption on the size and allocation of U.S. state spending. Extending two theories of “excessive” government expansion, the authors argue that public officials’ corruption should cause state spending to be artificially elevated. Corruption increased state spending over the period 1997–2008. During that time, the 10 most corrupt states could have reduced their total annual expenditure by an average of $1,308 per capita—5.2 percent of the mean per capita state expenditure—if corruption had been at the average level of the states. Moreover, at the expense of social sectors, corruption is likely to distort states’ public resource allocations in favor of higher-potential “bribe-generating” spending and items directly beneficial to public officials, such as capital, construction, highways, borrowing, and total salaries and wages. The authors use an objective, concrete, and consistent measurement of corruption, the number of convictions.

This study recounts the experiences of Russian regional governments in dealing with fiscal stress during the 2008-2012 period, a period of the most severe global economic downturn of the last seventy years. Much of the disparity is driven by differential endowments of energy resources and this diversity translates into highly diverse fiscal capacities and need for government services. Although regions do have some independent revenue-raising authority, all taxes are administered by the National Ministry of Taxation and a sizable share (roughly 45%) of total national revenue is transferred to regional and local governments. The transfers, however, are not of equal importance to all regions . This research identifies what sorts of governments have faced the most fiscal stress, how shares of revenue from various sources shifted with the recession, and how the fiscal system responded to the recession. The following research questions are explored in the paper: (1) What sorts of governments have faced the most fiscal stress during the recession? What parts of the country have subnational governments in the greatest fiscal stress? Where was fiscal stress the greatest? (2) What factors have driven fiscal stress? (3) How have governments with the greatest stress dealt with fiscal stress? (4) How did revenue shares with the recession? Were certain sources more heavily impacted than others? (5) How did corporate income tax and personal income tax shares change with the recession? The intention of this paper is to expand knowledge of the attributes of the regional and local budgeting system in Russia and improve approaches for dealing with fiscal stress.

State tax amnesties have become a commonplace component of state tax administration over the last 30 years. This paper reviews the structural evolution of all state amnesty programs and makes the case that their fundamental purpose has shifted from improving tax administration to emphasizing revenue maximization. It then provides empirical evidence on which state amnesty program features aid in this effort. The regression results reveal that most of the malleable amnesty program features that tend to increase amnesty recoveries also confl ict with or undermine the goal of improving the tax administration system.

Revenue estimates or scores identify the expected impact of a change in a tax law or a change in how existing tax laws are administered. The processes used by states to produce these estimates have been given considerably less attention than have those used to create the revenue baseline or forecast, although both are important to creation of fiscally sustainable budgets. A review of state processes shows that estimating responsibility most often is in a legislative agency, that states usually employ microdynamic estimating methods, generally make their work available on the Internet although infrequently showing the methodology used for an estimate, and rarely have formal quality control procedures for the estimates. Macrodynamic estimates are very rare and some states once requiring this approach no longer do so.

The past half-century has brought heightened expectations for what systems of budgeting and finance may be expected to deliver for the public. From systems to provide a first defense against theft and gross misappropriation, they have become systems to help lawmakers direct public resources where they can give the best public return, to help managers efficiently utilize resources under their control, and to communicate plans and results to the public. Government fiscal systems have developed more useful expenditure classification, established new measures for identifying public performance, brought nontraditional spending into control systems, and made finances considerably more transparent. Systems should, in combination with robust democratic institutions, make the public sector perform in the best interests of the citizenry. But in the face of great fiscal system improvements, governments struggle with staying fiscally sustainable, with meeting financial obligations to vulnerable populations, and even with avoiding default, receivership, or bankruptcy. Even as systems improve, government finances decline amid considerable private sector prosperity. Research over the past decade has done little to aid or explain the sweeping expectation and limited success of budget systems to transform essential elements of governance. It is the purpose of this paper to review progress in the development of robust fiscal systems, identify the major obstacles and failures, and link this evidence to the record of recent governmental financial distress, paying particular attention to the struggles of American governments. The broader questions needing to be addressed are the same questions at the forefront of public sector finance 100 years ago; however, the present focus has not been on these broader implications.

Tax expenditure budgets provide a window into intended tax policy. They sort the mixture that adopted tax laws represent by dividing tax structures into provisions that define how revenue is to be raised (tax policy) and provisions that deliver preferences to certain economic entities (budget policy). A review of individual state sales tax expenditure budgets reveals considerable confusion about the tax policy intent of retail sales taxes for distributing the tax burden, although they do suggest general agreement, at least implicitly, that the tax is intended as a general tax on household consumption. An investigation of the major components of these reports, however, reveals major differences across states, partly because of differing exemption patterns in state laws, partly because of differing state economies, but also partly because of differences in how the states define the normal structure for the tax. While some states identify consumption as the normal base fairly directly, other states have less focus and that shows up particularly in ambiguous treatment of purchases made by businesses and of services omitted from the tax base. Many states would profit from a focused discussion with lawmakers about the ideal revenue intent of their retail sales taxes.

This article explores the impact of property tax abatements on tax rates. Using the case study approach, the research uses data from Monroe County, Indiana, and finds that the impact of abatements on tax rates is negligible. The method consists essentially of calculating the difference between actual tax rates and hypothetical tax rates assuming abatement are not awarded. The results suggest that public officials may see in abatements a symbolic and relatively harmless policy tool for purposes of garnering political support from businesses and citizens. The article discusses these findings in light of current law suits brought against prominent abatement programs.

Do decentralization arguments extend to administration of subnational taxes? While centralized administration promises quality service at reasonable cost, it may dull accountability and slow the revenue flow. Also, central administration may devote less attention to collecting these taxes than for its own. Self-administration brings administration closer to taxpayers and assures representation of jurisdictional interests in revenue apportionment disputes. However, subnational governments may lack technical capacity. That is the dilemma: while the central administration may be indifferent to rigorous collection of subnational taxes, subnational governments may lack capacity for self-administration. In practice, nations use many different alternatives for administering subnational taxes.

The past quarter century has produced little change in the government revenue share of gross domestic product in the United States. The federal share has fallen, but the state and local share has increased. There has been no great change among revenue sources, certainly nothing like the flight from the property tax that characterized the prior decade. Several issues have dominated revenue policy discussions over the last quarter century. These include the role of the property tax, realignment of the federal tax base away from income, tax simplification, and base broadening. There have been no definite solutions to date.

This research provides an exhaustive review of U.S. property tax abatement programs and identifies and compares critical structural differences of abatement programs across states. Program differences are much greater than the existing literature recognizes. As a result, perhaps the most comprehensive database on the diversity of property tax abatements is offered to practitioners who are considering the design of a new abatement program or the revision of an existing one, as well as to researchers interested in furthering research on the effectiveness of this policy tool. For each of the identified abatement program features, advantages and disadvantages are discussed in light of existing literature.

The retail sales tax has provided a strong foundation for American state government finance since its beginnings in the Great Depression. However, its position as a productive, reliable, and administrable revenue source is now under challenge from three forces. First, it continues as a tax primarily on purchases of tangible personal property, despite the shift in consumption toward services. Second, the physical presence rule for taxation of sales by remote vendors creates an intolerable imbalance between local and remote sellers. And third, legislatures keep gnawing away at the base with politically attractive but fiscally unjustifiable exemptions. In total, the position of the sales tax as a viable and defensible revenue alternative is at risk.

A tax expenditure budget should contribute to efficient and effective public decisions by quantifying the division in the tax structure between provisions that represent revenue policy (distribute the cost of government according to the legislated tax base) and parts that represent budget policy (substitute for direct spending). For this transparency to have the desired impact, however, the tax expenditure budget process and the direct expenditure process must be properly integrated and the tax expenditure budget must make an accurate division between the parts of the tax structure. A review of the 33 states with tax expenditure systems shows many weaknesses in application of the concept and poor linkage to the direct spending budget system. Their most significant flaw is in dividing the tax structure into normal and preference elements; states need greater attention to defining their basic tax structure if they are to have a meaningful tax expenditure budget.

Seventy years of central planning by authoritarian government distorted the economies of the countries of the former Soviet Union (FSU) almost beyond belief and left them unprepared for a smooth transition to market economies.(1) Factories placed in economically unviable locations produced items unsalable because of poor style, sloppy workmanship, unreliability, or hopelessly high production costs. People were distributed around the countries, often without consideration for where they might want to live and with minimal attention to where their presence might yield economic value. The contribution that management, finance, and organizing services make to the value of businesses and to society was dismissed. It was no wonder that opening these countries to democratic choice, to economic freedoms, and to international markets brought economic collapse. However, markets will develop on their own--even in Soviet times, people survived by informal exchange and, while unaccustomed to many elements of modern marketing, finance, and business management, they did understand trade, as any visit to a FSU country today will quickly confirm. Given a modicum of economic freedom, even with ambiguous property rights and doubtful enforceability of contracts, markets emerged in response to individual demands for goods and services. Government budget processes and procedures--the systems for making public sector resource allocation decisions --do not freely emerge like markets.(2) The fiscal system consistent with Soviet times was not compatible with markets, free choice, personal and economic freedom, and democratic decision making. The old system must stop and a new system--a framework of laws and human and physical resources appropriate to new tasks--must be created by conscious and concerted actions. Early successes with the development of markets in some FSU countries, notably the Russian Federation, mislead many observers into believing that fiscal reforms were working. Continuing evidence, however, including the great Russian crisis of 1998--a collapse emerging from unsustainable budget deficits and default on federation and regional debt issues--shows how wrong that observation would be.(3) Absence of restructuring and reform in the public sector are easily apparent throughout the FSU. Examples include contentious and confused fiscal relationships between tiers of government in the Russian Federation; budget processes unable to constrain fiscal deficits or to manage allocation of scarce resources among governmental programs; inability to pay wages, pensions, and other public obligations as they come due; unreformed tax systems that seem more designed to punish enterprise than to raise revenue; tax collectors and government agencies that work with barter instead of money; and tax administration that thinks in terms of collection by brute force rather than voluntary compliance.(4) The following sections, based on several years of direct field work including extensive discussions with senior government officials in several FSU countries, explore critical problems in the budget systems and procedures of these countries that have complicated or prevented their contribution to the normal expectations of what these systems must do: (1) maintain aggregate fiscal discipline, (2) assure direction of public resources to areas of greatest national need, and (3) encourage efficient use of resources in public agencies (Campos and Pradhan 1996, 1997; Schiavo-Campo and Tommasi 1999). Even though public budgeting is a planning process in both centrally planned and market economies, the budget environment and the expectations for the budget are considerably different in these systems and the transition in process has been difficult. In spite of the years elapsed since the collapse of the Soviet Union and the independence of these states and considerable progress in developing effective and accountable systems in some countries, most of the budget systems have many changes ahead if they are to assure that government services will be within the actual available government revenues and will be appropriate to the needs of the public. …

Principles of sales taxation hold that production input purchases should be exempt for efficiency and burden transparency. State legislative politics collides with principles. Rather than providing general exemption, states encourage economic development through special preferences for businesses making certain purchases, although some offer wider general production exemptions than others. States do not provide broad exemptions because lawmakers focus on taxing final sales of things without understanding the consumption base intent of the sales tax, because they like the political safety of hidden taxes and apparent avoidance of burden on individuals, and because they prefer taxes more likely to be borne by non-residents.

The remote vendor problem challenges the sales tax as a revenue producer; even more critical, though, is damage to eco- nomic balance, efficiency, and fairness. Congressional relief from the physical presence rule—rendered obsolete by uncertainty about what presence means and by "click and brick" affiliates—requires no undue burden for multi-state enterprises. State adoptions of a burden-reducing common tax structure would be virtually impos- sible because states have substantially different shares of their tax systems at stake in the sales tax and because they start from unique sales tax structures designed for their own economies and politics. Congress could handle the problem by requiring registration for large remote vendors, but only for states affording vendor-friendly compliance (no local use taxes and reasonable collection compensa- tion).

W riting in the July/August 2006 issue of PAR, professors Hal G. Rainey and James Thompson applaud Charles Rossotti's work as commissioner of the Internal Revenue Service (IRS) from 1997 to 2002, maintaining that his term of service "substantially improved services to taxpayers and the administration of a beleaguered revenuecollection system" (Rainey and Thompson 2006). The authors commend Rossotti's successful reform of the IRS, an initiative authorized by the U.S. Internal Revenue Service Reform and Restructuring Act of 1998. Rossotti himself made many proposals to the act. The authorization of the reform in the legislation made its implementation easier by making objections to the reform largely pointless. We do not dispute this part of the record, but we believe that Rainey and Thompson do not look closely at the full set of outcomes recorded by the IRS.

Moving the federal government from its heavy reliance on taxes on income and profits to taxes on general consumption has been proposed as a way to improve equity, economic efficiency, and transparency of the tax system. The value-added tax and the retail sales tax offer economically equivalent approaches to general consumption taxation, differing only in how they are administered. A comparison of the two taxes as they now operate, however, suggests considerable advantage for the value-added tax as a national revenue source. Only in terms of requiring fewer businesses to collect the tax is there an advantage to the retail sales tax. The value-added tax is superior or equivalent to the retail sales tax in other important fiscal criteria.

Lotteries give states direct revenue from the commercial gambling market. Thirty-two states plus the District of Columbia, encompassing almost three-quarters of the population, operate games, a dramatic spread since the first modern lottery in New Hampshire (1964). These lotteries typically make only a small contribution to state finances, yield revenue that is subject to dramatic annual changes, are expensive to administer, and place relatively greater burdens on low income than on high income individuals. Proceeds are often dedicated to particular functions, but whether lottery proceeds do more than simply substitute for funds that the function would otherwise receive is doubtful. The fiscal limitations of lotteries have not dimmed the public popularity of the games.

State revenue forecasts are a subject of seemingly constant critique from politicians, the media, and the academy over the nature of their outcomes as measured by the ability to accurately predict available resources. The opportunity to introduce political biases into the revenue baseline, making the budget envelope more or less constrained, has generated a near universal call for a depoliticization of the process. This also induces some to demand greater certainty and transparency with naive methods; others request increasingly sophisticated techniques in hopes of obtaining improved accuracy. This paper discusses the approach to revenue forecasting in the broader context of a political budget process, and subsequently it highlights the significance of a forecast that is politically accepted. This advances the literature beyond the measurement of forecast error as the sole outcome, because accuracy is irrelevant if the budget process does not respect the forecast as a political constraint. We provide a case illustration in Indiana by tracking the history of the state consensus forecast from the controversies surrounding its conception through its recent political challenges during the Great Recession.

This longitudinal study of Indiana lottery expenditures tracks that market from a time when all play was in games offered by other states until the state offered a full portfolio of games. Both the socio-economic characteristics of players and the nature of their play have changed. Participation doubled when the Indiana games began, and it continues to increase, albeit more slowly. Lottery play is regressive, and has become increasingly regressive over time. An increasing proportion of lottery revenues comes from low-income players and heavy bettors, although small bets are still the norm. While college graduates play the lottery less than do other individuals, the initial large gap in play rates for these two groups is diminishing as college graduates increase their participation in the lottery. Similarly, women and individuals between the ages of 44 and 65 are continuing to increase their participation in lotteries. Patterns associated with increased regressivity, with increased play among low-income players, and with higher reliance on heavy bettors, suggest a need for special policy vigilance as the games mature.

}The American federal system shows substantial vertical fiscal balance: the level of government that spends closely corresponds to the level that raises revenue to finance that expenditure. This responsibility allows state-local governments great freedom in regard to the size of their public sectors relative to their state economic base, in how they arrange revenue structures to distribute the cost of their public programs through their economies, and in how they allocate their public budgets across service categories. This freedom results in great horizontal diversity in both expenditure and revenue choices. Revenue decisions are somewhat more diverse than expenditure allocations. If a considerably expanded federal tax sharing program were adopted, as some have proposed, vertical balance would decline somewhat and, most likely, so would the regional diversity that characterizes the American system.

This article analyzes the genesis of certificates of participation (COP) in the municipal securities market. We document the trend in the use of COPs and illustrate problems in the market through case studies of the Richmond Unified School District default and the Brevard County referendum crisis. The valuable fiscal administration lessons drawn from the growing pains of a maturing sector of the municipal securities market can help municipal governments and investors avoid the tragic consequences that seem to inevitably accompany the circumvention of legal debt restrictions and public accountability.

American state lottery sales growth slowed dramatically in the recent recession compared with the experience of the last decade. Evidence from pooled quarterly per capita sales data for lottery states from the end of 1983 through 1991 shows a high real income elasticity rela- tive to other state revenues, around 3.9. Furthermore, lottery sales are sensitive to changes in the state unemployment rate, increasing by about 0.17 percent for each one percent increase in that rate. For in- stance, an increase in unemployment from 4 to 5 percent would be associated with around a 4.25 percent increase in quarterly lottery sales, other influences unchanged. That pattern is consistent with the hypothesis that in recession peo- ple find more attractive the small chance of winning a huge lottery prize for the low ticket price. The unemployment rate relationship works as partial offset to the income relationship. The analysis also finds lower lottery

Selective and general exclusions, along with assessment practices, have made the personal property share of the general property tax base now smaller than at any time since the assumption of homogeneity emerged in the early 19th century. Of the types of tangible and intangible personal property, only business depreciable fixed assets remain taxable in a majority of states. Evidence indicates that removing personal property from the base, rather than crippling fiscal capacity, permits higher property taxation possibly because governments feel less constrained by interstate competition after extracting a physically mobile element from the base, possibly because an inequity has been removed (arguments for personal property taxation being less clear than for real property), or possibly because businesses become less vigilant when this property is excluded. Because uniform taxation of all real and personal property may have significant logical and practical problems leading to personal property exclusion, separate state taxation of such property may be appropriate.

This article examines potential sources of revenue needed to finance urban services. In formulations for resolving the US urban crisis, answers are unclear and several policy guidelines are suggested. First, political candidates must assess reasonably the cost of public services and avoid blanket assurances of no new or increased taxes. Second, urban local governments must have access to the fiscal resources of the full urban area for which they have been assigned responsibility for providing public services. Third, urban governments must coordinate and cooperate: Fiscal mercantilism is not productive public policy. Fourth, urban local governments must give greater priority to infrastructure maintenance and development in their financial plans. Fifth, urban local governments must improve property tax structure and administration with appropriate assistance from state governments. Finally, urban local governments must make better use of charge financing and must expand use of broad-based sales and income taxes in cooperation with their states. The authors conclude that urban local governments need to look for resources themselves; prospects for major intergovernment assistance, especially federal, are dim.

Soon after implementation in the 1930s, the general sales taxes emerged as the largest state tax source. In 1990, income taxes produced nearly as much state revenue as did sales taxes. Although income tax revenue have increased significantly, the sales tax is not in jeopardy of being replaced in the immediate future. The sales tax still remains a vital state fiscal concern, particularly to those states without a broad individual income tax.

One of the major arguments for legalization of lotteries in new jurisdictions in the United States has been the fact that neighboring states, with their own lotteries, have captured lottery purchases from the other jurisdiction's citizens. This paper explores the issue by examining lottery purchase patterns in the state of Indiana prior to the start-up of the Indiana lottery, at a time when three adjacent states offered a variety of lottery product. Tobit analysis is also done on survey data to determine important contributing factors to the decision to play the lottery, as well as individual lottery expenditures. The paper concludes that, even though lottery revenues for a state are regressive, legalization might be justified on the basis of reducing the regressive outflow of revenue to bordering lottery states.

The president's new budget arrived to Congress two and one-half weeks late. Its contents had been reduced to a single volume and a brief pamphlet. And it included proposals for improving the federal budgetary process. That budget is profiled herein, including discussions of the conditions under which it was submitted, the economic assumptions made within it, and the proposed expenditures and anticipated revenues.

The impact of having a state lottery on the rate of crime against property in that state is estimated. Arguments in the standard economic model of criminal activity employed here include the unemployment rate, real income per capita, presence of the death penalty in the state as a proxy for general severity of punishment, police officers per capita, the percentage of population between the ages of 5 and 24, and the presence of a state lottery. Because the decision of a state to operate a lottery may correlate with crime rates, a selectivity model was run to extract any bias, but no such bias was found. The analysis used data for the 50 states plus the District of Columbia from 1970 through 1984. The results suggest that presence of a state lottery is associated with a crime rate higher by about 3 percent, an effect both statistically significant and practically important.

Like individuals and businesses, subnational governments sometimes face financial difficulties. Subnational government can get into financial problems in various ways, sometimes through economic or social misfortune; sometimes through incompetence or malevolence; sometimes through a stubborn unwillingness to make tough budgetary choices; and often through a combination of these causes. For creditors and citizens of those governments, the cause is less significant than the result -- unnecessarily high taxes or woefully inadequate government services or both. The standards for establishing bankruptcy of an economic entity (whether an individual, corporation, or another unit, such as a local government) differ from country to country. However, the concept generally means that the entity is unable to pay its debts as they come due or to pay its debts in full.1 Bankruptcy or insolvency law in many countries provides for the development of a plan that allows the debtor to resolve these debts through division of assets among the creditors in a way that treats the interests of the creditors with some measure of fairness. The intention is to protect the entity from its creditors so that the assets may be distributed equitably among the creditors and the debtor can be discharged from further liability. The idea is to provide “breathing room” so that the debtor has some opportunity to make things right and may continue to exist if at all possible. The protection is usually through a specialized court or administrative body. The fresh start that bankruptcy affords is presumed beneficial to both the debtor and the creditors. Of course, some entities are beyond hope and the process leads toward complete financial liquidation rather than rehabilitation.