Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis

This paper contributes to the empirical literature on the key determinants of the revenue generating potential in 61 countries. The paper uses a broad set of data and econometric methods to conduct analyses that are of relevance to revenue potentia...

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Main Authors:	Khwaja, Munawer Sultan, Iyer, Indira
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	BANK POLICY BOND CAPITAL EXPENDITURES CASH TRANSFERS CD CHECKS CORPORATE INCOME TAX CORPORATE TAX CORPORATE TAX RATE COUNTRY FIXED EFFECT DEBT DEVELOPING COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC STRENGTH ECONOMIC STRUCTURE EFFECTIVE TAX RATES EXPENDITURE EXPENDITURES EXPORTERS EXPORTS FEDERAL RESERVE FEDERAL RESERVE SYSTEM FISCAL ISSUES FISCAL POLICY FISCAL SUSTAINABILITY FIXED EFFECT MODEL FIXED EFFECTS FLAT TAX FLAT TAXES FOREIGN TRADE FORMAL SECTOR GLOBAL ECONOMY GOOD GOVERNANCE GOVERNANCE INDICATORS GOVERNMENT SPENDING GROWTH RATE HIGH TAX BURDENS INCOME TAX INCOMES INSTRUMENT INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL FINANCE JOB CREATION LABOR MARKET LEGAL FRAMEWORK LEVY MARGINAL TAX RATES MARKET STANDARDS MONETARY FUND OPTIMAL TAXATION OUTPUT PAYROLL TAXES PERSONAL INCOME PERSONAL INCOME TAX POLITICAL STABILITY POSITIVE COEFFICIENT PUBLIC EXPENDITURE PUBLIC INVESTMENT PUBLIC SPENDING REGULATORY FRAMEWORK RETURN REVENUE PRODUCTIVITY SMALL BUSINESS SOCIAL SECURITY TAXES STRUCTURAL BREAKS TAX TAX ADMINISTRATION TAX AUTHORITIES TAX BASE TAX BURDENS TAX COLLECTION TAX COLLECTIONS TAX COMPLIANCE TAX EVASION TAX LEGISLATION TAX POLICIES TAX POLICY TAX RATE TAX RATIO TAX REFORM TAX REFORMS TAX REGIME TAX REGIMES TAX RETURNS TAX REVENUE TAX REVENUES TAX STRUCTURE TAX SYSTEM TAX SYSTEMS TAX WEDGE TAXATION TRADE SECTOR TRANSITION COUNTRIES TRANSITION ECONOMIES TRANSPARENCY TRUST FUND TURNOVER TURNOVER TAXES USE TAX VALUE ADDED TAX VALUE ADDED TAXES WITHHOLDING TAX WORLD DEVELOPMENT INDICATORS
Online Access:	http://documents.worldbank.org/curated/en/2014/05/19535654/revenue-potential-tax-space-tax-gap-comparative-analysis http://hdl.handle.net/10986/18806

id	okr-10986-18806
recordtype	oai_dc
spelling	okr-10986-188062021-04-23T14:03:49Z Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis Khwaja, Munawer Sultan Iyer, Indira BANK POLICY BOND CAPITAL EXPENDITURES CASH TRANSFERS CD CHECKS CORPORATE INCOME TAX CORPORATE TAX CORPORATE TAX RATE COUNTRY FIXED EFFECT DEBT DEVELOPING COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC STRENGTH ECONOMIC STRUCTURE EFFECTIVE TAX RATES EXPENDITURE EXPENDITURES EXPORTERS EXPORTS FEDERAL RESERVE FEDERAL RESERVE SYSTEM FISCAL ISSUES FISCAL POLICY FISCAL SUSTAINABILITY FIXED EFFECT MODEL FIXED EFFECTS FLAT TAX FLAT TAXES FOREIGN TRADE FORMAL SECTOR GLOBAL ECONOMY GOOD GOVERNANCE GOVERNANCE INDICATORS GOVERNMENT SPENDING GROWTH RATE HIGH TAX BURDENS INCOME TAX INCOMES INSTRUMENT INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL FINANCE JOB CREATION LABOR MARKET LEGAL FRAMEWORK LEVY MARGINAL TAX RATES MARKET STANDARDS MONETARY FUND OPTIMAL TAXATION OUTPUT PAYROLL TAXES PERSONAL INCOME PERSONAL INCOME TAX POLITICAL STABILITY POSITIVE COEFFICIENT PUBLIC EXPENDITURE PUBLIC INVESTMENT PUBLIC SPENDING REGULATORY FRAMEWORK RETURN REVENUE PRODUCTIVITY SMALL BUSINESS SOCIAL SECURITY TAXES STRUCTURAL BREAKS TAX TAX ADMINISTRATION TAX AUTHORITIES TAX BASE TAX BURDENS TAX COLLECTION TAX COLLECTIONS TAX COMPLIANCE TAX EVASION TAX LEGISLATION TAX POLICIES TAX POLICY TAX RATE TAX RATIO TAX REFORM TAX REFORMS TAX REGIME TAX REGIMES TAX RETURNS TAX REVENUE TAX REVENUES TAX STRUCTURE TAX SYSTEM TAX SYSTEMS TAX WEDGE TAXATION TRADE SECTOR TRANSITION COUNTRIES TRANSITION ECONOMIES TRANSPARENCY TRUST FUND TURNOVER TURNOVER TAXES USE TAX VALUE ADDED TAX VALUE ADDED TAXES WITHHOLDING TAX WORLD DEVELOPMENT INDICATORS This paper contributes to the empirical literature on the key determinants of the revenue generating potential in 61 countries. The paper uses a broad set of data and econometric methods to conduct analyses that are of relevance to revenue potential. Earlier studies have not distinguished between the revenue potential based on economic fundamentals of countries and that based on what the legal framework prescribes. This study uses a dual approach to revenue potential to examine the issue. Two sets of variables are used, one related to the intrinsic economic structure and strength of countries that affect revenue potential and the other related to tax policy variables. Accordingly the analysis finds two sets of revenue potentials: one can be termed "revenue potential (economic)," and the other "revenue potential (legal)." The difference between the revenue potential (legal) and the actual revenue collected is commonly understood as the "tax gap." The difference between the revenue potential (economic) and the actual revenue collected can be termed the "tax space," the amount of revenue that a country can afford to collect, given its economic strength, not based on what the parliament has mandated. The results show that legally mandated revenue potentials in countries in Eastern Europe and Central Asia are often higher than the revenue potential based on what the country's economic fundamentals can afford. The paper also makes use of a tax effort index and finds that although many countries are performing close to the revenue potential (economic), it is more difficult to match up to the revenue potential (legal). The relationship between the revenue potential and the shadow economy, value added tax productivity, and some other determinants are examined to test whether some countries are taxing beyond their means. 2014-06-26T22:18:10Z 2014-06-26T22:18:10Z 2014-05 http://documents.worldbank.org/curated/en/2014/05/19535654/revenue-potential-tax-space-tax-gap-comparative-analysis http://hdl.handle.net/10986/18806 English en_US Policy Research Working Paper;No. 6868 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Europe and Central Asia Central Asia Eastern Europe
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	BANK POLICY BOND CAPITAL EXPENDITURES CASH TRANSFERS CD CHECKS CORPORATE INCOME TAX CORPORATE TAX CORPORATE TAX RATE COUNTRY FIXED EFFECT DEBT DEVELOPING COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC STRENGTH ECONOMIC STRUCTURE EFFECTIVE TAX RATES EXPENDITURE EXPENDITURES EXPORTERS EXPORTS FEDERAL RESERVE FEDERAL RESERVE SYSTEM FISCAL ISSUES FISCAL POLICY FISCAL SUSTAINABILITY FIXED EFFECT MODEL FIXED EFFECTS FLAT TAX FLAT TAXES FOREIGN TRADE FORMAL SECTOR GLOBAL ECONOMY GOOD GOVERNANCE GOVERNANCE INDICATORS GOVERNMENT SPENDING GROWTH RATE HIGH TAX BURDENS INCOME TAX INCOMES INSTRUMENT INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL FINANCE JOB CREATION LABOR MARKET LEGAL FRAMEWORK LEVY MARGINAL TAX RATES MARKET STANDARDS MONETARY FUND OPTIMAL TAXATION OUTPUT PAYROLL TAXES PERSONAL INCOME PERSONAL INCOME TAX POLITICAL STABILITY POSITIVE COEFFICIENT PUBLIC EXPENDITURE PUBLIC INVESTMENT PUBLIC SPENDING REGULATORY FRAMEWORK RETURN REVENUE PRODUCTIVITY SMALL BUSINESS SOCIAL SECURITY TAXES STRUCTURAL BREAKS TAX TAX ADMINISTRATION TAX AUTHORITIES TAX BASE TAX BURDENS TAX COLLECTION TAX COLLECTIONS TAX COMPLIANCE TAX EVASION TAX LEGISLATION TAX POLICIES TAX POLICY TAX RATE TAX RATIO TAX REFORM TAX REFORMS TAX REGIME TAX REGIMES TAX RETURNS TAX REVENUE TAX REVENUES TAX STRUCTURE TAX SYSTEM TAX SYSTEMS TAX WEDGE TAXATION TRADE SECTOR TRANSITION COUNTRIES TRANSITION ECONOMIES TRANSPARENCY TRUST FUND TURNOVER TURNOVER TAXES USE TAX VALUE ADDED TAX VALUE ADDED TAXES WITHHOLDING TAX WORLD DEVELOPMENT INDICATORS
spellingShingle	BANK POLICY BOND CAPITAL EXPENDITURES CASH TRANSFERS CD CHECKS CORPORATE INCOME TAX CORPORATE TAX CORPORATE TAX RATE COUNTRY FIXED EFFECT DEBT DEVELOPING COUNTRIES ECONOMIC DEVELOPMENT ECONOMIC STRENGTH ECONOMIC STRUCTURE EFFECTIVE TAX RATES EXPENDITURE EXPENDITURES EXPORTERS EXPORTS FEDERAL RESERVE FEDERAL RESERVE SYSTEM FISCAL ISSUES FISCAL POLICY FISCAL SUSTAINABILITY FIXED EFFECT MODEL FIXED EFFECTS FLAT TAX FLAT TAXES FOREIGN TRADE FORMAL SECTOR GLOBAL ECONOMY GOOD GOVERNANCE GOVERNANCE INDICATORS GOVERNMENT SPENDING GROWTH RATE HIGH TAX BURDENS INCOME TAX INCOMES INSTRUMENT INTERNATIONAL BANK INTERNATIONAL DEVELOPMENT INTERNATIONAL FINANCE JOB CREATION LABOR MARKET LEGAL FRAMEWORK LEVY MARGINAL TAX RATES MARKET STANDARDS MONETARY FUND OPTIMAL TAXATION OUTPUT PAYROLL TAXES PERSONAL INCOME PERSONAL INCOME TAX POLITICAL STABILITY POSITIVE COEFFICIENT PUBLIC EXPENDITURE PUBLIC INVESTMENT PUBLIC SPENDING REGULATORY FRAMEWORK RETURN REVENUE PRODUCTIVITY SMALL BUSINESS SOCIAL SECURITY TAXES STRUCTURAL BREAKS TAX TAX ADMINISTRATION TAX AUTHORITIES TAX BASE TAX BURDENS TAX COLLECTION TAX COLLECTIONS TAX COMPLIANCE TAX EVASION TAX LEGISLATION TAX POLICIES TAX POLICY TAX RATE TAX RATIO TAX REFORM TAX REFORMS TAX REGIME TAX REGIMES TAX RETURNS TAX REVENUE TAX REVENUES TAX STRUCTURE TAX SYSTEM TAX SYSTEMS TAX WEDGE TAXATION TRADE SECTOR TRANSITION COUNTRIES TRANSITION ECONOMIES TRANSPARENCY TRUST FUND TURNOVER TURNOVER TAXES USE TAX VALUE ADDED TAX VALUE ADDED TAXES WITHHOLDING TAX WORLD DEVELOPMENT INDICATORS Khwaja, Munawer Sultan Iyer, Indira Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis
geographic_facet	Europe and Central Asia Central Asia Eastern Europe
relation	Policy Research Working Paper;No. 6868
description	This paper contributes to the empirical literature on the key determinants of the revenue generating potential in 61 countries. The paper uses a broad set of data and econometric methods to conduct analyses that are of relevance to revenue potential. Earlier studies have not distinguished between the revenue potential based on economic fundamentals of countries and that based on what the legal framework prescribes. This study uses a dual approach to revenue potential to examine the issue. Two sets of variables are used, one related to the intrinsic economic structure and strength of countries that affect revenue potential and the other related to tax policy variables. Accordingly the analysis finds two sets of revenue potentials: one can be termed "revenue potential (economic)," and the other "revenue potential (legal)." The difference between the revenue potential (legal) and the actual revenue collected is commonly understood as the "tax gap." The difference between the revenue potential (economic) and the actual revenue collected can be termed the "tax space," the amount of revenue that a country can afford to collect, given its economic strength, not based on what the parliament has mandated. The results show that legally mandated revenue potentials in countries in Eastern Europe and Central Asia are often higher than the revenue potential based on what the country's economic fundamentals can afford. The paper also makes use of a tax effort index and finds that although many countries are performing close to the revenue potential (economic), it is more difficult to match up to the revenue potential (legal). The relationship between the revenue potential and the shadow economy, value added tax productivity, and some other determinants are examined to test whether some countries are taxing beyond their means.
format	Publications & Research :: Policy Research Working Paper
author	Khwaja, Munawer Sultan Iyer, Indira
author_facet	Khwaja, Munawer Sultan Iyer, Indira
author_sort	Khwaja, Munawer Sultan
title	Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis
title_short	Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis
title_full	Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis
title_fullStr	Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis
title_full_unstemmed	Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis
title_sort	revenue potential, tax space, and tax gap : a comparative analysis
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2014/05/19535654/revenue-potential-tax-space-tax-gap-comparative-analysis http://hdl.handle.net/10986/18806
_version_	1764442741448638464

Revenue Potential, Tax Space, and Tax Gap : A Comparative Analysis

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