Tax Ratios and Tax Effort in Developing Countries, 1969-71 (Pression fiscale et effort fiscal dans les pays en développement, 1969-71) (Coeficientes y esfuerzo tributarios en los países en desarrollo, 1969-71)

The major results of a study of tax ratios and tax effort in developing countries, undertaken by the Fund's Fiscal Affairs Department, were reported in a paper published in "Staff Papers," July 1971. That paper attempted to measure the relative tax effort in a sample of developing countries for the period 1966-68. For this purpose, regression analysis was used to quantify the influence of objective conditions and economic factors on the tax ratio so that the residuals could be used with proper adjustments to construct indices of relative tax effort. This paper updates the earlier study using data for the period 1969-71 for 47 out of the 50 countries that were included in the previous study. The most interesting general conclusion of this study is that the estimated coefficients of the explanatory variables in the alternative equations explaining the tax ratio do not differ greatly from those in the corresponding equations for the earlier period, thereby adding to the degree of confidence in the results of the analysis. Also, in general, the ranking of countries with respect to tax effort in the two periods does not differ markedly. Although countries with tax ratios above average usually have tax indices that are higher than unity, there are differences in the two rankings: of the 12 countries with tax ratios greater than 19 per cent, only 6 are among the 12 countries with the highest tax effort indices. In spite of the general increase in tax ratios in developing countries, the average level of taxation in these countries is still considerably less than in the developed countries--15.1 per cent (excluding social security contributions) in developing countries, compared with 26.2 per cent for 16 developed countries in Europe and North America. The differences between developing and developed countries are greater if total taxes are defined to include social security contributions. As would be expected, the composition of taxes in the period 1969-71 is not very different from that for 1966-68, with taxes on international trade constituting the largest share of total taxes, followed closely by taxes on production and internal transactions and then by income taxes. The difference in overall tax ratios between sample countries in the upper and the lower half of the income scale arises primarily from differences in the proportion of gross national product that the two groups raise through income taxation. (Of course, mineral production has a favorable impact on