How Can Lower-Income Countries Collect More Taxes? The Role of Technology, Tax Agents, and Politics

Taxes are the main source of government revenue in most countries and axes are the main source of government revenue in most countries and provide funding for public investments in human capital, infrastructure, provide funding for public investments in human capital, infrastructure, and social insurance. Increasing tax revenues is thus a major policy goal in and social insurance. Increasing tax revenues is thus a major policy goal in many low- and lower-middle income countries that collect a low share of their GDP many low- and lower-middle income countries that collect a low share of their GDP as tax revenues. In 2019, for example, the average tax-to-GDP ratio was 12 percent as tax revenues. In 2019, for example, the average tax-to-GDP ratio was 12 percent for low-income countries, 18 percent for lower-middle-income countries, 21 percent for low-income countries, 18 percent for lower-middle-income countries, 21 percent for upper-middle-income countries, and 30 percent for high-income countries for upper-middle-income countries, and 30 percent for high-income countries (UNU-WIDER 2022a). Tax-to-GDP ratios among lower-income countries in fact (UNU-WIDER 2022a). Tax-to-GDP ratios among lower-income countries in fact resemble those of modern high-income countries at similar stages of development: resemble those of modern high-income countries at similar stages of development: among 18 developed countries with available historical data, tax-to-GDP ratios in among 18 developed countries with available historical data, tax-to-GDP ratios in 1919 averaged 12 percent (Besley and Persson 2014; Mitchell 2007). To account 1919 averaged 12 percent (Besley and Persson 2014; Mitchell 2007). To account for why developing countries tax so little, Besley and Persson (2014) argued in this for why developing countries tax so little, Besley and Persson (2014) argued in this journal that low taxation is an outgrowth of deeper economic and institutional journal that low taxation is an outgrowth of deeper economic and institutional factors constraining development, concluding that "the most important challenge factors constraining development, concluding that "the most important challenge is taking steps that encourage development, rather than special measures focused is taking steps that encourage development, rather than special measures focused exclusively on improving the tax system."exclusively on improving the tax system."This view might suggest that tax capacity should expand with economic devel-opment. However, over the last 30 years, the relationship between GDP growth