State Institutions and Tax Capacity: An Empirical Investigation of Causality
State Institutions and Tax Capacity: An Empirical Investigation of Causality

Author: Olusegun Ayodele Akanbi

Publisher: International Monetary Fund

Published: 2019-08-16

Total Pages: 38

ISBN-13: 1513511548

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Would better state institutions increase tax collection, or would higher tax collection help improve state institutions? In the absence of conclusive guidance from theory, this paper searches for an empirical answer to this question, using a panel dataset covering 110 non-resource-rich countries from 1996 to 2017. Employing a panel vector error correction model, the paper finds that tax capacity and state institutions cause and reinforce each other for a wide range of country groups. The bi-directional causality results suggest that developing tax capacity and building state institutions need to go hand in hand for best results, particularly in developing countries. Based on the impulse response analyses, the paper also finds that the causal effects in advanced economies are generally low in both directions, while in developing countries, both tax capacity and institutions shocks have larger positive impacts on institutions and tax capacity, respectively.

Taxation and State-Building in Developing Countries
Taxation and State-Building in Developing Countries

Author: Deborah Brautigam

Publisher: Cambridge University Press

Published: 2008-01-10

Total Pages: 261

ISBN-13: 1139469258

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There is a widespread concern that, in some parts of the world, governments are unable to exercise effective authority. When governments fail, more sinister forces thrive: warlords, arms smugglers, narcotics enterprises, kidnap gangs, terrorist networks, armed militias. Why do governments fail? This book explores an old idea that has returned to prominence: that authority, effectiveness, accountability and responsiveness is closely related to the ways in which governments are financed. It matters that governments tax their citizens rather than live from oil revenues and foreign aid, and it matters how they tax them. Taxation stimulates demands for representation, and an effective revenue authority is the central pillar of state capacity. Using case studies from Africa, Asia, Eastern Europe and Latin America, this book presents and evaluates these arguments, updates theories derived from European history in the light of conditions in contemporary poorer countries, and draws conclusions for policy-makers.

Pillars of Prosperity
Pillars of Prosperity

Author: Timothy Besley

Publisher: Princeton University Press

Published: 2011-08-28

Total Pages: 393

ISBN-13: 0691152683

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How nations can promote peace, prosperity, and stability through cohesive political institutions "Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things." So wrote Adam Smith a quarter of a millennium ago. Using the tools of modern political economics and combining economic theory with a bird's-eye view of the data, this book reinterprets Smith's pillars of prosperity to explain the existence of development clusters—places that tend to combine effective state institutions, the absence of political violence, and high per-capita incomes. To achieve peace, the authors stress the avoidance of repressive government and civil conflict. Easy taxes, they argue, refers not to low taxes, but a tax system with widespread compliance that collects taxes at a reasonable cost from a broad base, like income. And a tolerable administration of justice is about legal infrastructure that can support the enforcement of contracts and property rights in line with the rule of law. The authors show that countries tend to enjoy all three pillars of prosperity when they have evolved cohesive political institutions that promote common interests, guaranteeing the provision of public goods. In line with much historical research, international conflict has also been an important force behind effective states by fostering common interests. The absence of common interests and/or cohesive political institutions can explain the existence of very different development clusters in fragile states that are plagued by poverty, violence, and weak state capacity.

Tax Capacity and Growth
Tax Capacity and Growth

Author: Vitor Gaspar

Publisher: International Monetary Fund

Published: 2016-12-02

Total Pages: 40

ISBN-13: 1475558333

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Is there a minimum tax to GDP ratio associated with a significant acceleration in the process of growth and development? We give an empirical answer to this question by investigating the existence of a tipping point in tax-to-GDP levels. We use two separate databases: a novel contemporary database covering 139 countries from 1965 to 2011 and a historical database for 30 advanced economies from 1800 to 1980. We find that the answer to the question is yes. Estimated tipping points are similar at about 123⁄4 percent of GDP. For the contemporary dataset we find that a country just above the threshold will have GDP per capita 7.5 percent larger, after 10 years. The effect is tightly estimated and economically large.

Political Institutions, State Building, and Tax Capacity
Political Institutions, State Building, and Tax Capacity

Author: Vitor Gaspar

Publisher: International Monetary Fund

Published: 2016-12-02

Total Pages: 33

ISBN-13: 1475558163

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An empirical finding by Gaspar, Jaramillo and Wingender (2016) shows that once countries cross a tax-to-GDP threshold of around 123⁄4 percent, real GDP per capita increases sharply and in a sustained manner over the following decade. In this paper, we attempt via four case studies—Spain, China, Colombia, and Nigeria—to illustrate that the improvements in tax capacity have been part of a deeper process of state capacity building. We discuss the political conditions that supported tax capacity building, highlighting three important political ingredients: constitutive institutions, inclusive politics and credible leadership.

States in the Developing World
States in the Developing World

Author: Miguel A. Centeno

Publisher: Cambridge University Press

Published: 2017-02-27

Total Pages: 493

ISBN-13: 1107158494

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An exploration of how states address the often conflicting challenges of development, order, and inclusion.

Political Institutions, State Building, and Tax Capacity
Political Institutions, State Building, and Tax Capacity

Author: Vitor Gaspar

Publisher: International Monetary Fund

Published: 2016-12-02

Total Pages: 33

ISBN-13: 1475558147

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An empirical finding by Gaspar, Jaramillo and Wingender (2016) shows that once countries cross a tax-to-GDP threshold of around 123⁄4 percent, real GDP per capita increases sharply and in a sustained manner over the following decade. In this paper, we attempt via four case studies—Spain, China, Colombia, and Nigeria—to illustrate that the improvements in tax capacity have been part of a deeper process of state capacity building. We discuss the political conditions that supported tax capacity building, highlighting three important political ingredients: constitutive institutions, inclusive politics and credible leadership.

State Capacity and Economic Development
State Capacity and Economic Development

Author: Mark Dincecco

Publisher: Cambridge University Press

Published: 2017-10-26

Total Pages:

ISBN-13: 1108335985

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State capacity - the government's ability to accomplish its intended policy goals - plays an important role in market-oriented economic development today. Yet state capacity improvements are often difficult to achieve. This Element analyzes the historical origins of state capacity. It evaluates long-run state development in Western Europe - the birthplace of both the modern state and modern economic growth - with a focus on three key inflection points: the rise of the city-state, the nation-state, and the welfare state. This Element develops a conceptual framework regarding the basic political conditions that enable the state to take effective policy actions. This framework highlights the government's challenge to exert proper authority over both its citizenry and itself. It concludes by analyzing the European state development process relative to other world regions. This analysis characterizes the basic historical features that helped make Western Europe different. By taking a long-run approach, it provides a new perspective on the deep-rooted relationship between state capacity and economic development.