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

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  • David A. Grigorian
  • Hamid R 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.

Suggested Citation

  • David A. Grigorian & Hamid R Davoodi, 2007. "Tax Potential vs. Tax Effort; A Cross-Country Analysis of Armenia's Stubbornly Low Tax Collection," IMF Working Papers 07/106, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/106
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    Cited by:

    1. Marco Committeri & 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, number 26.
    3. Carola Pessino & Ricardo Fenochietto, 2010. "Determining countries’ tax effort," Hacienda Pública Española, IEF, vol. 195(4), pages 65-87, december.
    4. Attiya Y. Javid & Umaima Arif, 2012. "Analysis of Revenue Potential and Revenue Effort in Developing Asian Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 365-380.
    5. Garg, Sandya & Ashima Goyal & Rupayan Pal, 2014. "Why tax effort falls short of capacity in Indian states: A Stochastic frontier approach," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-032, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. International Monetary Fund, 2013. "The Gambia; Staff Report for the 2013 Article IV Consultation; Informational Annex; Press Release on the Executive Board Discussion; and Statement by the Executive Director for The Gambia," IMF Staff Country Reports 13/289, International Monetary Fund.
    7. 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.
    8. Víctor Mauricio Castañeda Rodríguez, 2014. "El gasto social como factor que favorece una mayor dependencia del IVA. Un análisis para el caso colombiano," REVISTA ECOS DE ECONOMÍA, UNIVERSIDAD EAFIT, June.

    More about this item

    Keywords

    Shadow economy; Armenia; Taxation; Tax collection; Subsidies; tax potential; institutions; tax revenues; tax revenue; tax effort; direct taxes; Comparative Studies of Particular Economies;

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