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Assessing the relationship between democracy and domestic taxes in developing countries

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  • Hélène Ehrhart

    (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)

Abstract

To what extent differences across developing countries in their domestic tax mobilization can be explained, in addition to the traditional determinants, by political economy factors and particularly by the political regime? Using a panel of 66 developing countries over the period 1990-2005, this paper provides econometric evidence that democracy matters for achieving higher domestic tax revenues which are much needed to finance public goods. It is especially the level of constraints on the executive which is of importance to counter the government's propensity to cave in for special interests and to be insufficiently welfare minded. We found that high levels of democracy are specifically needed in natural resource rich countries to make natural resource rents contribute to higher domestic tax revenues and no longer be an impediment to a sustained tax system.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00553607.

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Date of creation: 07 Jan 2011
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Handle: RePEc:hal:wpaper:halshs-00553607

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Keywords: Tax Revenues; democracy; developing countries;

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References

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  1. Adam, Antonis & Delis, Manthos D. & Kammas, Pantelis, 2011. "Are democratic governments more efficient?," European Journal of Political Economy, Elsevier, vol. 27(1), pages 75-86, March.
  2. Frey, Bruno S. & Torgler, Benno, 2006. "Tax Morale and Conditional Cooperation," Berkeley Olin Program in Law & Economics, Working Paper Series qt3rd3f982, Berkeley Olin Program in Law & Economics.
  3. Keen, Michael & Lockwood, Ben, 2010. "The value added tax: Its causes and consequences," Journal of Development Economics, Elsevier, vol. 92(2), pages 138-151, July.
  4. Cesar Calderon & Alberto Chong, 2006. "Do Democracies Breed Rent-seeking Behavior?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 9(4), pages 247-260.
  5. Timothy Besley & Masayuki Kudamatsu, 2006. "Health and Democracy," American Economic Review, American Economic Association, vol. 96(2), pages 313-318, May.
  6. Jean-François Brun & Gérard Chambas & Martial Laurent, 2011. "Economie politique de la réforme de transition fiscale : le cas du Maroc," Working Papers halshs-00557066, HAL.
  7. Paul Clist & Oliver Morrissey, 2011. "Aid and tax revenue: Signs of a positive effect since the 1980s," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(2), pages 165-180, March.
  8. Bird, Richard M. & Martinez-Vazquez, Jorge & Torgler, Benno, 2008. "Tax Effort in Developing Countries and High Income Countries: The Impact of Corruption, Voice and Accountability," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(1), pages 55-71, March.
  9. Michael Keen & Mario Mansour, 2010. "Revenue Mobilisation in Sub-Saharan Africa: Challenges from Globalisation I - Trade Reform," Development Policy Review, Overseas Development Institute, vol. 28(5), pages 553-571, 09.
  10. Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2006. "Political foundations of the resource curse," Journal of Development Economics, Elsevier, vol. 79(2), pages 447-468, April.
  11. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoglu, 2002. ""Protection For Sale" In A Developing Country: Democracy Vs. Dictatorship," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 497-508, August.
  12. C S Adam, D L Bevan and G Chambas, . "Exchange Rate Regimes and Revenue Performance in Sub-Saharan Africa," QEH Working Papers qehwps35, Queen Elizabeth House, University of Oxford.
  13. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  14. Lee, Woojin, 2003. "Is democracy more expropriative than dictatorship? Tocquevillian wisdom revisited," Journal of Development Economics, Elsevier, vol. 71(1), pages 155-198, June.
  15. Bornhorst, Fabian & Gupta, Sanjeev & Thornton, John, 2009. "Natural resource endowments and the domestic revenue effort," European Journal of Political Economy, Elsevier, vol. 25(4), pages 439-446, December.
  16. Rajkumar, Andrew Sunil & Swaroop, Vinaya, 2008. "Public spending and outcomes: Does governance matter?," Journal of Development Economics, Elsevier, vol. 86(1), pages 96-111, April.
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Citations

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Cited by:
  1. Ivanyna, Maksym & von Haldenwang, Christian, 2012. "A comparative view on the tax performance of developing countries: Regional patterns, non-tax revenue and governance," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(32), pages 1-44.
  2. Yannick Lucotte, 2010. "The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?," Post-Print hal-00539713, HAL.
  3. Lucotte, Yannick, 2010. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," MPRA Paper 23871, University Library of Munich, Germany.
  4. Clarisse Nguedam Ntouko, 2013. "Regulatory Framework and Private Investment: Empirical Evidence for Developing Countries," Economics Bulletin, AccessEcon, vol. 33(1), pages 494-510.

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