Determining countries’ tax effort.

Abstract

This paper presents a model to determine the tax effort and tax capacity of 96 countries and the main variables from which they depend. The results and the model allow us to clearly determine which countries are near their tax capacity and which are some way from it, and therefore, could increase their tax revenue. Our study corroborates previous analysis inasmuch as the positive and significant relationship between tax revenue as percent of GDP and the level of development (per capita GDP), trade (imports and exports as percent of GDP) and education (public expenditure on education as percent of GDP). The study also demonstrates the negative relationship between tax revenue and inflation (CPI), income distribution (GINI coefficient), the ease of tax collection (agricultural sector value added as GDP percent), and corruption.tax effort, tax frontier, tax capacity, tax revenue, stochastic tax frontier, inefficiency.