Lessons from Developing Countries
Our first aim is to understand what economic and political factors matter for tax revenue and tax structure. Therefore, in this chapter we provide an overview of the economic and political variables which may play a role in explaining the level of tax revenue, as well as the tax composition. For this introductory analysis, unless differently specified, we will look at data of our complete sample of new EU member countries (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia), Asian countries (China, India, Indonesia, the Republic of Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka, Thailand and Vietnam) and Latin American countries (Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela).1 In particular, we will refer to new EU member countries as a benchmark of stable, though young, democracies which have recently completed their democratic transition. As such, they are particularly useful for the comparison with Asian and Latin American areas, where democracy is much more unstable even in recent years. The preliminary evidence presented in this chapter motivates the specific focus of analysis that these two areas will receive in Chapters 4 and 5. We will compare our preliminary evidence with the directions of the relationships predicted by the theoretical studies and with the findings of other empirical works on taxation, in particular those which focus on developing countries. We will first adopt a parsimonious baseline specification where we...
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