Effective versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies

Mark Schaffer () and Gerard Turley

No 8, CERT Discussion Papers from Centre for Economic Reform and Transformation, Heriot Watt University

Abstract: Wide differences between effective or realised average tax rates and tax yields that would result if statutory tax rates were strictly applied indicate tax compliance and collection problems. Due to the greater politicisation of tax systems in transition economies (TEs), we would expect the shortfalls in effective tax yields for TEs to be larger than a benchmark for the mature market economies where tax systems are well established, the administrative capacity is stronger and tax arrears are tolerated less frequently. The methodology involves calculating an effective/statutory (E/S) tax ratio. Initial results indicate that the leading TEs have E/S ratios similar to the EU average. We find a positive correlation between progress in transition and effective tax administration, as measured by our E/S ratio. For slow reformers, the effectiveness of tax collection appears to vary with the extent of state control. Those TEs that have maintained the apparatus of the state have done well in tax collection compared to those countries where there is evidence of state decay. This raises a number of broad policy issues relating to the speed of transition, the interaction of politics and economic reforms, the capacity of the state to govern and the need for market institutions to develop.

JEL-codes: H2 H32 H87 P5 (search for similar items in EconPapers)
Date: 2000
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (13)

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