Why are there such significant differences across countries in governments’ ability to extract a share of national income in taxation? What can low- and middle-income countries do to improve their ability to tax? How does the pursuit of tax collection depend upon and influence other objectives of a tax system such as equity, growth and the building of a strong state? This VoxDevLit summarises findings from the growing body of research on taxation and development that speaks to these questions. The review is organised along three important dimensions of taxation in low- and middle-income countries: constraints on effective taxation and enforcement; administrative reforms and communication; and equity.
Anders Jensen, Anne Brockmeyer and Lucie Gadenne explore the sources of effective tax enforcement in low- and middle-income countries, discuss how constraints on enforcement impact the tax system’s objective of production efficiency and examine how governments should balance the use of limited resources between investing in enforcement capacity versus reforming the statutory tax schedule. On administration and communication, they establish some feasible policy levers, that are available to all tax authorities, that can help strengthen the tax authority’s processes, including by making it more systematic and predictable, and interactions with firms and citizens. On equity, they highlight the role that taxation could play in curbing the alarming income inequality trends in low- and middle-income countries.
Taxation and Economic Development: Presentation of key takeaways
For our launch event, Senior Editor Anders Jensen presented the key takeaways from this VoxDevLit, highlighting policy relevant results from recent economic research on taxation and development.
This VoxDevLit was supported by Tax for Growth, an IGC initiative that supports tax administrators and policymakers in generating effective approaches to make taxation work for development.