EconStor >
University of California (UC) >
UC Santa Cruz, Santa Cruz Institute for International Economics (SCIIE) >
Working Papers, Santa Cruz Institute for International Economics, UC Santa Cruz >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/64028
  
Title:Globalization and developing countries - a shrinking tax base? PDF Logo
Authors:Aizenman, Joshua
Jinjarak, Yothin
Issue Date:2006
Series/Report no.:Working Papers, Santa Cruz Center for International Economics 06-01
Abstract:This paper evaluates the impact of globalization on the tax bases of countries at varying stages of development. We see globalization as a process that induces countries to embrace greater trade and financial integration, and macro stabilization. This in turn should shift their tax base from easy to collect” taxes [tariff, seigniorage, etc.] towards hard to collect” taxes [VAT, income tax, etc.]. We confirm this prediction the revenue/GDP ratio of the easy to collect” taxes declined by about 12% in developing countries between the early 1980s and the late 1990s, while the revenue/GDP of the hard to collect” taxes increased by 16%. The relatively small initial base of hard to collect” taxes in developing countries implied a net 2% drop in total tax revenue/GDP. Applying panel regressions and controlling for structural factors, we find that trade openness and financial integration have a positive relationship with hard to collect” taxes, and negative relationship with the easy to collect” taxes. Fiscal revenue from financial repression has also decreased, further reinforcing these results. The high income and the middle income countries managed to more than compensate for the revenue decline of the easy to collect” taxes, increasing the total tax/GDP. In contrast, the upper and low income developing countries experienced sizeable drop in the tax/GDP. We also identify strong fiscal convergence during 1980s - 1990s: the coefficient of variation of tax revenue/GDP measures across countries declined by about 40% for seigniorage, about 40% for tariff, and about 4% for the hard to collect” taxes. We confirm the robustness of the main results to IV methodology, where trade globalization is inferred from applying the gravity methodology. These results are consistent with the notion that improving the performance of the hard to collect” taxes is more challenging than reducing the use of easy to collect” sources of revenue.
Subjects:globalization
tax base
fiscal convergence
VAT
financial repression
tariff
JEL:F15
H21
Document Type:Working Paper
Appears in Collections:Working Papers, Santa Cruz Institute for International Economics, UC Santa Cruz

Files in This Item:
File Description SizeFormat
604625596.pdf344.31 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/64028

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.