Reforming tax systems can boost development by giving countries more autonomy. This can lead to broader reforms too.
People in developed economies struggling to close burgeoning deficits incurred in the crisis by raising taxes or cutting spending could be forgiven for thinking that developing countries are concerned with the same priorities. But even in good times, dealing with fiscal challenges is an ordeal.
Forget about tax rates or tranches, poor countries often quite simply lack the resources and capacity to build effective tax-collection systems. Despite some recent improvements in revenue-raising efforts, half of sub-Saharan African countries still mobilise less than 15% of their GDP in tax revenues, as against an average of around 35% in OECD countries and 23% in Latin America. This makes it difficult for the state to function properly, let alone to deliver on wider roles, such as social services or a better business environment.
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