Taxing the People, Not Trade: the International Monetary Fund and the Structure of Taxation in Developing Countries
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Taxing the People, Not Trade: the International Monetary Fund and the Structure of Taxation in Developing Countries Bernhard Reinsberg 1,2
& Thomas
Stubbs 1,3 & Alexander Kentikelenis 4
# The Author(s) 2020
Abstract Strengthening fiscal capacity in low- and middle-income countries is essential for achieving sustainable development. The International Monetary Fund—the world’s premier agent of fiscal policy reform—has taken a front-stage role in this process, promoting a model of tax policy that favors broad-based consumption taxes and discourages trade taxes. This article investigates the links between IMF-mandated tax reforms and the evolution of tax revenues. Using novel measures of tax-related conditionality and disaggregated data on revenues, our analysis shows that IMF interventions are significantly related to changes in tax structure. In particular, IMF programs increase revenues derived from goods and services taxes, but decrease revenues collected from trade taxes. Results for personal and corporate income taxes are inconclusive. These findings have important implications for debates on the role of the IMF in developing countries. Keywords International Monetary Fund . IMF programs . State capacity . Taxation . Tax
conditionality . Value-added tax JEL Codes F33 . F34 . F53
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s12116-02009307-4) contains supplementary material, which is available to authorized users.
* Bernhard Reinsberg [email protected]
1
Centre for Business Research, University of Cambridge, Cambridge, UK
2
School of Social and Political Sciences, University of Glasgow, 40 Bute Gardens, Adam Smith Building, Glasgow G12 8RT, UK
3
Royal Holloway, University of London, London, UK
4
Bocconi University, Milan, Italy
Studies in Comparative International Development
Introduction Strengthening fiscal capacity in low- and middle-income countries is essential for achieving sustainable development (Di John 2006; Brautigam et al. 2008; Besley and Persson 2011). It enables countries to undertake necessary investments into infrastructure and national public goods, thereby increasing economic efficiency, while also strengthening the social contract with their tax-paying citizens, thus mitigating corruption and increasing political stability (Bräutigam and Knack 2004; Di John 2006; Djankov et al. 2008; Fjeldstad and Moore 2008). Consequently, it should come as no surprise that the international community—in the form of the Sustainable Development Goals—declared its ambition to strengthen fiscal capacity (SDG 17.1). In 2010, G20 leaders underscored the importance of building tax capabilities, calling for international financial institutions to ramp up their efforts. The International Monetary Fund (IMF)—the primary global agent of fiscal policy reform—has taken a front-stage role in this process. Through its in-house tax research (e.g., Keen 2009; Cottarelli 2011; Akitoby et al. 2018), the institution disseminates experience on tax p
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