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

  • David A. Grigorian
  • Hamid Reza Davoodi

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.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/106.

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Length: 38
Date of creation: 01 May 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/106
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  1. Auriol, Emmanuelle & Warlters, Michael, 2004. "Taxation Base in Developing Countries," IDEI Working Papers 292, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Benno Torgler, 2003. "Tax Morale in Transition Countries," Working papers 2003/01, Faculty of Business and Economics - University of Basel.
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  12. 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.
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  15. 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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