What determines administrative capacity in developing countries?

Ricciuti, Roberto; Savoia, Antonio; Sen, Kunal

doi:10.35188/unu-wider/2018/455-1

Cited by 5 publications

(4 citation statements)

References 13 publications

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“…1In a companion paper, we argue that the ability of states to design, implement and monitor the budget in developing countries depends on having stronger constraints on the executive (Ricciuti et al 2018). …”

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How do political institutions affect fiscal capacity? Explaining taxation in developing economies

Ricciuti

Savoia

Sen

2018

Journal of Institutional Economics

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A central aspect of institutional development in developing economies is building tax systems capable of raising revenues from broad tax bases, i.e. fiscal capacity. While it is recognised that fiscal capacity is pivotal for state building and economic development, it is less clear what its origins are and what explains its cross-country differences. We focus on political institutions, seen as stronger systems of checks and balances on the executive. Exploiting a recent database on public sector performance in developing economies and an IV strategy, we estimate their long-run impact, distinguishing between the accountability and transparency of fiscal institutions (impartiality) and their effectiveness in extracting revenues. We find that stronger constraints on the executive foster the impartiality of tax systems. However, there is no robust evidence that they also improve its effectiveness. Our findings also suggest that the overall impact on both total tax revenues and income tax is economically relevant.

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How do political institutions affect fiscal capacity? Explaining taxation in developing economies

Ricciuti

Savoia

Sen

2018

Journal of Institutional Economics

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“…Heterogeneity in elasticities emanates from differences in structural characteristics across countries—such as the level of economic development and natural resource endowment—as well as differences in countries’ revenue mobilisation priorities, spending levels (and composition) and spending priorities. The spending levels and priorities are inextricably linked to the administrative and implementation capabilities of the countries, which themselves differ across countries (Centeno et al, 2017 ; Ricciuti et al, 2019b ). The heterogeneity in marginal effects—itself linked to heterogeneity in elasticities—is driven by the political calculus between aid and tax as the main sources of government spending, measured according to accountability and bureaucratic costs.…”

Section: Conceptualising the Dynamics Between Aid Taxes And Spending ...mentioning

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The dynamic effects of aid and taxes on government spending

Tagem

2022

Int Tax Public Finance

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This paper examines the impact of foreign aid and taxes on government spending for 67 developing countries during 1980–2013 using dynamic heterogeneous (panel) time-series techniques. We find that spending, aid and tax ratios comprise an equilibrium (cointegrated) relation. On average, the aid coefficients (and marginal impacts) are positive but smaller than the tax coefficients, indicating that in the long-run and short-run taxes have a stronger association with expenditures than aid. Central to this heterogeneous relationship is the political calculus between aid and tax—measured according to accountability and bureaucratic costs—whereby recipients offset the political costs of raising taxes against the political costs of receiving more aid. Once measures of political costs are incorporated into the analysis, we find the political costs of aid to be higher than those of tax, reinforcing the primary assertion that for spending, taxes are more important than aid. Countries with higher political costs of aid typically show no aid-spending relationship, while those with lower political costs of aid tend to show an aid-spending relationship. The findings are largely when replicated once we split total spending into capital and consumption spending. Supplementary Information The online version contains supplementary material available at 10.1007/s10797-022-09763-9.

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“…Strong political will is needed to make this happen. Riciuti, Savoia, and Sen [7] argue that political institutions, seen as the sys-tem of checks and balances on the executive, are a key ingredient for building administrative capacity.…”

Section: Critical View Of Thin Capitalization In Indonesiamentioning

confidence: 99%

Making Better Indonesia’s Thin Capitalization Rules (Lesson Learn from China)

Susilawati¹

2019

Proceedings of the Proceedings of the 1st Asian Conference on Humanities, Industry, and Technology for Society, ACHITS 2019, 30

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Thin capitalization rules are an effective instrument used by the tax authorities in many countries to prevent tax avoidance attempts through base erosion. These rules must be applied while maintaining adherence to the substance over form and the arm's length principles. In Indonesia's case, a stricter thin capitalization rule enables the country to overcome issues of taxation involving multinational corporations as well as issues of base erosion and profit shifting (BEPS). However, in comparison to other countries, the debt-to-equity ratio (DER) applied in Indonesia as part of the country's thin capitalization rule is considered lax. With a tax policy that is non-disincentive to business activities as well as lessons learnt from the regulations prevailing in China in mind, a number of suggestions for a more effective thin capitalization rule in Indonesia are offered, including DER review, application of the arm's length principle as an alternative, revision of the definition and scope of debt, and regulations improvement by providing clarity on the time basis of interest financing, treatment of the penalty imposed on late debt payment, treatment of interest income not considered as an expense to the borrower, and treatment of interest expense that cannot be carried forward to the subsequent period.

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What determines administrative capacity in developing countries?

Cited by 5 publications

References 13 publications

How do political institutions affect fiscal capacity? Explaining taxation in developing economies

How do political institutions affect fiscal capacity? Explaining taxation in developing economies

The dynamic effects of aid and taxes on government spending

Making Better Indonesia’s Thin Capitalization Rules (Lesson Learn from China)

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