Puzzling Tax Structures in Developing Countries: A Comparison of Two Alternative Explanations / Roger Gordon, Wei Li.

Format:

Book

Author/Creator:

Gordon, Roger.

Contributor:

National Bureau of Economic Research.

Li, Wei.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11661.

NBER working paper series no. w11661

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Puzzling Tax Structures in Developing Countries

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

Observed economic policies in developing countries differ sharply both from those observed among developed countries and from those forecast by existing models of optimal policies. For example, developing countries rely little on broad-based taxes, and make substantial use of tariffs and seignorage as nontax sources of revenue.

The objective of this paper is to contrast the implications of two models designed to explain such anomalous policies. One approach, by Gordon-Li (2005), focuses on the greater difficulties faced in poor countries in monitoring taxable activity, and explores the best available policies given such difficulties. The other, building on Grossman-Helpman (1994), presumes that political-economy problems in developing countries are worse, leading to worse policy choices. The paper compares the contrasting theoretical implications of the two models with the data, and finds that the political-economy approach does poorly in reconciling many aspects of the data with the theory. In contrast, the forecasts from Gordon-Li model are largely consistent with the data currently available.

Notes:

Print version record

October 2005.