IMF Working Papers

Political Institutions, State Building, and Tax Capacity: Crossing the Tipping Point

Author/Editor:

Vitor Gaspar ; Laura Jaramillo ; Philippe Wingender

Publication Date:

December 2, 2016

Electronic Access:

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Summary:

An empirical finding by Gaspar, Jaramillo and Wingender (2016) shows that once countries cross a tax-to-GDP threshold of around 12¾ percent, real GDP per capita increases sharply and in a sustained manner over the following decade. In this paper, we attempt via four case studies—Spain, China, Colombia, and Nigeria—to illustrate that the improvements in tax capacity have been part of a deeper process of state capacity building. We discuss the political conditions that supported tax capacity building, highlighting three important political ingredients: constitutive institutions, inclusive politics and credible leadership.

Series:

Working Paper No. 2016/233

Subject:

Fiscal policy Revenue administration Subnational tax Tax administration core functions Tax return filing compliance Taxes