Wilson Prichard

The ICTD Government Revenue Dataset

A major obstacle to cross-country research on the role of revenue and taxation in development has been the weakness of available data. This paper presents a new Government Revenue Dataset (GRD), developed through the International Centre for Tax and Development (ICTD). The dataset meticulously combines data from several major international databases, as well as drawing on data compiled from all available International Monetary Fund (IMF) Article IV reports. It achieves marked improvements in data coverage and accuracy, including a standardised approach to revenue from natural resources, and holds the promise of significant improvement in the credibility and robustness of research in this area. This paper sets out the issues with existing sources and explains the process of creating the new dataset, including a discussion of remaining limitations. It then presents data on tax and revenue trends over the past two decades, while a concluding section briefly considers potential strategies for, and barriers to, more effective data collection in future.

Does reliance on tax revenue build state capacity in sub-Saharan Africa?

Academics and donors have increasingly argued that African states can enhance their general administrative capacity by improving tax revenue collection. Proponents argue that administratively demanding improvements in tax administration may spillover to other areas of public administration by introducing improved practices, necessitating improvements elsewhere and providing data for other government activities. We make the first effort to test this hypothesis empirically, using an improved cross-country data set for sub-Saharan Africa. We find some evidence that from 1973 until the late 1990s improvements in tax administration tended to precede broader administrative improvements, consistent with the research hypothesis. By contrast, we find no evidence of such a pattern over the past decade. We conclude that these results provide tentative support for the hypothesis that improvements in tax collection can be a catalyst for broader gains in state capacity, but that such linkages are not guaranteed and depend on the particular character of reform. Points for practitioners Those involved with public administrative reform efforts have long been confronted with the question of whether reform is, or should be, an essentially system-wide process, or focused on developing ‘pockets of effectiveness’. This debate is particularly relevant to tax reform: a growing academic literature has argued that tax reform can be a catalyst for system-wide change, but the dominant reform model has focused on the creation of autonomous revenue agencies to achieve rapid but focused capacity gains. This research examines the case for believing that tax reform can be a catalyst for broader reform, and thus the case for adopting a reform model that focuses more explicitly on system-wide change.

Donors, Aid and Taxation in Developing Countries: An Overview

We are pleased to present the fourth in our new publication series, ICTD Research in Brief -- two-page summaries of our working papers edited to capture the main policy messages and aimed at policy makers, tax administrators, fellow researchers and anyone else who is big on interest and short on time. We hope you enjoy it. There is growing interest among development policymakers in taxation, both as a crucial source of revenue for development and because taxation is central to economic growth, redistribution and broader state-building and governance goals. This paper explores the direct impact of donor supported tax reform efforts; the indirect impact of aid and related donor policies on domestic tax effort; the potentially perverse effects of tax-related conditionality; and the impact of broader donor policies including global tax arrangements. It makes detailed recommendations about future donor support for tax reform.

Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research

Abstract This paper reviews the literature on taxation of the informal economy, taking stock of key debates and drawing attention to recent innovations. Conventionally, the debate on whether to tax has frequently focused on the limited revenue potential, high cost of collection, and potentially adverse impact on small firms. Recent arguments have increasingly emphasised the more indirect benefits of informal taxation in relation to economic growth, broader tax compliance, and governance. More research is needed, we argue, into the relevant costs and benefits for all, including quasi-voluntary compliance, political and administrative incentives for reform, and citizen-state bargaining over taxation.

Aid and Taxation: Exploring the Relationship Using New Data

This ICTD Research in Brief is a two-page summary of ICTD Working Paper 21 by Oliver Morrissey, Wilson Prichard and Samantha Torrance. This series is aimed at policy makers, tax administrators, fellow researchers and anyone else who is big on interest and short on time. This paper examines cross country evidence concerning the relationship between aid and taxation using a new dataset complied by the International Centre for Tax and Development (ICTD). It finds no support for the claim that aid reduces tax effort.

The Political Economy of Tax Reform in Bangladesh: Political Settlements, Informal Institutions and the Negotiation of Reform

ABSTRACT This paper explains the persistence of a tax system characterised by low revenue collection and extensive informality in Bangladesh. It combines analysis of long-term formal and informal institutions and of micro-level incentives shaping negotiation of short-term reform. The system is unusually informal, discretionary, and corrupt, but remains resistant to change because it delivers low and predictable tax rates to business, extensive opportunities for corruption to the tax administration, and an important vehicle for fundraising by political leaders and rent distribution to their elite supporters. We then explore the dynamics of micro-level reform and external pressure within the constraints of this overarching political bargain.

Rebuilding Local Government Finances After Conflict: Lessons from a Property Tax Reform Programme in Post-Conflict Sierra Leone

ABSTRACT This research interrogates the factors underpinning the relative success of a property tax reform programme in Sierra Leone. Recognising the importance of politics in shaping reform outcomes, it highlights reform strategies that have contributed to overcoming both technical and political barriers to reform. It highlights three interconnected arguments. First, there is a need for long-term, hands-on, local partnerships that support local capacity, help to confront political resistance and build a constituency for reform. Second, there should be expanded focus on politically contentious efforts to strengthen transparency, public outreach, and enforcement among elites, as they are critical to programme success and sustainability. Third, a focus on the same politically contentious elements of reform can help external actors better assess the extent of local political commitment to reform early-on, and thus target reform funding and efforts more effectively.

Electoral Competitiveness, Tax Bargaining and Political Incentives in Developing Countries: Evidence from Political Budget Cycles Affecting Taxation

Studies of political budget cycles in developing countries have generally sought to inform understanding of short-term fiscal dynamics, but can also offer unique insight into broader political dynamics in developing countries. This article correspondingly employs markedly improved data in order to study the impact of elections on tax collection, and draw broader lessons. It shows that while elections as a group have had no significant effect on tax collection, the subset of competitive elections has had a significant negative impact on pre-election tax collection; while this effect appears to be largest where incumbents are particularly unpopular. This provides powerful evidence that the impact of elections on political incentives in developing countries is conditioned by the existence of an electorally competitive opposition, while offering preliminary evidence that popular resistance to taxation by unpopular governments may be an important means by which taxpayers may generate pressure for improved governance.

Electoral Competitiveness, Political Budget Cycles and Taxation in Developing Countries

Despite significant evidence of ‘political budget cycles’ affecting public expenditure, studies of the impact of elections on tax collection have reached mixed conclusions. Drawing on significantly improved government revenue data, this paper finds, contrary to earlier research, that when we focus on all executive elections in developing countries there is no significant effect on levels of tax collection. Instead, the impact of elections on tax collection is conditional on elections being competitive, with competitive elections resulting in a negative impact on pre-election tax collection, split relatively evenly between direct and indirect taxes. The magnitude of the effect is large, reaching as much as 0.5 per cent of GDP in some specifications, and has important implications for understanding the incentive effects of elections and the connections between elections and effective governance.

Norms, Networks, Power and Control: Understanding Informal Payments and Brokerage in Cross-border Trade in Sierra Leone

Recent research has cast light on the variety of informal payments and practices that govern the day-to-day interactions between traders and customs agents at border posts in low-income countries. ...