Mr. Santiago Acosta Ormaechea and Atsuyoshi Morozumi
Does the design of a tax matter for growth? Assembling a novel dataset for 30 OECD countries
over the 1970-2016 period, this paper examines whether the value added tax (VAT) may have
different effects on long-run growth depending on whether it is raised through the standard rate
or through C-efficiency (a measure of the departure of the VAT from a perfectly enforced tax
levied at a single rate on all consumption). Our key findings are twofold. First, for a given total
tax revenue, a rise in the VAT, financed by a fall in income taxes, promotes growth only when
the VAT is raised through C-efficiency. Second, for a given VAT revenue, a rise in Cefficiency,
offset by a fall in the standard rate, also promotes growth. The implication is thus
that in OECD countries broadening the VAT base through fewer reduced rates and exemptions
is more conducive to higher long-run growth than a rise in the standard rate.
William Joseph Crandall, Elizabeth Gavin, and Mr. Andrew R Masters
This paper presents the results of the International Survey on Revenue Administration (ISORA) deployed during 2016 and covering fiscal years 2014 and 2015. It is made possible by the participation of 135 tax administrations from around the world that provided data.
This study investigates the likely macroeconomic impact of various structural reforms that align the Chilean regulatory framework with international best practices. In this context, the analysis: i) presents a comparison across a large set of structural indicators; ii) identifies policy gaps with respect to OECD countries; and iii) provides quantification of the likely growth and fiscal impact of policy reforms needed to close the gaps. Chile’s economy is likely to benefit from streamlining business regulation and licensing, strengthening innovation and R&D capacity, improving labor market flexibility, and enhancing active labor market policies. Overall, the study presents a scenario in which Chile closes structural gaps with OECD’s 25th percentile over five years, with up to 6 percent higher output level and a cumulative net fiscal gain of about ½ percent of GDP.
This report presents the results of applying the Revenue Administration Gap Analysis Program (RA-GAP) value-added tax (VAT) gap estimation methodology1 to Poland for the period 2010–16. The RA-GAP methodology employs a top-down approach for estimating the potential VAT base, using statistical data from national accounts on value-added generated in each sector. There are two main components to this methodology for estimating the VAT gap: 1) estimate the potential VAT collections for a given period; and 2) determine the accrued VAT collections for that period. The difference between the two values is the VAT gap.
RA-GAP provides estimates of the two components of the tax gap: the compliance gap and the policy gap. The compliance gap is the difference between the potential VAT that could have been collected given the current policy framework and actual accrued VAT collections. The policy gap is the difference between the overall tax gap and the compliance gap. To put the level and trends of the compliance gap into context it is also necessary to analyze the level and trends of the overall tax gap and the policy gap.
This Selected Issues paper reviews the level and structure of tax revenues in Romania and proposes options to improve revenue mobilization drawing from other countries’ experiences. Tax revenue in Romania is low compared with peers and has been declining over time. Strengthening the tax administration is crucial to improving tax collection efficiency in Romania, and requires commitment and ownership at the highest levels. Implementing and operationalizing new information technology infrastructure in Romania is a key priority, given its outdated and fragile systems. Romania should also conduct a comprehensive review of its tax system. This review would guide future reform needs in the area of tax policy with the primarily focus on improving revenue productivity and the growth-friendliness of the tax system.
Ms. Era Dabla-Norris, Florian Misch, Mr. Duncan Cleary, and Munawer Khwaja
Tax compliance costs tend to be disproportionately higher for small and young businesses. This paper examines how the quality of tax administration affects firm performance for a large sample of firms in emerging market and developing economies. We construct a novel, internationally comparable, and multidimensional index of tax administration quality (the TAQI) using information from the Tax Administration Diagnostic Assessment Tool. We show that better tax administration attenuates the productivity gap of small and young firms relative to larger and older firms, a result that is robust to controlling for other aspects of tax policy and of economic governance, alternative definitions of small and young firms, and measures of the quality of tax administration. From a policy perspective, we provide evidence that countries can reap growth and productivity dividends from improvements in tax administration that lower compliance costs faced by firms.
The IMF Fiscal Affairs Department’s Revenue Administration Gap Analysis Program (RA-GAP) assists revenue administrations from IMF member countries in monitoring taxpayer compliance through tax gap analysis. The RA-GAP analytical framework for estimating excise gaps presented in this Technical Note sets out the steps and data required for comprehensive top-down gap estimates based on a comparison of actual collections to potential collections, which is estimated from consumption (or use) and expenditure of excise commodities. The note outlines the motivation for, and different approaches to, excise gap estimation; and identifies the design criteria for robust gap estimates. The note was jointly produced by RA-GAP team and the Slovak Republic’s Institute for Financial Policy, piloting the framework for the mineral oils excise gap in Slovakia.
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper analyzes the impact of the Syrian crisis on Lebanon’s economy. Output growth in Lebanon has fallen sharply since the onset of the Syrian crisis and is too low to accommodate new job seekers, or to address the needs of Lebanon’s more vulnerable population. Moreover, low growth is taking a toll on public debt dynamics, raising the prospect of higher borrowing costs and constrained social and investment spending—both are much needed to improve the quality of public spending and direct it toward more useful and productive uses. The authorities have presented an ambitious proposal to the international community, which centers on a multiyear effort to stimulate growth and employment through a targeted series of investment initiatives.
This paper sets out a framework for analyzing optimal interventions by a tax administration, one
that parallels and can be closely integrated with established frameworks for thinking about
optimal tax policy. Its key contribution is the development of a summary measure of the impact
of administrative interventions—the “enforcement elasticity of tax revenue”—that is a sufficient
statistic for the behavioral response to such interventions, much as the elasticity of taxable
income serves as a sufficient statistic for the response to tax rates. Amongst the applications are
characterizations of the optimal balance between policy and administrative measures, and of the
optimal compliance gap.
This Technical Assistance report discusses measures for enabling Romania’s Large Taxpayer Office (LTO) to reduce the tax gap. It recommends changing the criteria for inclusion of taxpayers in the LTO so that it is primarily based on turnover. The criteria should apply to taxpayers throughout Romania and should be the primary mechanism to establish whether a taxpayer is “in or out.” It is also important to maintain or increase the current number of employees in the LTO, even though the new criteria may significantly reduce the LTO taxpayer population. Although the taxpayer population will be lower, its importance in terms of revenue that needs to be protected will increase.