A central aspect of institutional development in developing economies is building tax systems capable of raising revenues from broad tax bases, i.e. acquiring fiscal capacity. While it is recognised 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.
This research will combine qualitative country case studies with microeconometrics and cross-country econometric analysis to examine the economic, political and historical determinants of fiscal (taxation) capacity in low- and middle-income countries. Facilitating a new collaborative discussion among a group of political scientists, economic historians and economists, this project aims to consolidate knowledge and to set an agenda for future research in this area. We anticipate that commissioned papers will be published in a special issue of a leading journal. Additionally, the project will produce a clear set of policy guidelines for development agencies and policy makers in developing countries.
- What are the developmental implications of fiscal states? Does the emergence of a fiscal state relieve poverty and reduce inequality? How does it happen? Will it lead to improved health and education infrastructures? And what will the effects be on specific health and education outcomes? How will this affect income poverty and inequality? And what will the effects be on different segments of the population? Do the developmental implications of fiscal states differ by the resource abundance of the country? What does past experience suggest? Will it lead to more efficient allocations of public resources to fight poverty?
- How do fiscal states in developing countries arise? What are the long-run effects of colonisation? Does foreign aid foster or hinder fiscal capacity? Are fiscal states less likely to emerge in resource rich economies? What are the historical conditions for the emergence of fiscally capable states in less developed economies? What does past experience suggest? Does economic inequality hinder or help a fiscal bargain between the state and the citizens?
This project will produce knowledge fundamental to achieving SDG16 (building strong institutions).