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Tax capacity and tax effort : extended cross-country analysis from 1994 to 2009

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  • Le, Tuan Minh
  • Moreno-Dodson, Blanca
  • Bayraktar, Nihal
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    Abstract

    One of the important factors for economic development is the existence of an effective tax system. This paper deals with the concept and empirical estimation of countries'taxable capacity and tax effort. It employs a cross-country study from a sample of 110 developing and developed countries during 1994-2009. Taxable capacity refers to the predicted tax-to-gross domestic product ratio that can be estimated empirically, taking into account a country's specific macroeconomic, demographic, and institutional features, which all change through time. Tax effort is defined as an index of the ratio between the share of the actual tax collection in gross domestic product and taxable capacity. The use of tax effort and actual tax collection benchmarks allows the ranking of countries into four different groups: low tax collection, low tax effort; high tax collection, high tax effort; low tax collection, high tax effort; and high tax collection, low tax effort. The analysis provides broad guidance for tax reforms in countries with various levels of taxable capacity and revenue intake.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6252.

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    Date of creation: 01 Oct 2012
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    Handle: RePEc:wbk:wbrwps:6252

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    Keywords: Taxation&Subsidies; Subnational Economic Development; Debt Markets; Emerging Markets; Economic Theory&Research;

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    1. Isabelle Joumard & Per Mathis Kongsrud, 2003. "Fiscal Relations across Government Levels," OECD Economics Department Working Papers 375, OECD Publishing.
    2. Richard M. Bird & Jorge Martinez-Vazquez & Benno Torgler, 2004. "Societal Institutions and Tax Effort in Developing Countries," CREMA Working Paper Series 2004-21, Center for Research in Economics, Management and the Arts (CREMA).
    3. Leuthold, Jane H., 1991. "Tax shares in developing economies A panel study," Journal of Development Economics, Elsevier, vol. 35(1), pages 173-185, January.
    4. Vito Tanzi & Hamid Reza Davoodi, 1997. "Corruption, Public Investment, and Growth," IMF Working Papers 97/139, International Monetary Fund.
    5. Bird,Richard & Gendron,Pierre-Pascal, 2007. "The VAT in Developing and Transitional Countries," Cambridge Books, Cambridge University Press, number 9780521877657, December.
    6. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2010. "Shadow Economies All over the World: New Estimates for 162 Countries from 1999 to 2007," Working Papers wp322, University of Chile, Department of Economics.
    7. Morris, Richard & de Castro Fernández, Francisco & Jonk, Steven & Kremer, Jana & Linehan, Suzanne & Marino, Maria Rosaria & Schalck, Christophe & Tkacevs, Olegs, 2009. "Explaining government revenue windfalls and shortfalls: an analysis for selected EU countries," Working Paper Series 1114, European Central Bank.
    8. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
    9. Aizenman, Joshua & Jinjarak, Yothin, 2006. "Globalization and Developing Countries - a Shrinking Tax Base ?," Santa Cruz Department of Economics, Working Paper Series qt8r12k4xr, Department of Economics, UC Santa Cruz.
    10. Abhijit Sen Gupta, 2007. "Determinants of Tax Revenue Efforts in Developing Countries," IMF Working Papers 07/184, International Monetary Fund.
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    Cited by:
    1. Ricardo Fenochietto & Carola Pessino, 2013. "Understanding Countries’ Tax Effort," IMF Working Papers 13/244, International Monetary Fund.

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