## Improving productivity by improving the tax system

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**Canonical URL:** [Improving productivity by improving the tax system](https://www.imf.org/-/media/files/publications/fiscal-monitor/2017/april/pdf/fm-ch2-infographic.pdf)

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### Estimated annual real GDP growth gain from improving allocation of capital and labor
- Higher productivity from eliminating barriers that hold more productive firms back could lift real GDP growth by roughly 1 percentage point a year for 20 years.
- For emerging market and low income developing countries, ¼ of these gains could potentially be realized by upgrading the design of the tax system.
- Chart axis (Real GDP growth) shows values: 0.0, 0.2, 0.4, 0.6, 0.8, 1.0, 1.2, 1.4, 1.6, 1.8 and compares AEs, EMEs, LIDCs (figure shows medians across country groups).

### Two examples of possible barriers
- Tax noncompliance:
  - Companies that cheat on their taxes hurt total productivity because they reduce the market share of more productive, tax compliant businesses.
- Differential taxation of capital:
  - EMTR = Eective marginal tax rate. Values in chart are the absolute diference between the EMTR for machinery and the EMTR for buildings for the latest year available.
  - Taxing machinery and buildings diferently can steer investors away from investments that would be better for productivity.
- EMTR difference categories (difference in percentage points):
  - HIGHER TAX ON MACHINERY: 0 to 5, 5 to 10, Greater than 10, NO DATA
  - HIGHER TAX ON BUILDINGS: Greater than 10, 5 to 10, 0 to 5

### Firm productivity and tax compliance (median comparisons)
- Log of firm-level total factor productivity scale shown: 4.0, 4.2, 4.4, 4.6, 4.8, 5.0.
- Comparisons indicate tax compliant firms versus cheaters across LIDCs and EMEs (figure shows medians across country groups).

### Notes and data sources
- Note: The figure shows medians across country groups.
- Definitions: AEs = advanced economies; EMEs = emerging market economies; LIDCs = low-income developing countries.
- Sources: ORBIS; World Bank, Enterprise Surveys; and IMF sta estimates.

*INTERNATIONAL MONETARY FUND • www.IMF.org •  #FiscalMonitor*

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_Source: https://www.imf.org/-/media/files/publications/fiscal-monitor/2017/april/pdf/fm-ch2-infographic.pdf_