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

Mark Schaffer () and Gerard Turley ()

No 347, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

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.

Keywords: statutory taxation; average tax rate; tax collection; effective administration; transition economies (search for similar items in EconPapers)
JEL-codes: H2 H32 H87 P5 (search for similar items in EconPapers)
Pages: pages
Date: 2000-11-01
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Working Paper: Effective versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies (2000)
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