Tax reform and public debt instability in developing countries: The trade openness and public revenue instability channels

This article investigates the effect of tax reform – which entails a convergence of developing countries’ tax structure towards that of developed countries – on public debt instability in developing countries. The empirical analysis has shown that a greater extent of tax reform reduces the instability of public debt, including when countries experience lower public revenue instability or when they open-up their economies to international trade. These findings have important policy implications.