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Estimating tax effort: new evidence from a novel dataset

Author

Listed:
  • Tatul Hayruni

    (Economic Research Department, CBA, Yerevan, Armenia)

  • Gevorg Minasyan

    (Economic Research Department, CBA, Yerevan, Armenia)

  • Armen Nurbekyan

    (Economic Research Department, CBA, Yerevan, Armenia)

Abstract

We provide new evidence on countries’ tax effort – the gap between collected and predicted tax revenue – based on a self-constructed panel of 114 countries, covering the period from 1995 to 2020. We apply the stochastic frontier model of Kumbhakar et al. (2014. Technical efficiency in competing panel data models: A study of Norwegian grain farming. Journal of Productivity Analysis, 41(2), 321–337.) to disentangle country-specific fixed effects from the persistent and time-varying components of tax effort. Our findings suggest that the level of development, trade volume, education, income inequality, and the ease of tax collection are important determinants of tax collection. We also find that countries with historically strong indicators of governance, rule of law, and control of corruption tend to exhibit higher levels of persistent effort. This suggests improved estimates of tax effort by 7.2–12.5 percentage points compared to specifications, where persistent trends in tax effort are attributed either to country heterogeneity or time-varying factors.

Suggested Citation

  • Tatul Hayruni & Gevorg Minasyan & Armen Nurbekyan, 2025. "Estimating tax effort: new evidence from a novel dataset," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 25(1), pages 131-155.
    • Handle: RePEc:bic:journl:v:25:y:2025:i:1:p:131-155
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    File URL: https://www.tandfonline.com/doi/epdf/10.1080/1406099X.2025.2491214
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    More about this item

    Keywords

    Stochastic frontier; tax capacity; tax effort; tax rate dataset;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G40 - Financial Economics - - Behavioral Finance - - - General

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