Why Do Developing Countries Tax So Little?
- Timothy Besley, Torsten Persson
- Jan 2014
- Journal of Economic Perspectives
- International
The power to tax is taken for granted in a great deal of mainstream public finance. Low-income countries typically collect taxes of between 10 to 20 percent of GDP, while the average for high-income countries is more like 40 percent. The study of taxation in low-income countries teaches us about the general forces driving higher and lower levels of taxation, but it does much more. The evolution of taxing power is central not only to the state’s capacity to raise revenue, but also to its capacity to provide goods and services and to support a market economy. Moreover, political development goes hand in hand with economic development, as citizens in participatory political systems demand sound management of increasing public resources. Thus, the power to tax is about much more than raising tax revenues—it is at the core of state development. In other words, low taxation may reflect a range of factors that also help to explain why low-taxing countries are poor. From this perspective, the most important challenge is taking steps that encourage development, rather than special measures focused exclusively on improving the tax system.
