Published in:Effective States and Inclusive Development Working Paper No 59
Extent:
1 Online-Ressource (39 p)
Language:
English
DOI:
10.2139/ssrn.2835498
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 1, 2016 erstellt
Description:
A central aspect of institutional development in less developed economies is building tax systems capable of raising revenues from broad tax bases, i.e., fiscal capacity. While it is recognised in the literature that fiscal capacity is pivotal for state building and economic development, it is less clear what its origins are and what explains its cross-country differences. We focus on political institutions, seen as stronger systems of checks and balances on the executive. Exploiting a recent database on public sector performance in developing economies and an IV strategy, we identify their long-run impact and we ‘unpack' the concept of fiscal capacity, distinguishing between the accountability and transparency of fiscal institutions (impartiality) and their effectiveness in extracting revenues. We find that stronger constraints on the executive foster the impartiality of tax systems. However, there is no robust evidence that they also improve its effectiveness. The impact of political institutions on the impartiality dimension works through the rule of law and the performance of the bureaucracy