Income inequality is high and persistent in developing countries. In this paper, we ask what role taxation can or might play in reducing inequality in low and middle-income countries. Drawing on the recent literature, three findings emerge. Due to both structural factors and limited enforcement capacity, the effective distributional impacts of taxes often deviate from their ‘statutory’ objectives, in ways that are hard to predict based on evidence from high-income countries. Moreover, administrative reforms which are meant to be distributionally neutral end up having significant equity impacts because of the practical realities of implementation. Finally, the global challenges which tax authorities face to tax the very top of the income distribution appear to be even more pronounced in developing countries. We conclude by offering thoughts on future research and emphasize the need to carefully study equity characteristics of taxes at each stage of a country’s development path.

Can taxes on consumption redistribute in developing countries? Contrary to consensus, we show that taxing consumption is progressive once we account for informal consumption. Using household expenditure surveys in 32 countries, we proxy for informal consumption using the type of store where purchases occur. We establish that the budget share spent in informal stores steeply declines with income, so that richer households pay a substantially larger share of their income in taxes. Our findings imply that the widespread policy of exempting food from taxation is hard to justify on equity grounds in low-income countries.

This paper studies individual and social motives in tax evasion. We build a simple dynamic model that incorporates these motives and their interaction. The social motives underpin the role of norms and are the source of the dynamics that we study. Our empirical analysis exploits the adoption in 1990 of a poll tax to fund local government in the United Kingdom, which led to widespread evasion. The evidence is consistent with the model's main predictions on the dynamics of evasion.

The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Asian Development Bank (ADB), its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this document and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned.

This paper builds and analyzes a new global macro-historical database of effective tax rates on capital and labor in 154 countries. We establish a new stylized fact: while effective capital tax rates fell in developed countries between 1965 and 2018, they rose in developing countries since 1990. Multiple research designs at the country, sector and firm-level suggest that trade openness contributed to this rise, by increasing the share of output produced in corporations and larger firms, where effective capital taxation is higher. In contrast to a common view, globalization appears in many countries to have supported governments’ ability to tax capital.

This paper studies the role of technology in local-government tax collection capacity in the developing world. We first conduct a new census of all local governments in Ghana to document a strong association between technology use and property tax billing, collection and enforcement. We then randomize the use of a new revenue collection technology within one large municipal government. Revenue collectors using the new technology delivered 27 percent more bills and collected 103 percent more tax revenues than control collectors. Collectors using the new technology learned faster about which households in their assigned areas were willing and able to make payments. We reconcile these experimental findings in a simple Beckerian time-use model in which technology allows revenue collectors to better allocate their time towards households that are the most likely to comply with taxpaying duties. The model's predictions are consistent with experimental evidence showing that treatment collectors are more likely to target households with greater liquidity, income, awareness of taxpaying duties, and satisfaction with local public goods provision.

How has globalization affected the relative taxation of labor and capital, and why? To address this question we build and analyze a new database of effective macroeconomic tax rates covering 150 countries since 1965, constructed by combining national accounts data with government revenue statistics. We obtain four main findings: (1) The effective tax rates on labor and capital converged globally since the 1960s, due to a 10 percentage-point increase in labor taxation and a 5 percentage-point decline in capital taxation. (2) The decline in capital taxation is concentrated in high-income countries. By contrast, capital taxation increased in developing countries since the 1990s, albeit from a low base.(3) Consistently across a variety of research designs, we find that the rise in capital taxation in developing countries can be explained by a tax-capacity effect of international trade: Trade openness leads to a concentration of economic activity in formal corporate structures, where capital taxes are easier to impose. (4) At the same time, international economic integration reduces statutory tax rates, due to increased tax competition. In highincome countries, this negative tax competition effect of trade has dominated, while in developing countries the positive tax-capacity effect of international trade appears to have prevailed. Pierre Bachas The World Bank 1818 H Street N.W. Washington, DC 20433 pbachas@worldbank.org Matthew H. Fisher-Post Paris School of Economics 48 Boulevard Jourdan Paris 75014 France mfp@psemail.eu Anders Jensen Harvard Kennedy School 79 JFK Street Cambridge, MA 02138 and NBER anders_jensen@hks.harvard.edu Gabriel Zucman Department of Economics University of California, Berkeley 530 Evans Hall, #3880 Berkeley, CA 94720 and NBER zucman@berkeley.edu Appendices are available at http://www.nber.org/data-appendix/w29819

The literature on tax capacity has shed light on the descriptive, long-run trends in tax performance and the micro-designs which incrementally impact tax collection of individual firms and households. There is a ’missing middle’ of evidence on tax performance at the intermediary level: in the aggregate, over medium-term horizons. This paper uses methods from the literature on economic growth to investigate the time-series of tax collection at this intermediary level. In a global sample of 156 countries between 1965 and 2020, and consistently across methods, we find numerous breaking points in tax-to-GDP trends that are sustained. Countries’ time-series of tax-GDP feature both upturns and downturns that are economically large in magnitude.

The COVID-19 pandemic has placed unprecedented strain on public finances across developing countries. Large fiscal responses and weak economic activity have widened deficits and increased public debt, which for many will be unsustainable over the medium-term. It is important for policymakers to consider policies for mobilising additional revenue. To this end, this policy brief discusses reform options across four types of taxes: wealth, property, consumption, and corporate income. Wealth taxes are underutilised as a policy tool. There is an opportunity to leverage them in response to COVID-19 as they can help reduce inequality and pave the way for equitable recovery. Linked to this option is the expansion of taxes on land and property, targeting the most visible form of wealth in most countries. The brief also outlines policy recommendations on more conventional tools: consumption and corporate taxes, which can be used more effectively to raise revenue by, for example, rationalising tax expenditures and using technology.

This paper builds a new microdatabase that covers 100 countries at all income levels and long-run time series in the United States (1870–2010) and Mexico ( 1960–2010) to document how the modern tax system arises over development. I establish a new set of stylized facts, which show that the income tax exemption threshold decreases in the income distribution as a country develops, tracking growth in the employee share of employment that occurs gradually further down the income distribution. Additional evidence supports the interpretation that the rise in third-party covered income through increases in employee share drives expansions of the income tax base over development. (JEL D31, H23, H24, H71, J22, J23, N40)

This paper studies how tax enforcement and tax compliance varies with firm size and its macroeconomic consequences. The identification strategy uses the ranking of industries' average firm size in the United States as an instrument for the size ranking of the same industries in developing countries. Data on 125,000 firms in 140 countries shows that tax enforcement and compliance increase with firm size. When quantified in a general equilibrium model, removing size dependent taxation leads to gains in Total Factor Productivity of 1–2%.

In this sub-section, I provide additional details on the novel micro data-base used in Section 3. I first outline the underlying data and construction of variables in the cross-section of countries. I then outline the data and variables construction used in the historical US time-series.

The 2017 Survey of Local Government Taxation Capacity provides the first comprehensive set of statistics on revenue mobilization capacity, and covers each of Ghana’s 216 Metropolitan, Municipal and District Assemblies (MMDAs). The survey was conducted between September and December 2017 and consisted of an in-depth survey of MMDA officials and revenue collectors, and a random sample of private citizens. The statistics collected cover each aspect of the revenue collection process, including property valuations, use of revenue management software and databases, billing and collection procedures, enforcement, cost of collection, and resident knowledge of local government revenue collections and expenditures. The survey data confirm many of the hypotheses and conclusions of the Government of Ghana’s 2014 report on Local Revenue Mobilization (Government of Ghana, 2014). In particular, use of revenue management software and electronic databases is low in most MMDAs and exhibits substantial variation across districts. Many properties eligible to pay property rates are not even sent a bill, and the key reasons for a lack of billing are an out-dated property valuation list and a lack of electronic databases of property owners. Among property owners sent bills, the majority do pay but collections still present substantial challenges for most MMDAs. Enforcement is constrained by lack of resources, political will and legal capacity.The data also present new insights about revenue mobilization in Ghana. First, the cost of collection is quite substantial, particularly among salaried revenue collectors. For the median salaried revenue …