Two quite different issues are raised by the comments of David Davies and Edward Kienzle. The first, raised by both authors, is that use of S (or, for that matter, any other index of tax progressivity) in no way avoids fundamental problems of tax shifting, questions of how income should be measured for proper assessment of tax burden, or how to treat the difference between the distribution of lifetime tax burden compared to what is observed in any given year. The second issue, raised by Davies, deals with the validity of the index S, itself. Estimates of tax incidence differ with the kind of assumptions made about tax shifting. In this regard, the greatest variation occurs among estimates of the distribution of the burden of taxes on property, including the corporate income tax. Kienzle demonstrates this in an interesting way in his Table 2. Whether variant Ic or 3b is employed makes little difference in the value of S calculated for income, sales, or payroll taxes, but taxes on property appear highly progressive under Ic, and virtually proportional under 3b. Davies makes a similar point in noting that the value of S will depend on how income is measured. It would be interesting to see what difference would be produced if the adjustments to income he suggests were made. Likewise, it would be useful to see what happens to S when both income and tax burden are estimated on a lifetime basis. I have made a few attempts to make such calculations, but have so far been defeated by the problems of keeping track of who the taxpayer is, especially with the occurrence of divorce, widowhood, and remarriage. Davies also raises questions about the validity of S itself. His first objection-that no single index can summarize all aspects of a complicated phenomenon-largely duplicates what I said in the original presentation. The limitation is common to all averages and indexes (think of the divergence of individual price behavior concealed in movements of the Consumer Price Index) but we still find them useful. In his concluding remarks, Davies comes close to saying that tax incidence is too complex to permit tax progressivity to be measured at all. If this were true, of course, neither S nor any other such index would make sense. Personally, however, I think some useful things can be said about the relationship of tax burden to income, and that S serves as a good summary measure of those thinvs.

The main effects of different types of trade and development strategy on industrial growth and structure are examined. The analytical approach treats internal and external factors together in an interindustry framework. The method takes advantage of information collected for this purpose and can encompass production functions and factor use by sector to provide a more complete analysis of the sources of growth and structural change. Although import substitution is an important feature of early stages of industrialization in all developing countries, it can be accelerated or retarded by trade policy. The later stage of expansion of manufactured exports is more susceptible to policy influence and is shown to have a large effect on the subsequent course of industrial development. The development of manufactured exports appears even more important as a source of foreign exchange than as a source of demand because it provides one of the principal means of exploiting comparative advantage and of avoiding balance of payments bottlenecks. Two tables display indicators of structure and growth and sources of growth in manufacturing output. Three figures display sources of increase in light and heavy industry and sources of increase in machinery. 7 references.

Few issues in public finance stir as much academic debate or public discussion as the appropriate taxation of income from capital. Prescriptions and practices in various countries range from heavier taxation of capital than labor income to subsidization of investment. A variety of features of the current U.S. tax system differentially tax capital income relative to labor income, and certain types of capital income relative to other types. Important examples include the separate corporate income tax, the maximum tax on earned income, the treatment of pensions and life insurance, and the nontaxation of imputed income. In recent years much insight has been gained into several important issues in analyzing capital income taxation. Applications of the theory of optimal taxation have helped clarify the determinants of the optimal taxation of capital income, new empirical results have questioned long-held beliefs about the effects of capital income taxation on private saving and investment, and careful study has elucidated the complex nature of the incentives involved in the various special features of our current tax laws. This paper presents a summary of some recent results in this area of public finance. Toward this end, Section I presents a heuristic discussion of the application of optimal tax theory to the taxation of capital income. We note that efficiency may require something other than a convex combination of income and consumption taxation. Optimality might imply heavier taxation of capital income than in an income tax, on the one hand, or an interest income subsidy, on the other. The key parameters in answering this question are the ownand cross-compensated current and forward price effects on consumption and leisure at different stages of the life cycle. Section II discusses a variety of features of the current U.S. tax system which deal with capital income. Of particular interest are the separate corporate tax, the lack of price level indexing, the deductability of interest payments and the marginal finance decision, and the opportunity to save in some forms free of personal taxes. We conclude that the U.S. tax system, while often taxing capital income quite heavily, is in many respects a hybrid of an income and expenditure tax. Section III reviews some recent empirical research which suggests that private saving may be somewhat more responsive to the real after-tax rate of return than previously conjectured, and Section IV offers a brief conclusion and discusses (in light of the analysis in the paper) some policy issues and options currently under serious consideration.