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The History of Central Banks  

Eric Monnet

The historical evolution of the role of central banks has been shaped by two major characteristics of these institutions: they are banks and they are linked—in various legal, administrative, and political ways—to the state. The history of central banking is thus an analysis of how central banks have ensured or failed to ensure the stability of the value of money and the credit system while maintaining supportive or conflicting relationships with governments and private banks. Opening the black box of central banks is necessary to understanding the political economy issues that emerge from the implementation of monetary and credit policy and why, in addition to macroeconomic effects, these policies have major consequences on the structure of financial systems and the financing of public debt. It is also important to read the history of the evolution of central banks since the end of the 19th century as a game of countries wanting to adopt a dominant institutional model. Each historical period was characterized by a dominant model that other countries imitated - or pretended to imitate while retaining substantial national characteristics - with a view to greater international political and financial integration. Recent academic research has explored several issues that underline the importance of central banks to the development of the state, the financial system and on macroeconomic fluctuations: (a) the origin of central banks; (b) their role as a lender of last resort and banking supervisor; (c) the justifications and consequences of domestic macroeconomic policy objectives - inflation, output, etc. -of central banks (monetary policy); (d) the special loans of central banks and their role in the allocation of credit (credit policy); (e) the legal and political links between the central bank and the government (independence); (f) the role of central banks concerning exchange rates and the international monetary system; (g) production of economic research and statistics.

Article

Tax Audits, Economics, and Racism  

Francine J. Lipman

Since 2010, Congress has significantly cut the annual budget of the Internal Revenue Service (IRS) while requiring the IRS to manage more responsibilities, including last-minute comprehensive tax reform, health care, broad-based antipoverty relief, and a variety of economic stimulus provisions. As a result, the IRS has sustained across-the-board decreases in staffing, with the most significant decreases in tax enforcement personnel. The IRS has fewer auditors than at any time since World War II, despite an explosion of concentrated income and wealth. Predictably, the tax gap, the difference between what taxpayers owe and what taxpayers pay, has skyrocketed to almost $1 trillion a year. Economists have estimated that funding the IRS will pay for itself severalfold, raising more than a trillion dollars of uncollected tax revenues over a decade. Despite evidence that funding will remedy budget shortfalls severalfold, Congress continues to defund the IRS. While the bulk of the tax gap is due to unreported income by high-income individuals, the audit rate of these households has dropped precipitously. By comparison, the lowest income wage earners are being audited five times more often than all other taxpayers. Given centuries of racist policies in the United States, households of color are disproportionately impoverished and white households are disproportionately wealthy. Accordingly, lower income working families of color, especially in the South, are audited at rates higher than their white northern counterparts. Moreover, because these households and the IRS have limited resources, many of these audits result in taxpayers losing antipoverty benefits that they have properly claimed. This discriminatory treatment is counter to Congressional intent to support these families and exacerbates existing racial income and wealth gaps. With President Biden’s 2021 executive order on advancing racial equity and support for underserved communities through the federal government, the U.S. Treasury, IRS, and Congress have been charged to “recognize and work to redress inequities in their policies and programs that serve as barriers to equal opportunity.” Properly funding the IRS is a necessary step to advancing racial equity.