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A Retrospective on Taxation in Developing Countries: Will the Weakest Link be Strengthened?

This paper is about revenue mobilization and tax structure changes in developing countries since the 1970s, the factors underlying this pattern, and what this history suggests for the future. Several distinguished students of taxation have studied this set of questions for different periods of time (Chelliah, 1971, Tanzi, 1987, Bird, 2011a) and their conclusions are more or less in step with those reached here. But the longer time horizon of this study and the different take on some of the questions about the poor tax performance in developing countries may add some new value. In the next section of this paper, the evidence on long run changes in revenue mobilization is reviewed, and some explanations for the relatively weak performance in many low income countries are offered. We turn then to the same question for changes in the tax structures. The general conclusions reached here are that the rate of taxation in low income countries has not risen appreciably faster than GDP over this period, that countries have ignored the advice to broaden the tax base as often as they have acted on it, and that administrative improvements have been slow to come on line. The culprits in all of this have been a slow process of economic modernization, too little investment in the tax administration infrastructure and too little commitment to enforcement, and a political economy that often seems rigged against both more taxation and good taxation. In section 4, I suggest that there are underlying factors that might cause this pattern to change during the next decade, and bring about more convergence in tax practices between developing and industrial countries. A final section concludes. The discussion in this paper is limited to taxation in developing countries. I do not take up user charges or other non-tax revenues, nor do I address the important question of revenue mobilization from natural resources. Tax reform in transition countries is another very interesting study (Bahl, 1999, and Martinez-Vazquez, Rider and Wallace, 2008), but also too different to do justice to it here.

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File URL: http://icepp.gsu.edu/files/2015/03/ispwp1318.pdf
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Paper provided by International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University in its series International Center for Public Policy Working Paper Series, at AYSPS, GSU with number paper1318.

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Length: 42 pages
Date of creation: 17 Jun 2010
Date of revision:
Handle: RePEc:ays:ispwps:paper1318
Contact details of provider: Phone: 404-413-0235
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Web page: http://aysps.gsu.edu/isp/index.html

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  1. Alan A. Tait & Wilfrid L. M. Grätz & Barry J. Eichengreen, 1979. "International Comparisons of Taxation for Selected Developing Countries, 1972-76 (Comparaisons entre les systèmes fiscaux de certains pays en développement, 1972-76) (Comparaciones internacionales d," IMF Staff Papers, Palgrave Macmillan, vol. 26(1), pages 123-156, March.
  2. Richard M. Bird & Eric M. Zolt, 2005. "Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0507, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  3. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1.
  4. Estache, Antonio, 2010. "Infrastructure finance in developing countries: An overview," EIB Papers 8/2010, European Investment Bank, Economics Department.
  5. Baunsgaard, Thomas & Keen, Michael, 2010. "Tax revenue and (or?) trade liberalization," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 563-577, October.
  6. repec:cup:cbooks:9780521877657 is not listed on IDEAS
  7. Ben Lockwood & Michael Keen, 2007. "The Value-Added Tax: Its Causes and Consequences," IMF Working Papers 07/183, International Monetary Fund.
  8. Richard.M. Bird & Roy Bahl, 2009. "Subnational Taxes in Developing Countries: The Way Forward," Working Papers id:2072, eSocialSciences.
  9. Ebel, Robert D. & Yilmaz, Serdar, 2002. "On the measurement and impact of fiscal decentralization," Policy Research Working Paper Series 2809, The World Bank.
  10. Raja J. Chelliah, 1971. "Trends in Taxation in Developing Countries (Les tendances de la fiscalité dans les pays en voie de développement) (Tendencias tributarias en los países en desarrollo)," IMF Staff Papers, Palgrave Macmillan, vol. 18(2), pages 254-331, July.
  11. Richard M. Bird & Sally Wallace, 2003. "Is It Really so Hard to Tax the Hard-to-Tax? The Context and Role of Presumptive Taxes," International Tax Program Papers 0307, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
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