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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. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
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  10. Jean-Louis Combes & Tahsin Saadi-Sedik, 2006. "How Does Trade Openness Influence Budget Deficits in Developing Countries?," IMF Working Papers 06/3, International Monetary Fund.
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  12. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
  13. 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.
  14. repec:imf:imfwpa:04/178 is not listed on IDEAS
  15. Vito Tanzi & Hamid Reza Davoodi, 2000. "Corruption, Growth, and Public Finances," IMF Working Papers 00/182, International Monetary Fund.
  16. 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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