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How do political institutions affect fiscal capacity? Explaining taxation in developing economies

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  • Roberto Ricciuti
  • Antonio Savoia
  • Kunal Sen
Abstract
A central aspect of institutional development in less developed economies is building tax systems capable of raising revenues from broad tax bases, i.e., fiscal capacity. While it is recognised in the literature that fiscal capacity is pivotal for state building and economic evelopment, it is less clear what its origins are and what explains its cross-country differences. We focus on political institutions, seen as stronger systems of checks and balances on the executive. Exploiting a recent database on public sector performance in developing economies and an IV strategy, we identify their long-run impact and we ‘unpack’ the concept of fiscal capacity, distinguishing between the accountability and transparency of fiscal institutions (impartiality) and their effectiveness in extracting revenues. We find that stronger constraints on the executive foster the impartiality of tax systems. However, there is no robust evidence that they also improve its effectiveness. The impact of political institutions on the impartiality dimension works through the rule of law and the performance of the bureaucracy.

Suggested Citation

  • Roberto Ricciuti & Antonio Savoia & Kunal Sen, 2016. "How do political institutions affect fiscal capacity? Explaining taxation in developing economies," Global Development Institute Working Paper Series esid-059-16, GDI, The University of Manchester.
    • Handle: RePEc:bwp:bwppap:esid-059-16
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    Cited by:

    1. Albers, Thilo N.H. & Jerven, Morten & Suesse, Marvin, 2023. "The Fiscal State in Africa: Evidence from a Century of Growth," International Organization, Cambridge University Press, vol. 77(1), pages 65-101, January.
    2. Diana Ricciulli-Marín, 2020. "The Fiscal Cost of Conflict: Evidence from La Violencia in Colombia," Cuadernos de Historia Económica 53, Banco de la Republica de Colombia.
    3. Esteban Muñoz-Sobrado & Amedeo Piolatto & Antoine Zerbini & Federica Braccioli, 2024. "The Taxing Challenges of the State: Unveiling the Role of Fiscal & Administrative Capacity in Development," Working Papers 1432, Barcelona School of Economics.
    4. Daniel Chachu, 2021. "Good institutions and tax revenue outcomes in resource-rich countries: When 'good' is not enough," WIDER Working Paper Series wp-2021-75, World Institute for Development Economic Research (UNU-WIDER).
    5. Abrams M.E. Tagem, 2017. "The economics and politics of foreign aid and domestic revenue," WIDER Working Paper Series 180, World Institute for Development Economic Research (UNU-WIDER).
    6. Masi, Tania & Savoia, Antonio & Sen, Kunal, 2024. "Is there a fiscal resource curse? Resource rents, fiscal capacity and political institutions in developing economies," World Development, Elsevier, vol. 177(C).
    7. Loredana Andreea Cristea & Alina Daniela Vodă & Dragoș Mihai Ungureanu, 2020. "The Characterization of the Taxation Process in Terms of Tax Culture, as an Element of Novelty," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 863-870, December.
    8. Ane Karoline Bak & Matilde Jeppesen & Anne Mette Kjær, 2021. "Fiscal states in sub-Saharan Africa: conceptualization and empirical trends," WIDER Working Paper Series wp-2021-182, World Institute for Development Economic Research (UNU-WIDER).
    9. Roberto Ricciuti & Antonio Savoia & Kunal Sen, 2019. "What determines administrative capacity in developing countries?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 972-998, October.
    10. Savoia, Antonio & Sen, Kunal & Tagem, Abrams M. E., 2023. "Constraints on the executive and tax revenues in the long run," Journal of Institutional Economics, Cambridge University Press, vol. 19(3), pages 314-331, June.
    11. von Haldenwang, Christian, 2020. "Digitalising the fiscal contract: An interdisciplinary framework for empirical inquiry," IDOS Discussion Papers 20/2020, German Institute of Development and Sustainability (IDOS).
    12. Abrams M.E. Tagem, 2017. "The economics and politics of foreign aid and domestic revenue," WIDER Working Paper Series wp-2017-180, World Institute for Development Economic Research (UNU-WIDER).
    13. Pham Thai Binh & Trang Thi Thuy Nguyen, 2024. "Do institutions advocate tax simplification? Insights from a panel of 88 countries," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-39, June.
    14. Andersson, Martin, 2018. "Resilience to Economic Shrinking: A Social Capability Approach to Processes of Catching up in the Developing World 1951-2016," Lund Papers in Economic History 183, Lund University, Department of Economic History.
    15. Diana Ricciulli, 2020. "The Fiscal Cost of Conflict: Evidence from La Violencia in Colombia," Documentos CEDE 18537, Universidad de los Andes, Facultad de Economía, CEDE.
    16. Roberto Ricciuti & Antonio Savoia & Kunal Sen, 2019. "What determines administrative capacity in developing countries?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 972-998, October.
    17. Preeya Mohan & Eric Strobl, 2021. "The impact of tropical storms on tax revenue," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(3), pages 472-489, April.
    18. Tania Masi & Antonio Savoia & Kunal Sen, 2020. "Is there a fiscal resource curse? Resource rents, fiscal capacity, and political institutions in developing economies," WIDER Working Paper Series wp2020-10, World Institute for Development Economic Research (UNU-WIDER).
    19. Mfouapon Alassa & Kamdem Cyrille Bergaly & Mohammadou Nourou, 2022. "Agricultural Foreign Aid Allocation in Sub-Saharan Africa: The importance of Democracy and Quality of Governance," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(3), pages 84-100, March.
    20. Tamisai Chipunza & Senia Nhamo, 2023. "Fiscal capacity and public health expenditure in Zimbabwe," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2175459-217, December.
    21. Adelaide Baronchelli & Alessandra Foresta & Roberto Ricciuti, 2020. "The Words That Keep People Apart. Official Language, Accountability and Fiscal Capacity," CESifo Working Paper Series 8437, CESifo.
    22. Grier, Robin & Young, Andrew T. & Grier, Kevin, 2022. "The causal effects of rule of law & property rights on fiscal capacity," European Journal of Political Economy, Elsevier, vol. 74(C).
    23. Abrams M.E. Tagem & Oliver Morrissey, 2021. "What are the drivers of tax capacity in sub-Saharan Africa?," WIDER Working Paper Series wp-2021-161, World Institute for Development Economic Research (UNU-WIDER).
    24. Abrams M. E. Tagem, 2023. "The dynamic effects of aid and taxes on government spending," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1656-1687, December.

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