Tax systems in transition

Mitra, Pradeep; Stern, Nicholas

Tax systems in transition

Autores

Mitra, Pradeep

Stern, Nicholas

Editor

World Bank, Washington, DC

Descripción

How have tax systems, whose primary role is to raise resources to finance public expenditures, evolved in the transition countries of Eastern Europe and the former Soviet Union? The authors find that: (1) the ratio of tax revenue-to-GDP decreased largely due to a fall in revenue from corporate income tax; (2) the fall in revenue from the corporate income tax led to a decline in the importance of income taxes, notwithstanding a rise in the share of individual income tax; (3) social security contributions together with payroll taxes became less important in the Commonwealth of Independent States; and (4) domestic indirect taxes gained in importance in overall tax revenues. Apart from the increased role of personal income taxation, these developments go in a direction opposite to those observed in poor countries as they get richer. They show a key aspect of transition, namely a movement from a system where the government exercised a preeminent claim on output and income before citizens had access to the remainder, to one with a greatly diminished role for the public sector, as reflected in a lower ratio of public expenditure to GDP, where the government needs to collect revenue in order to spend. Can expected levels of public expenditure be financed by the basic instruments of a modern tax system without creating significant distortions in the private sector? The authors suggest that transition countries, depending on their stage of development, should aim for a tax revenue-to-GDP ratio in the range of 22 to 31 percent, comprising value-added tax (6 to 7 percent), excises (2 to 3 percent), income tax (6 to 9 percent), social security contribution together with payroll tax (6 to 10 percent), and other taxes such as on trade and on property (2 percent). The authors' analysis also sheds light on the links between tax policy, tax administration, and the investment climate in transition countries.

Palabras clave

TAX SYSTEMS, TAX REVENUES, BUSINESS ENVIRONMENT, FOREIGN DIRECT INVESTMENTS, INVESTMENT ENVIRONMENT, TRANSITIONAL ECONOMIES, TAX STRUCTURES, SOCIAL SECURITY TAXES, INCOME TAXES, CORPORATE TAXATION, INDIRECT TAXATION, PAYROLL TAXES, PUBLIC ENTERPRISES, VALUE ADDED TAXES, BUDGET CONTROL ACCOUNTING, BENCHMARK, CAPITAL GAINS, CENTRAL PLANNING, COMMAND ECONOMY, CORPORATE INCOME TAX, CORPORATE INCOME TAXES, CORPORATE TAXES, DEVELOPMENT ECONOMICS, DEVELOPMENT PERSPECTIVES, ECONOMIC DEVELOPMENT, EMPIRICAL ANALYSIS, EMPIRICAL EVIDENCE, EMPLOYMENT, FINANCIAL SUBSIDIES, FISCAL DEFICITS, FISHING, FORESTRY, GDP, GDP PER CAPITA, GOVERNMENT EXPENDITURES, HEALTH EXPENDITURES, HOUSING, INCOME, INCOME LEVELS, INCOME TAXES, INDIVIDUAL INCOME TAXES, INFLATION, INSURANCE, INTERNATIONAL TRADE, MARKET DISCIPLINE, PAYROLL TAXES, PENSIONS, PER CAPITA INCOME, PERSONAL INCOME TAXES, PRIVATE SECTOR, PROPERTY RIGHTS, PUBLIC EXPENDITURE, PUBLIC EXPENDITURES, PUBLIC GOODS, PUBLIC SECTOR, PUBLIC SPENDING, PURCHASING POWER, REVENUE SOURCES, SECURE PROPERTY RIGHTS, SOCIAL SERVICES, SOFT BUDGET CONSTRAINTS, STATE ENTERPRISES, TAX, TAX ADMINISTRATION, TAX COMPLIANCE, TAX REFORM, TAX REVENUE, TAX REVENUES, TAX SYSTEMS, TAXATION, TRADE TAXES, TRADEOFFS, TRANSITION ECONOMIES, UNEMPLOYMENT, UNEMPLOYMENT RATE, VALUE ADDED, WEALTH