Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322386 
Year of Publication: 
2025
Series/Report no.: 
ADB Economics Working Paper Series No. 790
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
How well raising tax rates can succeed for an economy intent on increasing tax revenue and narrowing the tax-to-GDP-ratio gap with other economies depends on its ability to meet certain conditions. This paper investigates these conditions and demonstrates that expanding the tax base as a proportion of GDP, either through a tax rate increase or rationalizing loopholes and tax expenditure, is crucial if efforts to increase tax revenues are to be effective. We test this theoretical finding through empirical analysis, including the Instrumental Variables-Two-Stage Least Squares (IV-2SLS) approach, and show how broadening the tax base is critical not only for increasing tax revenues but also for ensuring that an increase in the tax rate expands fiscal revenue. The findings highlight the importance of a balanced approach in tax policy design to achieve revenue goals while maintaining economic efficiency.
Subjects: 
tax rate
tax revenue
tax base ratio
direct tax
JEL: 
H20
H24
H26
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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