This study approaches the subject of tax reform from basic economic principles. The objectives are to develop guidelines for the design of tax policy; to show how the principles can structure systematic research into tax reform in terms of the consequences for households, producers and government; and finally, to combine the guidelines and applied research into a practical tax package for Pakistan, where tax reform has become an urgent priority. Professors Ahmad and Stern provide a coherent framework to show how principles can be formulated, applied research structured, and policies developed and appraised in a systematic manner. The majority of developing countries are currently facing severe budgetary pressures with rising demands for expenditures and limited scope for raising extra government revenues. In addition, the revenue systems which are in place may themselves generate strong impediments to efficiency, the expansion of the economy, the growth of the tax base, equity and the achievement of development objectives. Tax reform should therefore be central to public policy and development planning and is seen as such by many governments. It has also moved to the forefront of discussion in international agencies. This book will be useful to graduate students, academic economists, and professional economists in international organisations and governments interested in public policy and development planning. The careful application of the ideas presented here should lead to a real improvement in the development of policy and to further empirical and theoretical research.