Tax Potential and Tax Effort: An Empirical Estimation for Non-resource Tax Revenue and VAT’s Revenue

Jean Brun () and Maïmouna Diakite ()

No 201610, Working Papers from CERDI

Abstract: Taxation is one of the main components of a country’s fiscal space. Its internal origin and the accountability it creates between rulers and populations make it a key element in financing public expenditure. Tax capacity differs between countries and depends on structural factors. A number of empirical studies attempted to determine countries’ overall tax potential and tax effort (Lotz and Morss, 1967; Stotsky and Wolde Mariam, 1997; Fenochietto and Pessino, 2013). However, the methodologies used tend to underestimate or overestimate countries’ tax potential and thereby their tax effort. The purpose of this study is to better assess countries’ non-resource tax potential and VAT’s tax potential independently using a more appropriate method. It is in line with the study of Brun et al. (2014) and rests on a large sample of developing countries over the period 1980/2014. We first employ the previous models and discuss about their shortcomings, after we use the stochastic frontier model of Kumbhakar, Lien and Hardaker (2014). This model allows to disentangle the overall tax effort into a persistent tax effort due to policy economy decisions and a time-varying tax effort relating to tax administration efficiency. The results are more realistic. Low income countries have higher tax effort along the period even if their tax effort decline at the end of period on the opposite of resource depending countries. In fact, the latter characterized by lower tax effort compared to non-resource countries improved consequently the efficiency of their system since 2010. The results also suggest that inefficiency in taxation depends more on policy decisions than on tax administration performance.

Keywords: Tax potential; Tax effort; Value-added tax; Non-resource revenues; Stochastic frontier model; Inefficiency. (search for similar items in EconPapers)
JEL-codes: C01 H2 (search for similar items in EconPapers)
Pages: 64
Date: 2016-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://publi.cerdi.org/ed/2016/2016.10.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to publi.cerdi.org:80 (No such host is known. )

Related works:
Working Paper: Tax Potential and Tax Effort: An Empirical Estimation for Non-Resource Tax Revenue and VAT’s Revenue (2016)
Working Paper: Tax Potential and Tax Effort: An Empirical Estimation for Non-resource Tax Revenue and VAT’s Revenue (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdi:wpaper:1814

Access Statistics for this paper

More papers in Working Papers from CERDI Contact information at EDIRC.
Bibliographic data for series maintained by Vincent Mazenod ().