## Appendix 1: Case Study

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### Overview
- Mobilizing more revenue is a priority for most sub-Saharan African (SSA) countries to finance development agendas, increase priority spending, and reduce dependence on budget support.
- Low domestic resource mobilization is associated with structural factors difficult to change short-to-medium term: low income, demographic factors, underdeveloped financial markets.
- Key challenges: increased mobility of tax bases from trade liberalization, mobility of investment and capital income, tax competition affecting corporate income taxation, and the formation of free trade zones and customs unions.
- Two broad aims of the paper:
  - Derive empirical norms for raising revenue: the “how much” and “how fast” questions by analyzing frequency distributions of changes of fiscal revenue in SSA-LICs in 1-, 3-, 5- and 10-year periods.
  - Identify determinants of revenue: the “how to” question via econometric analysis of central government tax revenue (excluding grants), incorporating variables such as corruption, bureaucratic quality, and size of the informal economy, addressing panel econometric issues and robustness checks.
- Application requires country-specific judgment; forward-looking factors (economic diversification, natural resource outlook) matter.

### How much and how fast — Empirical norms
- Sample and periods:
  - Sample of 28 SSA-LICs subdivided into 15 nonfragile and 13 fragile countries.
  - Review period: 1990–2010.
  - Observations: nonfragile SSA-LICs — 298 (1-year), 267 (3-year), 239 (5-year), 165 (10-year); fragile SSA-LICs — 240 (1-year), 208 (3-year), 186 (5-year), 129 (10-year).
- Empirical categorization (Text Table 1):
  - Most Frequent Pace, Short-to-medium term (1–3 years): ½–2 percentage points of GDP
  - Middle Pace, Short-to-medium term (1–3 years): 2–5 percentage points of GDP
  - Exceptional Pace, Short-to-medium term (1–3 years): >5 percentage points of GDP
  - Most Frequent Pace, Longer term (5–10 years): 2½–3½ percentage points of GDP
  - Middle Pace, Longer term (5–10 years): 3½–7½ percentage points of GDP
  - Exceptional Pace, Longer term (5–10 years): >7½ percentage points of GDP
- Key findings on pace:
  - Frequency distribution peaks at about ½–2 percentage points of GDP in the short-to-medium term and at about 2–3½ percentage points of GDP in the long term.
  - Fragile countries: typically marginal short-term increases (~0–½ percentage point of GDP); nonfragile: about ½–1½ percentage points of GDP in a 1-year period.
  - Over 3 years both fragile and nonfragile often achieved about 1 to 2 percentage points of GDP.
  - Distribution tail (5 percent cut-off) identifies “exceptional pace” increases; tail becomes fatter over time — exceptional increases more common over longer periods.

### How ambitious can countries be? — Maximum observed increases and frequency
- Short-to-medium term:
  - Almost all SSA-LICs managed to reach the middle pace (2–5 percentage points of GDP) at least once in the last two decades; only 3 out of 28 could not mobilize >2 percentage points of GDP.
  - 57 percent of SSA-LICs achieved maximum 1-year increases in revenue ratios between 2–5 percentage points.
  - About 30 percent and 60 percent of fragile countries managed to reach maximum 1- and 3-year increases larger than 5 percentage points of GDP at least once in the last 20 years.
  - Only five countries managed to increase revenue ratios by double digits.
- Longer term:
  - About 60 percent of SSA-LICs reached maximum 5-year increases between 3½–7½ percentage points of GDP.
  - In a 10-year period, more than half of SSA-LICs raised revenue ratios by more than 7½ percentage points of GDP at least once during the last two decades.
- Country examples (summary):
  - Nonfragile examples of sustained mobilization: Ghana, Kenya, Zambia, Rwanda, Niger.
  - Fragile examples achieving large increases: Sierra Leone, Democratic Republic of the Congo, Burundi, Liberia.

### Strong performers — Concentration and top performers
- Concentration of strong performers:
  - Nonfragile: top performers concentrated among 8 of 15 countries; Kenya, Zambia, and Ghana achieved exceptional increases across all time horizons (1, 3, 5, 10 years).
  - Fragile: top performers include 11 of 13 countries; São Tomé & Príncipe and Sierra Leone achieved exceptional increases across all four time periods.
- Top increases in specific horizons (selected observations):
  - Nonfragile:
    - 1-year top: Malawi and Zambia — about 8 percentage points of GDP.
    - 3-year top: Kenya and Zambia — about 10½ percentage points of GDP.
    - 5-year top: Zambia, Ghana, Kenya — double-digit increases.
    - 10-year top: Ghana — about 11 percentage points of GDP.
  - Fragile:
    - São Tomé & Príncipe top performer across all four horizons — double-digit increases; Eritrea also double-digit for 1-, 3-, and 5-year periods.
- Role of commodity prices:
  - Some large increases coincided with sharp rises in international prices of main commodity exports in some strong performers, but natural resource revenue share is not necessarily the main driver for all strong performers.

### Sustainability of revenue gains
- General patterns (Text Table 5):
  - Half of SSA-LICs could sustain gains from middle pace increases; fewer could sustain exceptional increases.
  - Most nonfragile SSA-LICs were able to sustain short- to medium-term revenue gains; most fragile SSA-LICs struggled to sustain gains.
- Sustainability of middle pace (2–5 percentage points of GDP):
  - Among nonfragile countries in this category: 6 sustained, 4 partially sustained, 1 not sustained (55%, 36%, 9% of subgroup respectively).
  - Among fragile countries in this category: 4 sustained, 5 partially sustained, 0 not sustained (44%, 56%, 0%).
  - Country specifics: Niger and Rwanda more than doubled revenue ratios over 5 years after initial increases; Burkina Faso, Uganda, Ethiopia, Mali locked in cumulative gains of about 2 to 6 percentage points of GDP over 5 years; fragile countries such as Burundi, Gambia, Central African Republic, Guinea-Bissau locked in and further raised revenue ratios.
- Sustainability of exceptional pace (>5 percentage points of GDP):
  - Nonfragile: 4 sustained, 2 partially sustained, 0 not sustained (67%, 33%, 0%).
  - Fragile: 1 sustained, 9 partially sustained, 0 not sustained (10%, 90%, 0%).
  - Country specifics: Zambia, Ghana, Kenya, Rwanda were able to sustain and in some cases increase revenue further; among fragile countries only Sierra Leone locked in its gain substantially; other fragile exceptional increases often reflected transitory factors (e.g., lump-sum oil exploration receipts for São Tomé & Príncipe; resumption of collection after disruptions in Guinea-Bissau).

### Determinants of tax revenue — Methodology and literature
- Focus: tax revenue (excluding grants) as share of GDP, using panel estimation methods.
- Baseline sample: 41 SSA countries from World Development Indicators, 1980–2009; subsamples and SSA-LIC-only checks were consistent.
- Controls and hypotheses:
  - Per capita GDP — proxy for development; expected positive correlation.
  - Share of agriculture in GDP — expected negative correlation.
  - Degree of trade openness (exports + imports as share of GDP) — expected positive correlation.
  - Inflation — expected detrimental impact.
  - External indebtedness, aid, current account balance, FDI — ambiguous or varying impacts.
  - Institutional factors: corruption, bureaucratic quality, rule of law, regulatory burden, shadow economy — expected negative effects on revenue if poor.
- Institutional and shadow economy data:
  - Corruption index: ICRG — data available for 30 SSA countries; index constructed such that greater corruption reduces tax revenue (dummy multiplied by -1).
  - Shadow economy measure (percent of GDP): Schneider, Buehn, and Montenegro, 1999–2007 (data availability noted as 1999–2007 or 1997–2006).

### Panel estimation — Main empirical findings and coefficients
- Significant determinants identified:
  - Share of agriculture in GDP: strong negative and significant relationship.
  - Inflation: significant negative impact on revenue.
  - GDP per capita: significantly positive in most specifications.
  - Degree of openness: strong positive relationship in most specifications.
  - Oil rents/natural resource rents: negatively related to tax revenue.
  - Aid, short-term external debt, FDI, current account balances: weak and nonsignificant relationships in the specifications.
- Baseline coefficient magnitudes (full sample baseline specification, Table 5):
  - A percentage point increase in share of agriculture decreases tax revenue (as a proportion of GDP) by 0.1 percentage point.
  - Degree of openness increases tax revenue by 0.02 percentage point.
  - Oil rents decreases tax revenue by 0.19 percentage point.
  - GDP per capita increases tax revenue by 0.001 percentage point.
  - Inflation decreases tax revenue by 0.0004 percentage point.
- Role of institutions and shadow economy:
  - Corruption: a unit increase in the degree of corruption reduces tax revenue by 0.5 units; corruption has a significant negative impact across subsamples.
  - Shadow economy: negative and significant impact on tax revenue; supports policy need to encourage formalization and broaden tax base.
- Robustness checks:
  - Excluding outliers (Zimbabwe, Democratic Republic of the Congo, Gambia, Chad, Liberia) and excluding oil-rich nations confirmed analysis.
  - Subsample checks for 1990–2009 and 2000–2009 and 3-year non-overlapping averages confirm results.
  - Persistence tested via Arellano and Bond (1991) dynamic panel estimation including lagged dependent variable; Sargan and Arellano-Bond tests run — estimates remain consistent.

### Mozambique case study (macroeconomic conditions, policy, administration)
- Growth and macro:
  - Output since 2000 has grown by 6½ percent a year on average, increasing output per capita by nearly one-third.
  - On average, real GDP growth over the last decade has been around 8 percent a year.
  - The annual inflation rate averaged 10.7 per cent from 2000-2010.
  - The rate of inflation grew from 3.2 to 12.7 per cent from 2009 to 2010.
- Structural composition (2009):
  - Primary sector: 29 per cent of GDP at factor cost.
  - Secondary sector: 23 per cent of GDP at factor cost.
  - Tertiary sector: 48 per cent of GDP at factor cost.
  - Informal economy: a 2000 study estimated the informal economy at 40.3 percent of GNP.
- Taxation capability and reforms:
  - IMF FAD mission estimated Mozambique’s taxation capability at about 22 percent of GDP.
  - Major tax policy reforms since 1996:
    - Customs reforms with a simple tariff schedule of five tax rates.
    - 1999 import duty revision and introduction of a modern VAT replacing the cascade tax.
    - 2002 Tax Benefits Code rationalized incentives toward investment credits and accelerated amortization rather than income tax exemptions tied to profit size.
  - Legislative/institutional constraint: the Assembly of the Republic of Mozambique exclusively defines foundations of tax policy; constitutional principle prevents broadened tax bases or higher rates within the same financial year by decree.
- Tax administration and operational reforms:
  - Formalized anti-corruption units; established the Central Revenue Agency (CRA); created tax tribunals; adopted e-SISTAFE; strengthened the Treasury Single Account (TSA); reinforced the large taxpayers unit (LTU).
  - Operational changes: specialized audits for “mega projects,” expedited VAT refunds, simplified tax returns, computerized transit procedures, increased post-release customs audits.
- Impact:
  - Combination of stable macroeconomic and institutional environment, administrative changes, tax policy reforms (simplification and base broadening), and gradual reduction of tax expenditures contributed to an upward trend in tax revenue.

### Empirical evidence from cross-country analysis (selected coefficient examples)
- GDP per capita: examples of reported coefficients include 0.00112** (t = 1.74), 0.0027115*** (t = 2.73), and 0.00261*** (t = 2.58).
- Share of agriculture in GDP: examples include -0.103*** (t = -2.34), -0.1823801*** (t = -2.59), -0.1122353*** (t = -3.07).
- Inflation: examples include -0.0008125*** (t = -16.86), -0.0007504*** (t = -7.48).
- Degree of openness: examples include 0.0215** (t = 1.55), 0.0501996*** (t = 3.39), 0.0414096*** (t = 5.22).
- Oil rents / natural resource rents: examples include Oil rents -0.196*** (t = -4.50); Natural resource rents -0.1831798*** (t = -2.40).
- Corruption: robust negative association with Tax Revenue/GDP, examples include -0.7264521*** (t = -2.24), -1.052*** (t = -2.30), -0.820*** (t = -2.47), -0.521*** (t = -2.66).
- Shadow economy: negative association where included, example -0.0488828** (t = -1.41).
- Robustness examples:
  - Degree of openness: 0.109*** (t = 2.48) in one robustness check.
  - Inflation: -0.000810*** (t = -10.02) in one robustness check.

### Policy implications and recommendations
- Key policy levers and priorities:
  - Strengthen institutions and reduce corruption — corruption reductions are strongly associated with higher Tax Revenue/GDP.
  - Preserve macroeconomic stability — low and stable inflation aids revenue mobilization.
  - Promote structural transformation away from agriculture toward secondary and tertiary activities to improve tax bases.
  - Pursue tax policy reforms that broaden the base and simplify the system while keeping moderate rates.
  - Strengthen revenue administration: CRA, LTU, specialized audits, e-SISTAFE, TSA, expedited VAT refunds, simplified returns, and computerized customs procedures.
  - Design incentives favoring investment-stage support (investment credits, accelerated amortization) rather than profit-based exemptions.
  - Complement tax incentives with public investments in education, infrastructure, and public services, public-private partnerships, and donor coordination.
- Caveats:
  - Resource rents are negatively associated with tax revenue and increase volatility; resource-rich countries face risks of weaker tax structures and greater revenue volatility.
  - Historical experience suggests cautious ambition: typical increases of about ½–2 percentage points of GDP in 1–3 years and about 2–3½ percentage points over longer terms; exceptional increases are possible but less commonly sustained, especially in fragile states.

*Source: Appendix 1: Case Study (from the provided IMF content unit).*

### Appendix 1: Case Study .................................................................................................

### Appendix 1: Case Study

### Overview
- Mobilizing more revenue is a priority for most sub-Saharan African (SSA) countries to finance development agendas, increase priority spending, and reduce dependence on budget support.
- Low domestic resource mobilization is associated with structural factors difficult to change short- to medium-term: low income, demographic factors, underdeveloped financial markets.
- Challenges include increased mobility of tax bases from trade liberalization, mobility of investment and capital income, tax competition affecting corporate income taxation, and formation of free trade zones and customs unions.
- Two broad aims of the paper:
  - Derive empirical norms for raising revenue: the “how much” and “how fast” questions by analyzing frequency distributions of changes of fiscal revenue in SSA-LICs in 1-, 3-, 5- and 10-year periods.
  - Identify determinants of revenue: the “how to” question via econometric analysis of central government tax revenue (excluding grants), incorporating new variables such as corruption, bureaucratic quality, and size of the informal economy, addressing panel econometric issues and robustness checks.
- Application requires country-specific judgment; forward-looking factors (economic diversification, natural resource outlook) matter.

### How much and how fast — Empirical norms
- Sample and periods:
  - Sample of 28 SSA-LICs subdivided into 15 nonfragile and 13 fragile countries.
  - Review period: 1990–2010.
  - Observations: nonfragile SSA-LICs — 298 (1-year), 267 (3-year), 239 (5-year), 165 (10-year); fragile SSA-LICs — 240 (1-year), 208 (3-year), 186 (5-year), 129 (10-year).
- Empirical categorization (Text Table 1):
  - Most Frequent Pace, Short-to-medium term (1–3 years): ½–2 percentage points of GDP
  - Middle Pace, Short-to-medium term (1–3 years): 2–5 percentage points of GDP
  - Exceptional Pace, Short-to-medium term (1–3 years): >5 percentage points of GDP
  - Most Frequent Pace, Longer term (5–10 years): 2½–3½ percentage points of GDP
  - Middle Pace, Longer term (5–10 years): 3½–7½ percentage points of GDP
  - Exceptional Pace, Longer term (5–10 years): >7½ percentage points of GDP
- Key findings on pace:
  - The frequency distribution peaks at about ½–2 percentage points of GDP in the short-to-medium term and at about 2–3½ percentage points of GDP in the long term.
  - Fragile countries: typically marginal short-term increases (~0–½ percentage point of GDP); nonfragile: about ½–1½ percentage points of GDP in a 1-year period.
  - Over 3 years both fragile and nonfragile often achieved about 1 to 2 percentage points of GDP.
  - The distribution tail (5 percent cut-off) identifies “exceptional pace” increases; tail becomes fatter over time — exceptional increases more common over longer periods.

### How ambitious can countries be? — Maximum observed increases and frequency
- Short-to-medium term (Text Table 2):
  - Almost all SSA-LICs managed to reach the middle pace (2–5 percentage points of GDP) at least once in the last two decades; only 3 out of 28 could not mobilize >2 percentage points of GDP.
  - 57 percent of SSA-LICs achieved maximum 1-year increases in revenue ratios between 2–5 percentage points.
  - About 30 percent and 60 percent of fragile countries managed to reach maximum 1- and 3-year increases larger than 5 percentage points of GDP at least once in the last 20 years.
  - Only five countries managed to increase revenue ratios by double digits (overall context).
- Longer term (Text Table 3):
  - About 60 percent of SSA-LICs reached maximum 5-year increases between 3½–7½ percentage points of GDP.
  - In a 10-year period, more than half of SSA-LICs raised revenue ratios by more than 7½ percentage points of GDP at least once during the last two decades.
- Country examples (summary):
  - Nonfragile examples of sustained mobilization: Ghana, Kenya, Zambia, Rwanda, Niger.
  - Fragile examples achieving large increases: Sierra Leone, Democratic Republic of the Congo, Burundi, Liberia.

### Strong performers — Concentration and top performers
- Concentration of strong performers:
  - Nonfragile: top performers concentrated among 8 of 15 countries; Kenya, Zambia, and Ghana achieved exceptional increases across all time horizons (1, 3, 5, 10 years).
  - Fragile: top performers include 11 of 13 countries; São Tomé & Príncipe and Sierra Leone achieved exceptional increases across all four time periods.
- Top increases in specific horizons (selected observations):
  - Nonfragile:
    - 1-year top: Malawi and Zambia — about 8 percentage points of GDP.
    - 3-year top: Kenya and Zambia — about 10½ percentage points of GDP.
    - 5-year top: Zambia, Ghana, Kenya — double-digit increases.
    - 10-year top: Ghana — about 11 percentage points of GDP.
  - Fragile:
    - São Tomé & Príncipe top performer across all four horizons — double-digit increases; Eritrea also double-digit for 1-, 3-, and 5-year periods.
- Role of commodity prices:
  - Anecdotal evidence indicates some large increases coincided with sharp rises in international prices of main commodity exports in some strong performers, but natural resource revenue share is not necessarily the main driver for all strong performers.

### Sustainability of revenue gains
- General patterns (Text Table 5):
  - Half of SSA-LICs could sustain gains from middle pace increases; fewer could sustain exceptional increases.
  - Most nonfragile SSA-LICs were able to sustain short- to medium-term revenue gains; most fragile SSA-LICs struggled to sustain gains.
- Sustainability of middle pace (2–5 percentage points of GDP):
  - Among nonfragile countries in this category: 6 sustained, 4 partially sustained, 1 not sustained (55%, 36%, 9% of subgroup respectively).
  - Among fragile countries in this category: 4 sustained, 5 partially sustained, 0 not sustained (44%, 56%, 0%).
  - Country specifics: Niger and Rwanda more than doubled revenue ratios over 5 years after initial increases; Burkina Faso, Uganda, Ethiopia, Mali locked in cumulative gains of about 2 to 6 percentage points of GDP over 5 years; fragile countries such as Burundi, Gambia, Central African Republic, Guinea-Bissau locked in and further raised revenue ratios.
- Sustainability of exceptional pace (>5 percentage points of GDP):
  - Nonfragile: 4 sustained, 2 partially sustained, 0 not sustained (67%, 33%, 0%).
  - Fragile: 1 sustained, 9 partially sustained, 0 not sustained (10%, 90%, 0%).
  - Country specifics: Zambia, Ghana, Kenya, Rwanda were able to sustain and in some cases increase revenue further; among fragile countries only Sierra Leone locked in its gain substantially; other fragile exceptional increases often reflected transitory factors (e.g., lump-sum oil exploration receipts for São Tomé & Príncipe; resumption of collection after disruptions in Guinea-Bissau).

### Determinants of tax revenue — Methodology and literature
- Focus: tax revenue (excluding grants) as share of GDP, using panel estimation methods consistent with existing literature.
- Baseline sample: 41 SSA countries from World Development Indicators, 1980–2009; subsamples and SSA-LIC-only checks were consistent.
- Controls and hypotheses informed by literature:
  - Per capita GDP — proxy for development; expected positive correlation.
  - Sectoral composition: share of agriculture in GDP — expected negative correlation (harder to tax).
  - Degree of trade openness (exports + imports as share of GDP) — expected positive correlation.
  - Inflation — proxy for macroeconomic conditions; expected detrimental impact.
  - External indebtedness, aid, current account balance, FDI — ambiguous or varying impacts in literature.
  - Institutional factors: corruption, bureaucratic quality, rule of law, regulatory burden, shadow economy — expected negative effects on revenue if poor.
- Institutional and shadow economy data:
  - Corruption index: International Country Risk Guide (ICRG) — data available for 30 SSA countries in the sample; index constructed such that greater corruption reduces tax revenue (dummy multiplied by -1).
  - Shadow economy measure (percent of GDP): data from Schneider, Buehn, and Montenegro, 1999–2007 (data availability noted as 1999–2007 or 1997–2006 in text with slight variation).

### Panel estimation — Main empirical findings and coefficients
- Significant determinants identified:
  - Share of agriculture in GDP: strong negative and significant relationship.
  - Inflation: significant negative impact on revenue.
  - GDP per capita: significantly positive in most specifications.
  - Degree of openness: strong positive relationship in most specifications.
  - Oil rents/natural resource rents: negatively related to tax revenue.
  - Aid, short-term external debt, FDI, current account balances: weak and nonsignificant relationships in the specifications.
- Baseline coefficient magnitudes (full sample baseline specification, Table 5):
  - A percentage point increase in share of agriculture decreases tax revenue (as a proportion of GDP) by 0.1 percentage point.
  - Degree of openness increases tax revenue by 0.02 percentage point.
  - Oil rents decreases tax revenue by 0.19 percentage point.
  - GDP per capita increases tax revenue by 0.001 percentage point.
  - Inflation decreases tax revenue by 0.0004 percentage point.
- Role of institutions and shadow economy:
  - Corruption: a unit increase in the degree of corruption reduces tax revenue by 0.5 units; corruption has a significant negative impact across subsamples.
  - Shadow economy: negative and significant impact on tax revenue; underscores policy need to encourage formalization and broaden tax base.
- Robustness checks:
  - Excluding outliers (Zimbabwe, Democratic Republic of the Congo, Gambia, Chad, Liberia) and excluding oil-rich nations confirmed analysis.
  - Subsample checks for 1990–2009 and 2000–2009 and 3-year non-overlapping averages confirm results.
  - Persistence tested via Arellano and Bond (1991) dynamic panel estimation including lagged dependent variable; Sargan and Arellano-Bond tests run (results not reported in text) — estimates remain consistent.

### Concluding remarks — Policy-relevant implications (summary of findings)
- Structural factors (per capita GDP, inflation, share of agriculture, degree of openness, natural resource rents) are important determinants of tax revenue.
- Institutional factors (degree of corruption, size of the shadow economy) and starting conditions (fragile vs nonfragile) significantly affect tax revenue outcomes.
- No robust correlation established between aid and tax revenue in the specifications.
- Resource-rich countries have experienced a decline in average tax revenue and greater volatility; non–resource-rich countries now at similar levels to resource rich on average.
- As economies develop, indirect taxes become more important contributors; declining trade taxes with liberalization indicate trade taxes cannot be relied upon exclusively.
- Stable macroeconomic environment, political stability, will for tax policy reform, and administrative reforms (especially when combined with policy reforms that broaden/simplify tax base) matter for sustainable revenue mobilization.
- Case example referenced: Mozambique sustained an increase in tax revenue partly through reforms (discussed in Appendix I).

*Source: Appendix 1: Case Study (from the provided IMF content unit).*

### 1. Alongside economic development and economic structure, macroeconomic stability

### 1. Alongside economic development and economic structure, macroeconomic stability

### Key findings on revenue mobilization and institutions
- There is a significant positive association between institutions and revenue mobilization.
- Nonfragile countries, on average, have performed better (in terms of tax revenue as a proportion of GDP) than fragile countries, suggesting that policies that strengthen institutions and reduce overall economic fragility can be conducive to better revenue mobilization.
- Fragile economies tend to lag behind in collecting more revenue.
- Analysis of tax revenue as a proportion of GDP for resource rich and nonresource rich countries shows a strong negative association of resource rents and collection of tax revenue; inference: resource rents can cause dependency and may lead to weaker tax structures.

### Ambition and realistic revenue expectations
- Countries can be cautiously ambitious in their revenue efforts.
- Historical patterns suggest:
  - An increase of about ½ to 2 percentage points in the 1- to 3-year horizon.
  - About 2–3½ percentage points of GDP over longer terms.
- Time matters: over longer periods, countries have been able to achieve higher increases in revenue ratios, with the frequency distribution shifting to the right in 10-year periods.
- Sustainability is not guaranteed: almost all SSA-LICs were able to at least partially sustain their revenue gains, but this is far from assured.

### Success stories and variation by fragility
- Among nonfragile SSA-LICs, the countries that mobilized the most revenue consistently in 1-, 3-, 5-, or 10-year periods include:
  - Ghana, Kenya, Zambia, and Niger.
- Among fragile SSA-LICs, countries that achieved the largest increases in revenue ratios in at least one of these periods include:
  - Liberia and the Democratic Republic of the Congo.

### Appendix 1 — Case study: Mozambique (macroeconomic conditions)
- Mozambique experienced strong post-civil war economic expansion and strong growth since 1994.
- Output since 2000 has grown by 6½ percent a year on average, increasing output per capita by nearly one-third and facilitating a noticeable reduction in poverty.
- Contributing factors included robust private and public capital inflows, prudent macroeconomic policy management, and well-sequenced structural reforms.
- On average, real GDP growth over the last decade has been around 8 percent a year.
- The annual inflation rate averaged 10.7 per cent from 2000-2010, a significant decline from previous decades.
- International food and energy prices and an accommodative monetary policy contributed to a rise in inflation over recent years.
- The rate of inflation grew from 3.2 to 12.7 per cent from 2009 to 2010.
- The Bank of Mozambique gradually lowered its key policy rates at an accelerated pace in 2009 to support credit supply in the wake of the global crisis, which further added to inflationary pressures.
- Since then, monetary policies have decisively implemented monetary tightening to successfully bring down average inflation.

*Source: _wp12108 - 1. Alongside economic development and economic structure, macroeconomic stability*

### 10.4 per cent in 2011.  In 2009, the primary, secondary and tertiary sectors contributed to 29,

### _wp12108 - 10.4 per cent in 2011.  In 2009, the primary, secondary and tertiary sectors contributed to 29,

### Mozambique: recent revenue and structural context
- GDP sector shares in 2009:
  - Primary sector: 29 per cent of the GDP at factor cost.
  - Secondary sector: 23 per cent of the GDP at factor cost.
  - Tertiary sector: 48 per cent of the GDP at factor cost.
- Structural trends:
  - The secondary sector has grown considerably over the past two decades.
  - The primary sector has shrunk relatively over the past two decades.
  - The tertiary sector accounts for about 45 percent of economic activity in recent years (noting tertiary share near half of activity).
- Informal economy:
  - A 2000 study estimated the informal economy at 40.3 percent of GNP, somewhat lower than the average of 42 percent for a sample of 23 African countries.

### Taxation capability and comparative position
- IMF FAD mission estimated Mozambique’s taxation capability at about 22 percent of GDP.
  - This is similar to that of Kenya and higher than most neighbors, but much lower than South Africa and Swaziland.
- The tertiary-sector prominence increases the importance of VAT as a revenue source.

### Tax policy reforms (1996 onward)
- Reform objectives:
  - Improve administrative efficiency.
  - Broaden the tax base.
  - Moderate tax rates to improve collection.
- Major reforms implemented:
  - Customs reforms: introduced a simple tariff schedule with only five tax rates.
  - 1999 import duty revision and introduction of a modern value-added tax (VAT) replacing the cascade tax.
  - 2002 Tax Benefits Code rationalized the incentives system:
    - Favoring incentives in the form of investment credits and accelerated amortization rather than income tax exemptions tied to profit size.
    - Rationale: exemptions tied to profit size are less beneficial to firms that do not earn profits during installation phase; investment credits and accelerated amortization better target investment-stage needs.
- Legislative/institutional changes:
  - The Assembly of the Republic of Mozambique has exclusive authority to define foundations of tax policy and the fiscal system; tax incidence, rate, or exemptions cannot be enacted by mere government decree.
  - Constitutional principle: “the base of tax incidence cannot be broadened, nor tax rates made more burdensome, within the same financial year.”
- Observations on tax incentives:
  - Tax incentives often act as a bonus for projects that would locate without them; other factors (natural resources, infrastructure, workforce quality, country risk, profit taxation in country of residence) are crucial.
  - In systems with universal taxation and tax credits for foreign taxes, reductions or exemptions in Mozambique can merely transfer tax revenue from one country to another.
  - Alternative policy measures suggested include expanding education and training, developing production infrastructure, providing public services through increased public investment, public-private partnerships, donor coordination, and awarding tax benefits to enterprises investing in public works.

### Tax administration reforms and operational changes
- Institutional and administrative measures taken:
  - Formalized anti-corruption units.
  - Established the Central Revenue Agency (CRA).
  - Created tax tribunals.
  - Adopted a new tax code for municipalities (introduced in 2004).
  - Adopted the electronic financial administration system (e-SISTAFE).
  - Strengthened the Treasury Single Account (TSA).
  - Phased out the fuel subsidy with aim to restore market-based retail prices.
  - Reinforced the large taxpayers unit (LTU).
- Operational progress in revenue administration:
  - Strengthened services and information to taxpayers.
  - Created specialized tax audit unit for “mega projects,” financial institutions, and extractive industries.
  - Expedited VAT refunds.
  - Simplified tax returns.
  - Reinforced organizational structure at regional level.
  - Computerized transit procedures.
  - Dramatically increased the number of post-release audits in customs.

### Impact of policy and administrative reforms on revenue mobilization
- The combination of a stable macroeconomic and institutional environment, administrative changes, tax policy reforms (simplification and base broadening), and gradual reduction of tax expenditures under the Tax Benefits Code have caused an upward trend in tax revenue.

### Empirical evidence from cross-country analysis and panel estimation (selected findings)
- Key econometric relationships (from panel estimation results, dependent variable: Tax Revenue/GDP):
  - GDP per capita: coefficients reported across specifications, e.g., 0.00112** (t = 1.74) for 1980–2009; other specifications show positive and often significant coefficients (examples include 0.0027115*** (t = 2.73) and 0.00261*** (t = 2.58)).
  - Share of agriculture in GDP: consistently negative and often significant (examples: -0.103*** (t = -2.34), -0.1823801*** (t = -2.59), -0.1122353*** (t = -3.07)).
  - Inflation: negative effect on Tax Revenue/GDP in multiple specifications (examples: -0.0008125*** (t = -16.86), -0.0007504*** (t = -7.48)).
  - Degree of openness: positive and often significant (examples: 0.0215** (t = 1.55), 0.0501996*** (t = 3.39), 0.0414096*** (t = 5.22)).
  - Oil rents and natural resource rents: generally negative and significant (examples: Oil rents -0.196*** (t = -4.50); Natural resource rents -0.1831798*** (t = -2.40)).
  - Corruption: robust negative association with Tax Revenue/GDP (examples: -0.7264521*** (t = -2.24); robustness checks show -1.052*** (t = -2.30)).
  - Shadow economy: negative association in specifications where included (example: -0.0488828** (t = -1.41)).
- Robustness checks (selected results):
  - Excluding oil countries, excluding outliers, and Arellano-Bond estimator largely confirm negative coefficient on corruption (examples: -0.820*** (t = -2.47); -0.521*** (t = -2.66)).
  - Degree of openness remains positive and significant in robustness checks (example: 0.109*** (t = 2.48)).
  - Inflation retains a negative and significant coefficient across robustness checks (example: -0.000810*** (t = -10.02)).

### Cross-country patterns and figures (summarized)
- Figures and tables document:
  - Frequency distributions of short- to medium-term and longer-term changes in revenue-to-GDP ratios for SSA-LICs (1990-2010).
  - Maximum and cumulative changes in the ratio of fiscal revenue to GDP for short-to-medium and longer terms.
  - Total revenue (without grants) as a proportion of GDP, 2010.
  - Average tax revenue as a proportion of GDP, 2010, by income group and by fragile vs. nonfragile status.
  - Composition of tax revenue (2010): trade tax, tax on goods and services, corporate, income (noting missing data for some countries as indicated in source).
- Country-level observed maxima (selected examples from tables):
  - Nonfragile SSA LICs, 1-year max change examples:
    - Malawi: Max Change 8.2; Starting Level 13.7; Max Change Period 1993; Level After 3 Years 14.6; Level After 5 Years 16.3; 1-year change 0.9; Cumulative 3-years 2.6.
    - Zambia: Max Change 8.1; Starting Level 12.0; Max Change Period 1993; Level After 3 Years 19.9; Level After 5 Years 23.8; 1-year change 7.9; Cumulative 3-years 11.7.
    - Mozambique: Max Change 2.4; Starting Level 11.4; Max Change Period 1991; Level After 3 Years 11.7; Level After 5 Years 10.4; 1-year change 0.2; Cumulative 3-years -1.0.
  - Fragile SSA LICs, 1-year max change examples:
    - São Tomé & Príncipe: Max Change 14.7; Starting Level 10.9; Max Change Period 1998; Level After 3 Years 13.8; Level After 5 Years 16.9; 1-year change 2.9; Cumulative 3-years 6.0.
    - Eritrea: Max Change 12.9; Starting Level 22.3; Max Change Period 1992; Level After 3 Years 28.8; Level After 5 Years 28.2; 1-year change 6.5; Cumulative 3-years 5.9.

### Policy implications and lessons
- Fundamental contributors to revenue mobilization:
  - Stable macroeconomic and institutional environment.
  - Administrative enhancements (CRA, LTU, e-SISTAFE, TSA, audit specialization).
  - Tax policy reforms emphasizing base broadening, simplification, and moderate rates.
- Incentive design:
  - Prefer investment-stage incentives (investment credits, accelerated amortization) over profit-based exemptions that may be ineffective during installation phases and can merely shift revenue across jurisdictions.
- Complementary measures to incentives:
  - Invest in education and training.
  - Develop infrastructure and public services needed by firms.
  - Use public investment and public-private partnerships, and coordinate with donors to support private sector–facing public goods.
- Governance and corruption:
  - Reducing corruption is strongly associated with higher Tax Revenue/GDP; anticorruption and institutional reforms are therefore central to revenue mobilization.

*Italic: Source: _wp12108 (IMF PDF content provided).*

### References

### _wp12108 - References

### Tax revenue, tax effort, and tax policy
- Agbeyegbe, T., J. Stotsky, and A. WoldeMariam (2004) Trade Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa. Working Paper 04/178, International Monetary Fund
- Auriol, E. and M. Wartlers (2005) Taxation Base in Developing Countries. Journal of Public Economics 89, pp. 625-646.
- Bahl, R. W. (1971) A Regression Approach to Tax Effort and Tax Ratio Analysis. Staff Papers 18, International Monetary Fund
- Bird, R.M. (2004). Managing Tax Reform, Bulletin for International Fiscal Documentation. 58, 42-55.
- Bird, R., J., Martinez-Vazquez, and B. Torgler (2004) Societal Institutions and Tax Effort in Developing Countries. Working Paper 04-06: International Studies Program, Andrew Young School of Policy Studies, Georgia State University
- Brückner,M. (2011) An Instrumental Variables Approach to Estimating Tax Revenue Elasticities: Evidence from Sub-Saharan Africa. University of Adelaide School of Economics Research Paper No. 2011-09
- Chelliah, R.J. (1971) Trends in Taxation in Developing Countries. Staff Papers, International Monetary Fund, Vol. 18, pp. 254–0331
- Chelliah, R.J., Hessel J. Baas, and Margaret R. Kelly. (1975) Tax Ratios and Tax Effort in Developing Countries, 1969–71,” Staff papers, International Monetary Fund, Vol. 22, pp. 187–205
- Davoodi, H.R. and David A.(2007) Grigorian Tax Potential vs. Tax Effort: A Cross-Country Analysis of Armenia’s Stubbornly Low Tax Collection. Working Paper 07/106, International Monetary Fund
- Ghura, D. (1998) Tax Revenue in Sub Saharan Africa: Effects of Economic Policies and Corruption. Working Paper 98/135, International Monetary Fund
- Guha, D. (1998) Tax revenue in Sub Saharan Africa: Effects of Economic policies and Corruption. Working Paper 98/135, International Monetary Fund
- Gupta, A.S.(2007) Determinants of Tax Revenue Efforts in Developing Countries. Working Paper 07/184, International Monetary Fund
- Leuthold, J.H. (1991) Tax Shares in Developing Countries: A Panel Study. Journal of Development Economics, Vol. 35, pp. 173–185.
- Lotz, J. and E. Morss (1967). Measuring ‘Tax Effort’ in Developing Countries. IMF Staff Papers, 14, 478-99.
- Piancastelli, M. (2001) Measuring the Tax Effort of Developed and Developing Countries: Cross Country Panel Data Analysis, 1985/95. IPEA Working Paper No. 818
- Stotsky, J. and A. WoldeMariam (1997) Tax Effort in Sub-Saharan Africa. Working Paper 97/107, International Monetary Fund
- Teera, J. M. and J. Hudson. (2004) Tax Performance: A Comparative Study. Journal of International Development, 16(6), 785-802.

### Revenue administration, reforms, and tax incentives
- Benon, O., David Kloeden, Leonard Burman, William Crandall, and Justin Zake (2004) Mauritius Revenue Administration and Tax Policy Reforms
- Kagarama, Ben. (2010) Reforms In Domestic Revenue Mobilization: The Rwanda Revenue Authority Story. FAD Conference 2010
- Kloeden, D.  (2011) Revenue Administration Reforms in Africa since the early 1990s and Tax Administration Benchmarking. Working Paper 11/162, International Monetary Fund
- Kloeden, D. (2011)  Revenue Administration Reforms in Anglophone Africa since the Early 1990s. Working Paper 11/162, International Monetary Fund
- Lal, M.S. (2011) Tax Expenditure Analysis: The Mauritian Case. FAD Conference 2011
- Masters, A. (2006) Strategies for Improving the Incentive Structure of Tax Systems: A Southern African. Seminar on Realizing the Potential for Profitable Investment in Africa, IMF Institute and the Joint Africa Institute
- Masters, A., Berlin Msiska and Stephen Mendes. (2011) Mauritius Revenue Administration: Challenging the Future
- Zake, J. (2011) Customs Administration Reform and Modernization in Anglophone Africa: Early 1990s to Mid-2010. Working Paper (forthcoming), International Monetary Fund
- Zee, H.H., Janet G. Stotsky and Eduardo Ley. (2002) Tax Incentives for Business Investment: A Primer for Policy Makers in Developing Countries, World Development Vol. 30, No. 9, pp. 1497–1516.

### VAT, tax systems, and tax policy design
- Ebrill, L., M. Keen, J-P. Bodin and V. Summers (2001) The Modern VAT. International Monetary Fund
- Keen, M. and A. Simone. (2004) Tax Policy in Developing Countries. In S. Gupta, B. Keen, M., and Mario Mansour. (2009) Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization. Working Paper 09/157, International Monetary Fund
- Daniel, P., Jack Grigg, and Peter Mullins (2010) Issues In Tax Policy And The Taxation Of Mining.
- Perry,V., J.Grigg, S.Shay and A.Swistak. (2011) Uganda Tax Policy: Issues in a Changing Economy
- Villela, L., Andrea Lemgruber and Michael Jorratt.  (2010) Tax Expenditure Budgets Concepts and Challenges for Implementation. Working Paper 179, Inter-American Development Bank

### Trade openness, globalization, and fiscal implications
- Agénor, P. and P.J. Montiel (1996) Development Macroeconomics: Second Edition. Princeton University Press
- Aizenman,J. and Y. Jinjarak (2006) Globalization and Developing Countries - A Shrinking Tax Base?, NBER Working Papers 11933, National Bureau of Economic Research
- Baunsgaard, T., and M. Keen (2005) Tax Revenue and (or?) Trade Liberalization. Working Paper 05/112, International Monetary Fund
- Combes, J-L, and T. Saadi-Sedik (2006) How Does Trade Openness Influence Budget Deficits in Developing Countries?. Working Paper 06/03, International Monetary Fund
- Hallaert, J. (2008) How Does a Domestic Tax Reform Affect Protection Against Imports? The Case of the Republic of Madagascar. Working Paper 08/151, International Monetary Fund
- Moran, T. (1998) Foreign Direct Investment and Development: The New Policy Agenda for Developing Countries and Economies in Transition. Institute for International Economics, Washington, D.C.
- Rodrik, D. (1998) Why do More Open Economies have Bigger Governments? Journal of Political Economy, Vol. 106, pp. 997-1032
- Rodrik, D., A. Subramanian, and F. Trebbi. (2002) Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development. CEPR Discussion Paper No. 3643

### Corruption, shadow economy, and fiscal stability
- Davoodi, H.R. and David A.(2007) Grigorian Tax Potential vs. Tax Effort: A Cross-Country Analysis of Armenia’s Stubbornly Low Tax Collection. Working Paper 07/106, International Monetary Fund
- Ebeke, C. and Helene Ehrhart. (2011) Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies. Journal of African Economies
- Morrissey, O., I. Dasgupta, I., and S.Bougheas (2007) Tough love or unconditional charity?. Oxford Economic Papers, 59(4), 561-582
- Schneider, F. (2005) Shadow Economies of 145 Countries all Over the World: What Do We Really Know? mimeo
- Schneider,F., Andreas Buehn and Claudio E. Montenegro. (2010) Shadow Economies all over the World: New Estimates for 162 Countries from 1999 to 2007. Policy Research Working Paper 5356, The World Bank
- Tanzi, V. and H. Davoodi. (1997) Corruption, Public Investment, and Growth. Working Paper 97/139, International Monetary Fund
- Tanzi, V. and H. Davoodi. (2000) Corruption, Growth, and Public Finances. Working Paper 00/182, International Monetary Fund

### Debt, macroeconomic dynamics, and crisis responses
- Arellano, M. and S. Bond. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58, 277 – 297.
- Claessens, S., D. Oks and S. Van Wijnbergen. (1993) Interest Rates, Growth, and External Debt the Macroeconomic Impact of Mexico's Brady Deal. World Bank Policy Research Working Paper No. 1147.
- Clements,B., Bhattacharya,R., and T.Q.Nguyen. (2003). External Debt, Public Investment, and Growth in Low-Income Countries, Working Paper 03/249, International Monetary Fund
- Kramarenko, V., Lars Engstrom, Genevieve Verdier, Gilda Fernandez, S. Erik Oppers, Richard Hughes, Jimmy McHugh, and Warren Coats. (2010)  Zimbabwe: Challenges and Policy Options after Hyperinflation.  Working Paper 10/3, International Monetary Fund
- Oks, D. and S. Wijnbergen (1995). Mexico after the debt crisis: is growth sustainable?, Journal of Development Economics, 47(1), 155-178.
- Spilimbergo,A. and Enrica Detragiache Short-Term Debt and Crises By and Antonio Sueia, H. (2011) Tax System Reform in Mozambique. FAD Conference 2011

### Country and regional case studies, aid, and fiscal interactions
- Aryeetey, E. (2004) Financing Africa’s Future Growth and Development: The Hard and Soft Options, Mimeo, University of Ghana.
- Benon, O., David Kloeden, Leonard Burman, William Crandall, and Justin Zake (2004) Mauritius Revenue Administration and Tax Policy Reforms
- Farhan, N. (2009) São Tomé and Príncipe: Domestic Tax System and Tax Revenue Potential. Working Paper 09/215, International Monetary Fund
- Imam,P. and C.Minoiu. (2008) Mauritius:  A Competitiveness Assessment. Working Paper 08/212, International Monetary Fund
- Kramarenko, V., et al. (2010) Zimbabwe: Challenges and Policy Options after Hyperinflation. Working Paper 10/3, International Monetary Fund
- Mongardini, J., Dalmacio Benicio, Thomson Fontaine, Gonzalo C. Pastor and Geneviève Verdier. (2011) In the Wake of the Global Economic Crisis: Adjusting to Lower Revenue of the Southern African Customs Union in Botswana, Lesotho, Namibia, and Swaziland. Working Paper 11/1, International Monetary Fund
- Osei, R., O. Morrissey and T. Lloyd (2005) The fiscal effects of aid in Ghana. Journal of International Development, 17(8), 1037-1053.
- South Africa Selected Issues (2007) Country Report No. 07/274, International Monetary Fund
- Teera, J. M. and J. Hudson. (2004) Tax Performance: A Comparative Study. Journal of International Development, 16(6), 785-802.
- Perry,V., J.Grigg, S.Shay and A.Swistak. (2011) Uganda Tax Policy: Issues in a Changing Economy

*References list as provided in the content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12108.pdf_