![]() The visualization from Besley and Persson (2013) 1 tracks a group of 18 countries, in order to show how different taxation instruments became increasingly more common during the 20th century. This required states to build tax administration systems, and implement tax withholding at source, in order to effectively raise compliance. The growth of tax revenues that took place in early-industrialized countries after the First World War was largely supported by the extension of income taxes. These potential efficiency losses highlight the importance of designing taxation systems that achieve redistributive objectives at the smallest possible cost. ![]() ![]() For example, recent studies have found that taxation may lead to efficiency losses by inducing migration of ‘super stars’. In particular, we show that taxation does have a powerful redistributive effect, but it is important to consider how taxation also affects behavior of individuals, by changing economic incentives. In the last part of this entry we provide an overview of empirical evidence regarding the equity and efficiency implications of taxation. Both of these factors seem to be affected by the strength of political institutions. This suggests that cross-country heterogeneity in fiscal capacity is largely determined by differences in compliance and efficiency of tax collection mechanisms. Moreover, the data shows that developed countries actually collect much higher tax revenue than developing countries despite comparable statutory taxation rates, even after controlling for underlying differences in economic activity. Developing countries, in contrast, rely more heavily on trade taxes, as well as taxes on consumption. In particular, developed countries today collect a much larger share of their national output in taxes than do developing countries and they tend to rely more on income taxation to do so. Taxation patterns around the world today reveal large cross-country differences, especially between developed and developing countries. The available long-run data shows that in the process of development, states have increased the levels of taxation, while at the same time changing the patterns of taxation, mainly by providing an increasing emphasis on broader tax bases. We begin this entry by providing an overview of historical changes in taxation patterns, and then move on to an analysis of available data from the last couple of decades, discussing recent trends and patterns in taxation around the world.įrom a historical perspective, the growth of governments and the extent to which they are able to collect revenues from their citizens, is a striking economic feature of the last two centuries. ![]() According to the most recent estimates from the International Centre for Tax and Development, total tax revenues account for more than 80% of total government revenue in about half of the countries in the world – and more than 50% in almost every country. Taxation is, by and large, the most important source of government revenue in nearly all countries.
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