Taxation for Development: Rethinking Fair and Efficient Tax Systems for the Next Decade

In the past ten years, tax research has expanded markedly in low- and middle-income countries (LMICs). Novel, high-quality, digital-administrative data has combined with governments’ openness to evaluating fiscal policy in a context of rising debt and investment needs to open up new knowledge frontiers. In this talk, the speakers will share their findings from three papers that take stock of this emerging body of knowledge, as published in a recent symposium on Taxation and Developing Countries in the Journal of Economic Perspectives.

In the first paper, Oyebola Okunogbe and co-author examine how new technologies, bureaucratic design, and political incentives can improve the tax capacity of developing countries. In the second paper, Anne Brockmeyer and coauthors show that although real-world VAT systems fall short of the promising textbook model of the tax in several ways, the VAT remains preferable to alternatives such as sales taxes or turnover taxes. In the final paper, Pierre Bachas and co-authors focus on the equity of tax systems and show that the distributional impact of taxes is markedly different in LMICs due to the informal sector and imperfect enforcement.

The researchers will highlight how optimal tax systems in LMICs often deviate in important ways from the prescriptions of standard public finance theory. At the same time, technology, new data, and coordinated policies are rapidly relaxing some constraints and generating opportunities for countries to rethink fair and efficient tax systems for the next decade.