TRENDS AND THREE ISSUES

Michael Keen

2014 CAPE Conference, ODINovember 12, 2014

Better Growth, Better Climate: The New Climate Economy Report

Trends

Tax revenues have more than held up

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Low income Lower middle income Upper middle income High income

But there is need, and scope , to do more

But it’s not just the total that matters…

Low in

come

Lower

middle inco

me

Upper middle

income

High in

come

012345678

VAT revenues have increased…

1990-19992000-20092010-2012

Perc

ent G

DP

Low income

Lower middle income

Upper middle income

High income

0.00.51.01.52.02.53.03.5

…and CIT revenues been robust

1990-19992000-20092010-2012

Perc

ent G

DP

Low income

Lower middle income

Upper middle income

High income

0

2

4

6

8

10

12

PIT revenues are modest but ris-ing….

1990-19992000-20092010-2012

Perc

ent G

DP

Low income

Lower middle income

Upper middle income

High income

0.00.51.01.52.02.53.03.54.0

…while trade taxes are in decline

1990-19992000-20092010-2012

Perc

ent G

DP

EI revenues are important to many

Iraq

Equato

rial G

uineaLib

ya

Kuwait

Bahrai

n

Nigeria

Algeria Ira

nQata

rSu

dan

Azerbaij

an

Botswan

aSy

ria

Kazakh

stan

Bolivia

Indonesia

DRC

Guinea

Norway

Mongolia

Chile

Colombia

Zambia

Ghana

Australi

aBraz

il

United Kingd

om

Canad

a0

10

20

30

40

50

60

70

80

90

100 Average Natural Resource Revenue (in % Total Government Revenue) 2000-2011

PetroleumMiningBoth

Some results on conditionality

Extent and nature of revenue-related conditionality

Resurgence since crisis Much focus on commodity tax

0

5

10

15

20

25

30

35

40

45

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

low income middle income

G&S56%

Income32%

Trade12%

Signs of an impact?

Crivelli and Gupta (2014)

• Panel of 126 countries, 1993-2013; add dummy for revenue-conditionality met to standard effort equation; system GMM

• Revenue conditionality has significant, sizable impact– Mainly for revenue from goods and services– Especially in lower income countries– Especially where governance strong

• Lessons?

Innovative sources of finance

Is it needed?Proposals continue: FTT, SDRs, carbon taxes—May or may not be good taxes, but:

• Why would governments be more willing to give up these revenues then others?

• Stronger case for those that improve efficiency– But increased giving likely to be minor

• Ideal is an efficient tax not ‘belonging’ to anyone– International maritime/aviation

A diversion?

Protecting tax bases in developing countries

Heavy reliance on corporation tax

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

20120

2

4

6

8

10

12

14

16

18

20

Corporate tax revenue (in % of total revenue)

• Some items especially important for DCs– Dealing with treaty abuse

• NL willing to renegotiate relevant clauses

– Simplifying arms length pricing?

• And significant issues for many from “Indirect transfers of interest”

• ‘Fixing’ international tax won’t solve all problems—but will be a big help

Importance of G20/OECD “BEPS” project