Linkages between taxation and stability (GSDRC Helpdesk Research Report 1346)
A review of the latest thinking and literature on the linkages between taxation and stability
The query was to provide a review of latest thinking/literature (academic and practitioner) on the linkages between taxation and stability.
Tax reform agendas have traditionally focused on increasing public revenue in an economically efficient manner. However, Prichard (2010) argues that there is a case for linking revenue enhancement more explicitly to broader governance objectives. It should be noted that increased domestic revenue generation will only lead to improved development outcomes if the new revenue is translated into productive public expenditure.
Key findings of the review include:
- State of the evidence: there is a large, varied and multidisciplinary body of academic and grey literature that discusses the linkages between taxation and development. The literature on taxation and statebuilding is primarily theoretical and guidance-oriented, with some supportive case study evidence. This rapid review found a more limited academic and grey literature focussed explicitly on taxation in fragile and conflict affected states.
- Latest theory and policy about the role that taxation can play regarding stabilisation/conflict: discussions regarding taxation have predominantly focused on how best to enhance revenue collection to finance redistribution and public goods and services, and the role of tax policy in strengthening incentives for economic growth. Increasingly, there is a focus on the role taxation can play in enhancing stability, and fostering improved governance.
- Key theories of change used in a selection of donor funded taxation reform programmes in post-conflict and fragile countries: broadly speaking, donor funded taxation reform programmes share a common logic or theory of change, i.e. that the reform of the tax system and improvement in tax collection are considered critical for the consolidation of the state, peacebuilding and political stability (Ndikumana, 2015). This reform can be accomplished by focusing on a number of key areas: broadening the tax base; managing natural resource revenues better; minimising tax incentives/exemptions for corporate interests; encouraging transparency by multinational enterprises; and building tax morale (i.e. via voluntary compliance).
Avis, W.R. Linkages between taxation and stability (GSDRC Helpdesk Research Report 1346). Governance and Social Development Resource Centre, University of Birmingham, Birmingham, UK (2016) 13 pp.