Effective Versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies

34 Pages Posted: 27 Jan 2001

See all articles by Mark E. Schaffer

Mark E. Schaffer

Heriot-Watt University - Centre for Economic Reform and Transformation; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Gerard Turley

University of Galway - Department of Economics

Date Written: November 2000

Abstract

Wide differences between effective or realised average tax rates and tax yields that would result if statutory tax rates were strictly applied indicate tax compliance and collection problems. Due to the greater politicisation of tax systems in transition economies (TEs), we would expect the shortfalls in effective tax yields for TEs to be larger than a benchmark for the mature market economies where tax systems are well established, the administrative capacity is stronger and tax arrears are tolerated less frequently. The methodology involves calculating an effective/statutory (E/S) tax ratio. Initial results indicate that the leading TEs have E/S ratios similar to the EU average. We find a positive correlation between progress in transition and effective tax administration, as measured by our E/S ratio. For slow reformers, the effectiveness of tax collection appears to vary with the extent of state control. Those TEs that have maintained the apparatus of the state have done well in tax collection compared to those countries where there is evidence of state decay. This raises a number of broad policy issues relating to the speed of transition, the interaction of politics and economic reforms, the capacity of the state to govern and the need for market institutions to develop.

Keywords: Statutory taxation, average tax rate, tax collection, effective administration, transition economies

JEL Classification: H2, H32, H87, P5

Suggested Citation

Schaffer, Mark E. and Turley, Gerard, Effective Versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies (November 2000). Available at SSRN: https://ssrn.com/abstract=257681 or http://dx.doi.org/10.2139/ssrn.257681

Mark E. Schaffer (Contact Author)

Heriot-Watt University - Centre for Economic Reform and Transformation ( email )

School of Management - Department of Economics
Edinburgh EH14 4AS
United Kingdom
+44 131 451 3494 (Phone)
+44 131 451 3008 (Fax)

HOME PAGE: http://www.hw.ac.uk/ecoWWW/cert

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Gerard Turley

University of Galway - Department of Economics

Newcastle Road
Galway
Rep. of Ireland
353-91-524411 (Phone)
353-91-524130 (Fax)

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