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Determinants of level of taxation: An empirical study of OECD countries from 2006 to 2016
Determinants of level of taxation: An empirical study of OECD countries from 2006 to 2016
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Date
2019
Authors
Nguyễn Phương Liên
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Research Projects
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Abstract
The paper provides an empirical examination of the determinants of tax level (tax-to-GDP ratio)among OECD member countries from 2006 to 2016. Conventional regression studies of tax leveltend to focus on two sets of factors: structural (such as GDP per capita, output share ofagriculture, age dependency ratio, etc) and institutional (such as corruption, political stability, etc).The present paper employs a different approach that emphasises the role of tax policy and taxadministration in explaining tax level in developed countries. More specifi cally, it seeks todetermine the quantitative impacts of tax rate, tax compliance burden, governance, level ofeconomic development and trade openness on tax level of OECD member countries. The paper ismotivated by different considerations. First, there seems to be a lack of tax level studies focusingon developed countries. Secondly, and more importantly, most, if not all, of the determinants of taxlevel in previous studies are typically beyond the control of tax authorities, at least in the short run.It thus seems useful to include factors that are under the direct or indirect control of the taxauthorities. To this end, we note that proxies of tax rate and tax compliance burden are nowavailable in a consistent and comparable basis from the PwC and the World Banks' paneldatabase. The OECD is chosen because it is a set of developed countries with generallycomparable tax systems, especially those belonging to the European Union. Further, the OECDprovides a wide range of consistent and reliable data of member countries. The period of studyfrom 2006 to 2016 represents the longest and most recent period in which required data isavailable and comparably reliable. The dataset thus consists of 32 OECD member countries (fourcountries are excluded due to data unavailability) extending over an 11-year period from 2006 to 2016.
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OECD,
level of taxation