Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis
This paper contributes to the empirical literature on the key determinants of the revenue generating potential in 61 countries. The paper uses a broad set of data and econometric methods to conduct analyses that are of relevance to revenue potentia...
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/05/19535654/revenue-potential-tax-space-tax-gap-comparative-analysis http://hdl.handle.net/10986/18806 |
| Summary: | This paper contributes to the empirical
literature on the key determinants of the revenue generating
potential in 61 countries. The paper uses a broad set of
data and econometric methods to conduct analyses that are of
relevance to revenue potential. Earlier studies have not
distinguished between the revenue potential based on
economic fundamentals of countries and that based on what
the legal framework prescribes. This study uses a dual
approach to revenue potential to examine the issue. Two sets
of variables are used, one related to the intrinsic economic
structure and strength of countries that affect revenue
potential and the other related to tax policy variables.
Accordingly the analysis finds two sets of revenue
potentials: one can be termed "revenue potential
(economic)," and the other "revenue potential
(legal)." The difference between the revenue potential
(legal) and the actual revenue collected is commonly
understood as the "tax gap." The difference
between the revenue potential (economic) and the actual
revenue collected can be termed the "tax space,"
the amount of revenue that a country can afford to collect,
given its economic strength, not based on what the
parliament has mandated. The results show that legally
mandated revenue potentials in countries in Eastern Europe
and Central Asia are often higher than the revenue potential
based on what the country's economic fundamentals can
afford. The paper also makes use of a tax effort index and
finds that although many countries are performing close to
the revenue potential (economic), it is more difficult to
match up to the revenue potential (legal). The relationship
between the revenue potential and the shadow economy, value
added tax productivity, and some other determinants are
examined to test whether some countries are taxing beyond
their means. |
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