draining development.pdf - Khazar University

94 Draining Developmentincentives and interests are aligned with the goal of building state capacities.This will only occur in developing countries if a broad political consensusin its favor is created. Administrative efforts to tackle illicit capitalflows will only be as effective as the constantly evolving political processof state building allows, because “the history of state revenue productionis the history of the evolution of the state” (Levi 1989, 1).Notes1. “Responsible Leadership for a Sustainable Future,” G-8 Leaders Declaration,paragraph 17d, L’Aquila, Italy, July 8, 2009, http://www.g8italia2009.it/static/G8_Allegato/G8_Declaration_08_07_09_final%2c0.pdf.2. Recognition of the relationship between tax evasion and effective governance isnot new. In the mid-fifth century, the theologian Salvian the Presbyter of Marseilles,seeking to make sense of the decline and fall of the Roman Empire thathe witnessed around him, concluded that the empire’s collapse lay in the interconnectionbetween poor governance and a weak tax system. Modern researchvalidates Salvian’s specific analysis and general thesis: tax evasion was both causeand symptom of Rome’s decline: for example, see Wickham (2010).3. On the fiscal anthropology of power and reciprocal obligations, see Braithwaite(2003). By contrast, tax avoidance, the legal minimization of tax payments, indicatesweak policy and ineffectual administration.4. For example, on the case of Bolivia in the late 1990s, see Mosley (2007); on thelong and continuing tradition of Chinese peasant tax evasion as revolt, see Tilly(2003); on Ghana’s value added tax (VAT) riots in 1995, see Pritchard (2009).5. This involved not merely the evasion of direct taxation; for VAT evasion: seeMoreno-Dodson and Wodon (2008). For 1998, the estimated level of evasionwas 37.5 percent; in May 2000, the Procuradoría Fiscal de la Federaciónannounced that the overall level of evasion and avoidance represented 35 percentof potential collection.6. Tax evasion, corruption, and criminality are all illegal activities that flourish indomestic and international climates in which personal greed is unrestrained bythe political ambition to build legitimate, effective states. Nonetheless, theredoes not appear to be a single study that has tried to distinguish even conceptuallybetween them, let alone provide clear evidence of their relative importancein different contexts. This chapter is a beginning in addressing the first issue.That much remains to be done is suggested by the findings of Reuter and Truman(2004), according to which tax evasion accounted for over 55 percent ofcriminal proceeds in the United States in 1990.7. Tax morale is conceptually distinct from the instrumental willingness based ongovernment performance.