A Comparative View on the Tax Performance of Developing Countries: Regional Patterns, Non-Tax Revenue and Governance

Abstract

Some countries fail to ensure that their citizens and businesses make an appropriate contribution to the financing of public tasks. But not all countries with a low tax ratio automatically fall into this category. This paper presents an approach to bridge the gap between probabilistic statements based on statistical analyses, and country-specific information. Rather than defining general across-the-board criteria, the approach accounts for different development levels and other influencing factors, such as regional patterns, non-tax revenue and governance. Findings on individual countries or groups of countries should put governments, donors and international organisations in a better position to decide on tax reform programmes and aid modalities. JEL H20, O23, O19Keywords Tax system; tax ratio; governance; developing countries Correspondence Christian von Haldenwang, political scientist and senior researcher, German Development Institute (Deutsches Institut für Entwicklungspolitik, DIE), Bonn, Germany; Email address: christian.vonHaldenwang@die-gdi.de Maksym Ivanyna, Joint Vienna Institute, Michigan State University; Email address: ivanynam@msu.edu Citation Christian von Haldenwang and Maksym Ivanyna (2012). A Comparative View on the Tax Performance of Developing Countries: Regional Patterns, Non-Tax Revenue and Governance. Economics: The Open-Access, Open-Assessment E-Journal, Vol. 6, 2012-32. http IntroductionPressure is mounting for countries with low tax yields or lax enforcement of tax laws. International players as the Organisation for Economic Co-operation and Development (OECD), the World Bank and the G20 are calling for more determined action to combat tax evasion and avoidance. With the world still fighting the effects of the global financial and economic crisis, there is growing pressure on tax havens to increase the transparency of their tax systems and put an end to unfair competitive practices. Developing countries, too, are being urged to do more to mobilize domestic resources rather than rely on a constant inflow of official development assistance (ODA) funds (OECD 2010; European Commission 2010). Some countries clearly fail to ensure that their citizens and businesses make an appropriate contribution to the financing of public tasks. In such cases there are a number of reasons for changing the development portfolio, reducing ODA or even stopping cooperation altogether. But not all countries with a low tax ratio automatically fall into this category. Governments, donors and international organizations need to be able to assess the performance of tax systems in a broader context of development, governance and international cooperation.The most important providers of this kind of information are the World Bank's Country Policy and Institutional Assessments (CPIAs) and Doing Business Reports, the OECD reports and databases, especially on sub-Saharan Africa, the European Commission's Fiscal Blueprints, the Public Expenditure and Financial Accountability (PEFA) Reports and the Collecting T...

Taxes for the People or for the Government? A Global Governance Perspective

“…For the scope of our research, in which we introduce the concept of taxes collected net of public services and investigate its determinants from a governance perspective (control of corruption, government effectiveness, political stability, regulatory quality, rule of law and voice and accountability) the findings of von Haldenwang and Ivanyna (2012) are of particular relevance since they investigated the countries' tax performance considering different determinants, among which governance characteristics. Their sample consists of 189 countries grouped into three categories (average, high and low tax performers) and the analysis covered the period 1997-2008, including observations for 2007 and 2008 in order to highlight the distorting impact of the world economic crisis on the public finances of many developing and developed countries.…”

“…von Haldenwang and Ivanyna (2010) performed and exhaustive investigation to assess the tax performance of developing countries for two additional observation periods, 1997-1999 and 2001-2003. With respect to the main determinants of total tax revenues net of public services that we considered in our study, namely the worldwide governance indicators (WGI) (control of corruption, government effectiveness, political stability, regulatory quality, rule of law and voice and accountability), von Haldenwang and Ivanyna (2010) report interesting results.…”

“…von Haldenwang and Ivanyna (2010) performed and exhaustive investigation to assess the tax performance of developing countries for two additional observation periods, 1997-1999 and 2001-2003. With respect to the main determinants of total tax revenues net of public services that we considered in our study, namely the worldwide governance indicators (WGI) (control of corruption, government effectiveness, political stability, regulatory quality, rule of law and voice and accountability), von Haldenwang and Ivanyna (2010) report interesting results. For example, the combined picture produced by the Polity IV democracy index and the Voice and Accountability Index suggests that low tax performing countries are less democratic, regardless of income group, being only four low tax performers with a positive rating in both indices: Panama, India, the Dominican Republic and Timor-Leste.…”

“…For example, the combined picture produced by the Polity IV democracy index and the Voice and Accountability Index suggests that low tax performing countries are less democratic, regardless of income group, being only four low tax performers with a positive rating in both indices: Panama, India, the Dominican Republic and Timor-Leste. Regarding the government effectiveness index, von Haldenwang and Ivanyna (2010) obtained that only a few low tax performers have a public sector capable of implementing public policies in an orderly and transparent way because 13 of 40 countries achieve scores above the world mean. In the case of Corruption and Regulatory Quality, as possible proxies for public sector capability, the research of von Haldenwang and Ivanyna (2010) showed little differencethe correlation between these indices and Government Effectiveness were almost perfect.…”

Tax revenue mobilization episodes in developing countries

“…Any cross-country lessons should be tailored to country-specific circumstances. It is well established that successful tax reform should take into account the country's institutional and societal preferences (Bert 2011;OECD 2010). Moreover, applying tax reform lessons to a specific country calls for a selective adaptation as equity and political economy factors can become serious implementation obstacles.…”