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The impac of tax rate, compliance burden and coruption control on tax ratio: Evidence from emerging Asian countries from 2004 to 2015
The impac of tax rate, compliance burden and coruption control on tax ratio: Evidence from emerging Asian countries from 2004 to 2015
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Date
2019
Authors
Nguyễn Phương Liên
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Research Projects
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Abstract
The present article seeks to estimate the quantitative impacts of tax and economic factors on the tax ratio (Tax/GDP) of 14 emerging Asian countries (Bangladesh, Bhutan, Cambodia, China, India, Indonesia, Malaysia, Mongolia, Nepal, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam) over the 12-year period from 2004 to 2015. It is motivated by two distinct considerations. First, while empirical studies of tax ratio tend to focus on developing countries, there is no specific study on the developing world of Asia. Secondly, the regression approach to determinants of tax ratio utilises economic, demographic and institutional factors that typically lie beyond the control of tax authorities, at least in the short run.The countries under study are chosen because they represent a group of emerging economies in perhaps the most dynamic part of the world. Their tax systems have many common features, including relatively high tax compliance burden and widespread incidence of corruption. The chief novelty of the present study is that it explicitly incorporates tax rate and tax compliance burden in the theoretical tax ratio function. In this sense, it appears to be the first study that examines the impact of tax policy and administration on tax ratio and tax effort.Two estimating equations (one linear and one quadratic in the tax rate) are specified. The required data is derived from secondary sources published by PwC, the World Bank and Asian Development Bank, especially the PwC and World Bank Group’s Paying Taxes database. The empirical findings, obtained by the application of the two-step generalised method of moments (GMM), are robust, significant and meaningful. The coefficients of all independent and control variables are statistically significant and have the correct signs. In particular, tax rate has a positive impact while tax compliance burden has a negative influence on tax ratio. Further, the study confirms the sand-the-wheels hypothesis of corruption; that is, better control of corruption improves tax ratio. These findings imply that, for Asian developing countries at least, tax simplification or governance enhancement can play a beneficial role in improving their tax revenue performance.
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Keywords
" Tax ratio,
Tax rate,
Tax compliance burden,
Corruption control,
Emerging Asian economies"