One of the important factors for economic development is the existence of an effective tax system. The paper, which is the second part of Le, Moreno-Dodson, and Rojchaichaninthorn (2008), deals with the concept and empirical estimation of countries' taxable capacity and tax effort to develop further country tax effort typologies. It employs a cross-country study from a sample of 110 developing and developed countries during 1994-2009. Taxable capacity refers to the predicted tax to gross domestic product ratio that can be estimated with the regression, taking into account a country's specific macroeconomic, demographic, and institutional features. Tax effort is defined as an index of the ratio between the share of the actual tax collection in gross domestic product and the predicted taxable capacity. The use of tax effort and actual tax collection benchmarks allows us to rank countries into four different groups: low tax collection, low tax effort; high tax collection, high tax effort; low tax collection, high tax effort; and high tax collection, low tax effort. This classification is based on the benchmark of the global average of tax collection and a tax effort index. The analysis provides guidance for tax reforms in countries with various levels of tax collection and tax effort.

This paper provides an overview of the various channels through which public infrastructure may affect growth. In addition to the conventional productivity, complementarity, and crowding-out effects typically emphasized in the literature, the impact of infrastructure on investment adjustment costs, the durability of private capital, and the production of health and education services are also highlighted. Effects on health and education are well documented in a number of microeconomic studies, but macroeconomists have only recently begun to study their implications for growth. Links between health, infrastructure, and growth are illustrated in an endogenous growth model with transitional dynamics, and the optimal allocation of public expenditure is discussed. The conluding section draws implications of the analysis for the design of strategies aimed at promoting growth and reducing poverty.

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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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