Tax structures in developing countries: Many puzzles and a possible explanation

Remittances and public finances: Evidence from oil-price shocks

“…In addition, more remittances lead to a more improved financial sector (Aggarwal et al 2011), hence facilitate the enforcement of income taxes, and give governments the opportunity to increase income-tax rates in order to achieve a more balanced mix of income and indirect tax rates. Our results are therefore in line with recent literature of Gordon and Li (2009), who show in a theoretical framework that non-sufficient financial information is a crucial predictor for the prevailing tax structures in developing countries and the low rates of direct taxes. (2), Tax revenue from VAT and sales taxes (3)-(4), Tax revenue from income, profit and capital taxes (5)-(6).…”

“…Our research questions are also relevant for the importance of choosing an optimal tax mix and structure. The design of the tax structure can have a positive effect on economic growth even in absence of changes in tax revenues (Arnold et al 2011;Gordon and Li 2009), and our results shed light on the effects of remittances on the choice of tax structure.…”

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

“…Our findings are complementary with an emerging set of studies that demonstrate that optimal tax policy may differ across developed and developing countries as a result of differences in information and enforcement constraints (e.g., Gordon and Li, 2009;Best et al, forthcoming). Specifically, these results suggest that governments should set the tax base taking into account the degree of third-party information on the base as a whole.…”

“…Tax evasion limits the development of fiscal capacity (Besley and Persson, 2013), distorts the allocation of resources in the economy (Skinner and Slemrod, 1985), and can result in a reliance on economically inefficient tax instruments (Gordon and Li, 2009;Best et al, forthcoming). A recent literature has shifted emphasis from the traditional idea of tax enforcement through auditing (Allingham and Sandmo, 1972) toward a focus on "thirdparty information": the ability to verify taxpayer reports against other sources, such as an employer report of salary or the report of a firm's trading partners (e.g., Kopczuk and Slemrod, 2006;Kleven et al, 2010;Pomeranz, 2013).…”

Foreign advice and tax policy in developing countries

“…16 One implication is that 'reform' in one aspect of tax policy may often be offset by changes elsewhere that 14 On the other hand, expanding trade has in recent years not been associated with increasing dependence on trade taxes (Baunsgaard and Keen 2005). 15 As Gordon and Li (2009) emphasize, financial development and the expansion of the corporate sector also increase the importance of income taxes. 16 Along similar lines, Peacock and Wiseman (1961) called the discrete jump in tax effort and public expenditure in post-war Britain a ''displacement effect': general perceptions about what is a tolerable level of taxation tend to be stable until shocked by a social upheaval so that levels of taxation that would have been previously intolerable become acceptable and remain at the new higher level after the social perturbations have disappeared.…”