Mobilising domestic revenue in developing countries

Project description

Enhancing domestic resource mobilisation and especially tax performance is an increasingly relevant topic on the international development agenda. Governments, donors and international organisations need to understand the role political, economic and institutional factors play in defining tax regimes and strengthening domestic revenue mobilisation. Against this background, the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE) research programme aimed at providing new insights into the issue of taxation and development. In particular, we wanted to know which factors and incentive structures influence the tax performance and tax structure of developing countries.

Current research activities focus on four issues:

Patterns of interaction between elite fractions as a constraint for tax performance and tax reform in developing countries:
The fact that elites influence the reality of taxation is commonly acknowledged. So far, the main focus in the academic debate has been on conflicts between elites and non-elites, while the interaction between different elite fractions has received less attention. The project analysed these interaction patterns from a game theoretic perspective and explored how they shape the space for tax reform.

Political regime and taxation:
A growing body of literature in social science suggests that governance matters in determining tax performance. However, the impact of regime on taxation clearly deserves further scrutiny. The project investigated the impact of regime on tax ratio, using a panel dataset of 193 countries covering the period 1990-2008. Findings suggest a non-linear (U-shaped) relation between both variables.

Regional patterns of taxation:
This project aimed to explore whether taxation is influenced by regional patterns. We found initial evidence supporting this view, as the effect of welfare (proxied as GDP per capita) on tax ratio is weaker if we control for regions. Further, there appears to be a trend to lower tax collection in Asia and sub-Saharan Africa.

The effectiveness of semi-autonomous revenue agencies:
This project presented evidence that semi-autonomous revenue agencies (SARAs) outperform conventional tax administrations. Analysing local tax collection in Peru between 1998 and 2010, the project showed that municipalities with SARAs collect more revenues than those with conventional tax administrations. Also, SARAs generate more stable revenue, which is good for budget policy and planning.