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The 2014 CAPE Conference Session 2: Domestic revenue mobilisation, international public finance and the SDGs – all good things go together? 12 November 2014 Oliver Morrissey CREDIT, School of Economics, University of Nottingham Tax Performance Mobilizing Domestic Revenue • Tax performance (tax/GDP) is determined by structural factors (variables capturing the tax base, to which tax rates are applied) • Tax policy (reform) primarily concerned with tax rates and measures to improve administration and collection efficiency. • Changes in the tax base are largely determined by economic performance and some bases are easier to tax (trade, consumption spending) than others (corporations, MNEs, resource sector). Constraints on DRM • Resource tax revenues often less transparent and more volatile • Absence of growth in tax base even with increasing GDP • Increasing difficulties in taxing the bases that are growing (resource extraction, MNEs and very wealthy individuals) • Formal sector employment/earnings (the income tax base) and private spending (the consumption tax base) are not growing at the same rate as GDP • Hence difficult to increase the ratio of tax to GDP Aid, Donors and Taxation • Aid (grants) -- no robust effect on tax effort (Tax/GDP) • But donors do influence policy options and choices: • Advocating reforms that reduce tax rates (e.g. tariffs) • Supporting reforms to improve the tax system (e.g. VAT, SARAs, administration, PFM, MTEF) • SSA: VAT has not increased total revenue, SARAs have • Effective aid and economic reforms increases the tax base The Corruption Challenge Money attracts the corrupt • Aid may be least affected because of monitoring • Administrative reforms have improved monitoring of tax and expenditure • Natural Resources may be most affected • FDI/MNEs can be part of the problem External Finance External Finance can be particularly suited for: • Areas where there are regional spillovers (e.g. health, environment) • Reforms that incur potentially high initial costs or revenue losses • Clearly targeted project interventions