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State Institutions and Tax Capacity
An Empirical Investigation of Causality

by Olusegun Ayodele Akanbi

Series:Working Paper No. 19/177
ISBN 9781513509860
Code: #WPIEA2019177

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
38 pages
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Would better state institutions increase tax collection, or would higher tax collection help improve state institutions? In the absence of conclusive guidance from theory, this paper searches for an empirical answer to this question, using a panel dataset covering 110 non-resource-rich countries from 1996 to 2017. Employing a panel vector error correction model, the paper finds that tax capacity and state institutions cause and reinforce each other for a wide range of country groups. The bi-directional causality results suggest that developing tax capacity and building state institutions need to go hand in hand for best results, particularly in developing countries. Based on the impulse response analyses, the paper also finds that the causal effects in advanced economies are generally low in both directions, while in developing countries, both tax capacity and institutions shocks have larger positive impacts on institutions and tax capacity, respectively.
State Institutions and Tax Capacity
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 125661 Added: 2019.8.16