draining development.pdf - Khazar University

The Political Economy of Controlling Tax Evasion and Illicit Flows 91uct per capita of US$668, collected 16.5 percent, while Lesotho, with aslightly lower per capita gross national product (US$624), collectedmore than twice as much, at 36.8 percent of GDP (Teera and Hudson2004). 46 Mozambique’s tax revenue, at 13.4 percent of GDP in 2006, representsa remarkable recovery from civil war, but remains well belowthat of comparable low-income countries in the region, such as Malawi(18 percent) and Zambia (18 percent). 47Policy Implication: Strengthen the Political Commitmentto Effective StatesEffective tax regimes develop when political leaders need effective taxsystems. The necessary political commitment to tackle evasion ariseswhen the political costs of the tax effort are outweighed by the politicalbenefits of delivering sustainable development, including by providingthe state with the capacity to enforce the property rights of politicalelites, thereby helping facilitate the emergence of long-term political stabilityand economic growth. The political incentives around taxes,growth, and property rights are central to this dynamic. An effective taxsystem offers a general investment in the public goods that the economyand society need. Concepts such as citizenship, fairness, trust, and equalitydevelop practical manifestation through taxation: “the tax system istherefore an effective way of articulating assumptions about the market,consumption and social structures” (Daunton 2001, 21).Because political ideas, interests, incentives, and identities reflect andare reflected through the tax system, the evolution of tax structuresdemonstrates a state’s political and economic levels of development(Thies 2004; Fjeldstad and Moore 2009). For example, both Finland andSierra Leone collected 31 percent of total revenue in generally progressivetaxation on income and property in 1990; yet, Finland was able tocollect more than seven times the revenue take, as a share of GDP, thanSierra Leone (Lieberman 2002). Evasion may express politically passiverather than actively subversive attitudes toward government, particularlywhere, in the Chinese phrase, “the Mountain is high and theemperor far away.” Focused mainly on local taxes and fees, Chinese villagers,in the 1980s, developed a moral politics of evasion (taoshui) andtax resistance (kangshui) around the perceived extent of reciprocity and