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Tax Potential vs. Tax Effort: A Cross-Country Analysis of Armenia's Stubbornly Low Tax Collection

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Author Info

  • 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 14 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 6 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: 33
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/106

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Related research

Keywords: Tax collection; Shadow economy; Taxation; Subsidies;

This paper has been announced in the following NEP Reports:

References

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  1. 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 12, National Centre for Econometric Research.
  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. Rodrik, Dani & Subramanian, Arvind & Trebbi, Francesco, 2002. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," CEPR Discussion Papers 3643, C.E.P.R. Discussion Papers.
  4. Jean-Louis Combes & Tahsin Saadi-Sedik, 2006. "How Does Trade Openness Influence Budget Deficits in Developing Countries?," IMF Working Papers 06/3, International Monetary Fund.
  5. Friedrich Schneider, 2005. "Shadow Economies of 145 Countries all over the World: What Do We Really Know?," CREMA Working Paper Series 2005-13, Center for Research in Economics, Management and the Arts (CREMA).
  6. Auriol, Emmanuelle & Warlters, Michael, 2005. "Taxation Base in Developing Countries," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  7. Baunsgaard, Thomas & Keen, Michael, 2010. "Tax revenue and (or?) trade liberalization," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 563-577, October.
  8. Benno Torgler, 2003. "Tax Morale in Transition Countries," Post-Communist Economies, Taylor and Francis Journals, vol. 15(3), pages 357-381.
  9. 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.
  10. 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.
  11. 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.
  12. James Alm & Benno Torgler, 2004. "Culture Differences and Tax Morale in the United States and in Europe," CREMA Working Paper Series 2004-14, Center for Research in Economics, Management and the Arts (CREMA).
  13. International Monetary Fund, 2006. "Republic of Armenia: Selected Issues," IMF Staff Country Reports 06/434, International Monetary Fund.
  14. Leuthold, Jane H., 1991. "Tax shares in developing economies A panel study," Journal of Development Economics, Elsevier, vol. 35(1), pages 173-185, January.
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Cited by:
  1. Carola Pessino & Ricardo Fenochietto, 2010. "Determining countries’ tax effort," Hacienda Pública Española, IEF, vol. 195(4), pages 65-87, december.
  2. Productivity Commission, 2008. "Assessing Local Government Revenue Raising Capacity," Research Reports, Productivity Commission, Government of Australia, number 26.
  3. 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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