Fiscal Resilience Building: Insights from a New Tax Revenue Diversification Index

Rasmane Ouedraogo (), René Tapsoba, Moussé Sow and Ali Compaoré

No 2020/094, IMF Working Papers from International Monetary Fund

Abstract: Does the reliance on diversified tax structure enhance resilience to fiscal risks? This paper gives an answer to this question by proposing a new cross-country tax revenue diversification index (RDI). The RDI builds on the Theil index, and unlike the few existing tax diversification indices, which are constructed only at the state level for the US, is computed at the national level, covering a broad panel of 127 countries over the period 2000-15. We find suggestive evidence that tax revenue diversification reduces tax revenue volatility, thus bringing to the data long-held views about the prominence of tax revenue diversification for fiscal resilience strengthening. While exploring the drivers of the RDI, we find that tax revenue diversification is not just a reflection of economic diversification, but also an outcome of macroeconomic, political and institutional factors. Interestingly, a non-monotone relationship is also at play between the RDI and economic development, with countries’ portfolio of tax sources getting more diversified as their economy develops, until a tipping point, where richer countries start finding it harder to diversify further their tax revenue sources.

Keywords: WP; yes; diversification index; Revenue volatility; Taxation; Tax revenue diversification; Theil Index; tax revenue; tax source; tax diversification; sources structure; revenue collection; Income tax systems; Consumption taxes; Natural resources; Tax administration core functions; South Asia; North America; North Africa; Middle East; East Africa; diversification pattern; collection performance (search for similar items in EconPapers)
Pages: 35
Date: 2020-06-12
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=49468 (application/pdf)

Related works:
Working Paper: Fiscal Resilience Building: Insights from a New Tax Revenue Diversification Index (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2020/094

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().