Edited by Julio Faundez and Celine Tan
Chapter 7: Taxing Constraints on Developing Countries and the Global Economic Recession
David Salter* INTRODUCTION 1. Taxation and the corresponding raising of tax revenue are central to a country’s culture, legal system and ultimate development. The correlation between taxation and development is imprecise not least because of the other tangible and intangible factors that impact upon development. However, tax revenues feed development and without economic growth linked to development tax revenues are circumscribed. In the absence of a worldwide unitary tax system, taxation and the raising of tax revenues lie primarily within the province of individual countries. Consequently, taxation has the potential to empower a country to allocate resources and to adopt policies, determined by economic and political considerations, as to its wealth and its distribution. In developed countries, the presence of strong governance systems ensures that this potential can normally be realised and hence the control of taxation and for that matter borrowing remains in central government. This cannot be said of developing countries. In this chapter, an examination is undertaken of the ways in which such fiscal autonomy or sovereignty has been fettered or constrained in developing countries whose tax systems and other governance systems are at an earlier stage of development than their counterparts in developed countries. This encompasses an initial consideration of in-built domestic constraints, followed by an analysis of inter-country constraints (regional trade/tax agreements, multilateral and bilateral double taxation agreements, and tax competition) and international institutional constraints arising out of membership of or dealings with international organisations or supranational legal regimes, leading * Associate Professor, School of Law,...
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