Taxation and development
Henrik Kleven recently gave a talk on taxation and development. Henrik’s work explicitly incorporates the informational and administrative constraints faced by governments in developing countries and brings original insights often at variance with conventional wisdom on taxation.
Given weak tax capacity, a key question is what governments can do to incrementally improve tax administration, enforcement, policy and tax morale. While there is a large body of research on questions of optimal tax policy, most of this focuses on developed countries and it is increasingly clear that the conclusions are highly dependent on context specific factors including the size and scope of the country’s tax administration as well as economic factors such as the rate of self-employment, firm size and complexity and the nature of the financial sector. New research highlights the need to rethink tax policy in light of these factors and is leading, in some cases, to strikingly different policy prescriptions including, for example, the potential superiority of turnover taxes to traditional corporate income taxes.