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Effective versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies

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  • Mark Schaffer
  • Gerard Turley

Abstract

Wide differences between effective or realised average tax rates and tax yields that would result if statutory tax rates were strictly applied indicate tax compliance and collection problems. Due to the greater politicisation of tax systems in transition economies (TEs), we would expect the shortfalls in effective tax yields for TEs to be larger than a benchmark for the mature market economies where tax systems are well established, the administrative capacity is stronger and tax arrears are tolerated less frequently. The methodology involves calculating an effective/statutory (E/S) tax ratio. Initial results indicate that the leading TEs have E/S ratios similar to the EU average. We find a positive correlation between progress in transition and effective tax administration, as measured by our E/S ratio. For slow reformers, the effectiveness of tax collection appears to vary with the extent of state control. Those TEs that have maintained the apparatus of the state have done well in tax collection compared to those countries where there is evidence of state decay. This raises a number of broad policy issues relating to the speed of transition, the interaction of politics and economic reforms, the capacity of the state to govern and the need for market institutions to develop.

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Paper provided by Centre for Economic Reform and Transformation, Heriot Watt University in its series CERT Discussion Papers with number 0008.

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Date of creation: 2000
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Handle: RePEc:hwe:certdp:0008

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  1. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1994. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
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  3. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
  4. Don Fullerton, 1983. "Which Effective Tax Rate?," NBER Working Papers 1123, National Bureau of Economic Research, Inc.
  5. Peter Murrell, 1996. "How Far Has the Transition Progressed?," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 25-44, Spring.
  6. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
  7. Burgess, Robin & Stern, Nicholas, 1993. "Taxation and Development," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 762-830, June.
  8. D. Reisman, 1999. "Russia's Tax Crisis: Explaining Falling Revenues in a Transitional Economy," Economics and Politics, Wiley Blackwell, vol. 11(2), pages 145-169, 07.
  9. Liam P. Ebrill, 1999. "Tax Reform in the Baltics, Russia, and Other Countries of the Former Soviet Union," IMF Occasional Papers 182, International Monetary Fund.
  10. Sergei V. Alexashenko & Augusto López-Claros, 1998. "Fiscal Policy," IMF Occasional Papers 155, International Monetary Fund.
  11. Newbery, David M G, 1995. "Tax and Benefit Reform in Central and Eastern Europe," CEPR Discussion Papers 1167, C.E.P.R. Discussion Papers.
  12. Eric Friedman & Simon Johnson & Daniel Kaufmann & Pablo Zoido-Lobaton, 1999. "Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69," Departmental Working Papers 199921, Rutgers University, Department of Economics.
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Cited by:
  1. Cheryl Gray & Tracey Lane & Aristomene Varoudakis, 2007. "Fiscal Policy and Economic Growth : Lessons for Eastern Europe and Central Asia," World Bank Publications, The World Bank, number 6883, February.
  2. Paul G. Hare & Junior R. Davis, 2006. "Institutions and Development: What We (Think We) Know, What We Would Like to Know," CERT Discussion Papers 0603, Centre for Economic Reform and Transformation, Heriot Watt University.
  3. Maxim Bouev, 2001. "Labor Supply, Informal Economy and Russian Transition," William Davidson Institute Working Papers Series 408, William Davidson Institute at the University of Michigan.
  4. Margit Schratzenstaller, 2003. "Dualisierung von Einkommensteuersystemen: Stand und Perspektiven im internationalen Vergleich," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 72(4), pages 535-550.
  5. Budryte, Alge, 2005. "Corporate income taxation in Lithuania in the context of the EU," Research in International Business and Finance, Elsevier, vol. 19(2), pages 200-228, June.
  6. Michael Bolle & José Caétano & Jaakko Kiander & Vladimir Lavrac & Renzo Orsi & Tiiu Paas & Katarzyna Zukrowska, 2002. "The Eastward Enlargement of the Eurozone - State of the Art Report," Eastward Enlargement of the Euro-zone Working Papers wp02, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Jan 2002.
  7. Margit Schratzenstaller, 2004. "Towards Dual Income Taxes - a Country Comparative Perspective," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 2(3), pages 23-30, October.
  8. Scott Gehlbach, 2003. "Taxability and Low-Productivity Traps," Working Papers w0029, Center for Economic and Financial Research (CEFIR).
  9. Mária Lackó, 2004. "Tax Rates and Corruption: Labour-market and Fiscal Effects. Empirical cross-country comparisons on OECD and transition countries," wiiw Research Reports 309, The Vienna Institute for International Economic Studies, wiiw.
  10. Scott Gehlbach, 2003. "Taxability, Elections, and Government Support of Business Activity," Working Papers w0030, Center for Economic and Financial Research (CEFIR).
  11. World Bank, 2002. "Romania - Building Institutions for Public Expenditure Management : Reforms, Efficiency and Equity - A Public Expenditure and Institutions Review," World Bank Other Operational Studies 15371, The World Bank.
  12. Э. Бикaс & Г. Келиуотите-Станиленине, 2013. "Налоговые Системы Государств-Членов Европейского Союза," Вестник Киевского национального университета имени Тараса Шевченко. Экономика., Socionet;Киевский национальный университет имени Тараса Шевченко, vol. 4(145), pages 22-25.
  13. Christopher Gerry & Tomasz Mickiewicz, 2006. "Inequality, Fiscal Capacity and the Political Regime: Lessons from the Post-Communist Transition," William Davidson Institute Working Papers Series wp831, William Davidson Institute at the University of Michigan.

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