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Prepared by Roland Kpodar.
Basically, the combined tax policy and tax gap is the error term of the regression to explain tax revenue collection, and with the assumption that the error term has zero conditional mean under OLS (Ordinary Least Squares), this gap will be negative for some countries (meaning they are collecting above their capacity) and positive for others (those which are under their tax capacity).
The result is not shown here.
We tested other variables thought to affect revenue performance, such as foreign aid (Gupta, 2007), size of the informal sector (Davoodi and Grigorian, 2007), education expenditure, GINI index and inflation (Fenochietto and Pessino, 2013), but without significant results.
The coefficients are not directly comparable as the stochastic frontier approach requires the variables to be in log form.