Do International Remittances Affect the Level and the Volatility of Government Tax Revenues?

Abstract

This paper examines whether international remittance inflows expand fiscal space in receiving through their positive effects on the level and the stability of government tax revenues. It investigates whether these effects of remittances are conditional on the presence of a value added tax (VAT). Using a large sample of countries, and even after factoring in the endogeneity of remittances and the VAT adoption, this study highlights that remittance inflows increase the level and the stability of government tax revenue ratio in presence of a VAT. Copyright © 2013 John Wiley & Sons, Ltd.

The Effect of Remittances on Domestic Capital Formation in Select African Countries: A Comparative Empirical Analysis

“…Remittances could also help broaden the tax base and increase government's capacity to finance public projects, as the government may be able to raise additional funds either by taxing remittance as income or from taxes on remittance‐induced private expenditures. As Ebeke () argued, remittances could expand the government's fiscal space by increasing and expanding its tax base through such fiscal instrument as value‐added tax. They could also contribute to the building of, and improvements in, community physical infrastructure projects such as schools, health centres and roads, with complementary effects on entrepreneurship and other investment activities, when transferred by migrant associations and are appropriately channelled and coordinated (Anyanwu & Erhijakpor, ).…”

Effect of Poverty Volatility on Tax Revenue Instability in Developing Countries

“…Poverty deprives individuals from the requisite nancial resources for investment in human capital, including physical capital and health (e.g., Azariadis and Stachurski, 2005;Bain et al 2013;Bowles et al, 2006;Haushofer and Fehr, 2014;Perkins et al, 2012;Sachs, 2005). This adverse human capital effect of poverty is particularly enhanced when poor people have limited access to credit markets (e.g., Banerjee and Du o, 2008;2014;Carvalho et al, 2016). In this regard, Perry et al (2006) have noted that the absence of a well-developed nancial markets enhances the negative investment and economic growth effects of poverty.…”

“…For example, Gnangnon (2020) has reported a negative effect of the real per capita income on tax revenue instability. We also postulate that higher in ation volatility and higher economic growth volatility would induce greater tax revenue instability (e.g., Gnangnon and Brun, 2019;Ebeke, 2014;Gnangnon, 2020).…”

“…To analyse empirically the effect of poverty volatility on tax revenue instability, we rely on the limited previous works on the determinants of tax revenue instability (e.g., Lim, 1983;Bleaney et al, 1995;Ebeke and Ehrhart, 2012;Ebeke, 2014;Brun and Gnangnon, 2019;Gnangnon, 2020). We consider a baseline model speci cation in which the poverty volatility indicator is our main variable of interest, and where control variables include the economic growth volatility, the in ation volatility, the trade openness level, the real per capita income (as a proxy for the development level), and the institutional quality.…”

Tax Reform and Public Revenue Instability in Developing Countries: Does the Volatility of Development Aid Matter?

“…On another note, the few existing studies on the instability of public revenue in developing countries (e.g. Bleaney, Gemmell, & Greenaway, ; Ebeke, ; Ebeke & Ehrhart, ; Lim, ) have reported that public revenue instability translates into higher instability of public expenditure, higher instability of both public investment and government consumption, as well as lower public investment. One could therefore question whether in addition to its possible effect on the level of tax revenue, tax reform also helps dampen the instability of public revenue, with a view to ensuring a stable and sustainable public revenue in developing countries.…”