Tax Evasion, Tax Avoidance and Development Finance

Abstract

Domestic revenue mobilisation is key to sustainable development finance - only self-sufficiency will allow the development of fully-functioning states with flourishing systems of political representation and economies reflecting societies' expressed preferences in regard to, for example, inequality. Tax evasion and tax avoidance are important insofar as they affect both the volume and nature of government finances. This paper estimates the total cost to developing countries of these leakages as US$385 billion annually, dwarfing any potential increase in aid. An additional result suggests that doubling aid to low income countries may have little positive revenue effect but damage the strength of political representation, if full trade liberalisation is simultaneously required.