Societal Institutions and Tax Effort in Developing Countries

CREMA Working Paper No. 2004-21

49 Pages Posted: 7 Feb 2005  

Richard M. Bird

University of Toronto - Joseph L. Rotman School of Management; Georgia State University - Andrew Young School of Public Policy

Jorge Martinez-Vazquez

Georgia State University - Andrew Young School of Policy Studies

Benno Torgler

Yale University - Yale Center for International and Area Studies

Abstract

The main theme of this paper is that a more legitimate and responsive state appears to be an essential precondition for a more adequate level of tax effort in developing countries. While at first glance giving such advice to poor countries seeking to increase their tax ratios may not seem more helpful than telling them to find oil, it is presumably more feasible for people to improve their governing institutions than to rearrange nature's bounty. Furthermore, improving social institutions, such as enhancing the rule of law and reducing corruption, may not take longer nor be necessarily more difficult than changing the opportunities for tax economy or the weight of imports and exports in GDP. The most important contribution of this paper is to extend the conventional model of tax effort by showing that not only do supply factors matter, but that societal institutions (demand factors) also determine tax effort to a significant level.

Keywords: Tax effort, societal institutions, developing countries

JEL Classification: H11, H20, O17

Suggested Citation

Bird, Richard M. and Martinez-Vazquez, Jorge and Torgler, Benno, Societal Institutions and Tax Effort in Developing Countries. CREMA Working Paper No. 2004-21. Available at SSRN: https://ssrn.com/abstract=662081 or http://dx.doi.org/10.2139/ssrn.662081

Richard Miller Bird (Contact Author)

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
Canada
905-274-8841 (Phone)

Georgia State University - Andrew Young School of Public Policy

International Studies Program
Atlanta, GA 30303-3083
United States

HOME PAGE: http://www.aysps.gsu.edu

Jorge Martinez-Vazquez

Georgia State University - Andrew Young School of Policy Studies ( email )

University Plaza
PO Box 3992
Atlanta, GA 30302-3992
United States
404-651-3990 (Phone)
404-651-3996 (Fax)

Benno Torgler

Yale University - Yale Center for International and Area Studies ( email )

P.O. Box 208206
New Haven, CT 06520-8206
United States

HOME PAGE: http://www.crema-research.ch/fellowseiten/torgler.htm

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