Tax Capacity and Growth: Is there a Tipping Point?

[John Short]

Two related papers from the IMF's FAD on linking tax to growth of GDP.  Could be read in conjunction with the Tax Diaries elsewhere on the Board.  It would be good to see if it is possible to look at the changing composition of the taxable element of GDP (subsistence, informal and formal) overtime alongside the changes in administrative, legal and compliance aspects of tax administration which the papers highlight.

[harnett]

As with all correlation, what evidence is there that the causation is from % tax/GDP to growth?  12.75% tax/GDP seems like a mighty precise figure.  Hypothesis 2: richer countries grow faster than poor countries (take out extractive industries), richer countries raise a higher proportion of taxes to GDP.

[John Short]

A paper by ODI relating to tax issues raised here:

Taxation and the Sustainable Development Goals: do good things come to those who tax more?

ODI Briefing papers May 2017
Mark Miller and Cathal Long

This briefing note has three objectives. These are to discuss:

the reasons for the renewed interest in domestic resource mobilisation in developing countries;

the reasons why tax revenues tend to be lower in the poorer countries; and

the potential risks associated with trying to squeeze too much taxation out of the poorest economies.

The purpose is not to argue the merits of more versus less taxation, but rather to provide food for thought on the management of expectations around taxation and the development agenda, as articulated in the Sustainable Development Goals.