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Tax Potential vs. Tax Effort

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  • David A. Grigorian
  • Hamid Reza Davoodi

Abstract

Despite recording double digit growth since 2000, Armenia''s tax-to-GDP ratio has been fairly stable at about 14½ percent. This paper catalogues a range of factors that may account for Armenia''s stubbornly for tax collection by benchmarking Armenia''s tax-to-GDP against some comparator countries and conducting an extensive econometric study of the main determinants of tax collection. We find empirical support for the hypothesis that the persistence of Armenia''s low tax-GDP ratio can be traced to persistence of weak institutions and a large shadow economy. The gap between the potential and actual tax collection in Armenia could be as high as 6½ percent of GDP. We conclude with some policy recommendations that, if adopted, can boost revenue buoyancy.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/106.

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Length: 38
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/106

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Keywords: Tax collection; Shadow economy; Taxation; Subsidies; tax revenues; tax revenue; tax effort; direct taxes; tax administration; tax policy; tax reforms; indirect taxes; tax performance; income taxes; tax potential; tax evasion; tax base; tax system; personal income tax; tax rates; tax reform; tax collections; fiscal policy; total tax revenue; presumptive income tax; direct tax; tax exemptions; tax-gdp ratio; central government tax revenues; tax administrations; revenue collection; higher income; tax policy reforms; tax administration measures; tax categories; property tax; fiscal institutions; tax compliance; fiscal system; actual tax collection; tax ratios; tax arrears; structural adjustment; central government tax; tax systems; higher tax revenues; tax ratio; tax collection agencies; vat system; higher tax rates; tax exemption; formal sector; tax receipts; effective tax rates; taxation base; excise taxes; consumption taxes; budget deficits; public finances; fiscal consolidation; raising tax rates; high tax rates; tax burden; ratio of tax revenues; budget deficit; corporate tax rate; increase tax collection; theory of taxation; tax audits; trade taxes; fiscal policy outcomes; tax incentives; tax revenue increases; state tax; income scale; tax collector; tax policy design; tax-generating capacity; budget balances; tax administration reforms; vat rate; government spending; determinants of tax revenue;

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References

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  1. Auriol, Emmanuelle & Warlters, Michael, 2004. "Taxation Base in Developing Countries," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 292, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Terence D. Agbeyegbe & Janet Gale Stotsky & Asegedech WoldeMariam, 2004. "Trade Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa," IMF Working Papers 04/178, International Monetary Fund.
  3. Michael Keen & Thomas Baunsgaard, 2005. "Tax Revenue and (or?) Trade Liberalization," IMF Working Papers 05/112, International Monetary Fund.
  4. Ronald G. Cummings & Jorge Martinez-Vazquez & Michael McKee & Benno Torgler, 2007. "Effects of Tax Morale on Tax Compliance: Experimental and Survey Evidence," NCER Working Paper Series, National Centre for Econometric Research 12, National Centre for Econometric Research.
  5. Richard M. Bird & Jorge Martinez-Vazquez & Benno Torgler, 2014. "Societal Institutions and Tax Effort in Developing Countries," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 301-351, May.
  6. International Monetary Fund, 2006. "Republic of Armenia," IMF Staff Country Reports 06/434, International Monetary Fund.
  7. Benno Torgler, 2003. "Tax Morale in Transition Countries," Working papers, Faculty of Business and Economics - University of Basel 2003/01, Faculty of Business and Economics - University of Basel.
  8. Vito Tanzi & Hamid Reza Davoodi, 2000. "Corruption, Growth, and Public Finances," IMF Working Papers 00/182, International Monetary Fund.
  9. Jean-Louis Combes & Tahsin Saadi-Sedik, 2006. "How does trade openness influence budget deficits in developing countries?," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 42(8), pages 1401-1416.
  10. Tanzi, Vito & Zee, Howell H., 2000. "Tax Policy for Emerging Markets: Developing Countries," National Tax Journal, National Tax Association, vol. 53(n. 2), pages 299-322, June.
  11. 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, Elsevier, vol. 76(3), pages 459-493, June.
  12. Joweria M. Teera & John Hudson, 2004. "Tax performance: a comparative study," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(6), pages 785-802.
  13. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  14. Janet Gale Stotsky & Asegedech WoldeMariam, 1997. "Tax Effort in Sub-Saharan Africa," IMF Working Papers 97/107, International Monetary Fund.
  15. Vito Tanzi & Hamid Reza Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
  16. Leuthold, Jane H., 1991. "Tax shares in developing economies A panel study," Journal of Development Economics, Elsevier, Elsevier, vol. 35(1), pages 173-185, January.
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Citations

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Cited by:
  1. Ricardo Fenochietto & Carola Pessino, 2013. "Understanding Countries’ Tax Effort," IMF Working Papers 13/244, International Monetary Fund.
  2. Productivity Commission, 2008. "Assessing Local Government Revenue Raising Capacity," Research Reports, Productivity Commission, Government of Australia, Productivity Commission, Government of Australia, number 26.
  3. Carola Pessino & Ricardo Fenochietto, 2010. "Determining countries’ tax effort," Hacienda Pública Española, IEF, IEF, vol. 195(4), pages 65-87, december.
  4. Brima Ibrahim Baimba Kargbo & Adegbemi Festus O. Egwaikhide, 2012. "Tax Elasticity in Sierra Leone: A Time Series Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 2(4), pages 432-447.

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