Tax Revenues and Tax Efforts across the World

Abstract

This chapter focuses on the concept and empirical estimation of tax effort around the world. It employs a cross-country study from a sample of 121, developing and developed countries during 1994-2012. Predicted tax revenue of a country is estimated empirically taking into account its specific economic, demographic, and institutional features and is considered as an approximation of its taxable capacity. Tax effort is then defined as the ratio between the share of the actual tax collection and the predicted tax revenue. The use of tax effort and actual tax revenue collection allows us to rank countries into four different groups. The results vary per country and region but, overall, tax revenue collection appears to be in line with its predicted value. This could reflect many efforts undertaken in the last decades to improve tax policy and tax administration. It also suggests that further improvements in domestic revenue mobilization may require other non-tax reforms aimed at removing economic, demographic and institutional constraints hindering tax revenue performance.