draining development.pdf - Khazar University

The Political Economy of Controlling Tax Evasion and Illicit Flows 958. Silvani and Baer (1997) offer a typology for the tax gap, ranging from countrieswith a tax gap at under 10 percent (for example, Denmark or Singapore), whichreflects high political will and strong administration, to countries with a tax gapat over 40 percent (for example, Kenya), which reflects limited political will andweak tax administration.9. The Organisation for Economic Co-operation and Development offers a definitionof state building, as follows: “purposeful action to develop the capacity,institutions and legitimacy of the state in relation to an effective political processfor negotiating the mutual demands between state and societal groups” (OECD2008, 14).10. Musgrave (1996) offers four basic patterns: the service delivery state, the welfarestate, the communitarian state, and the government failure state (rather than themarket failure state).11. Legitimacy is a significant component of economic growth in developingcountrycontexts; see Englebert (2000).12. As a percentage of actual total tax revenue and of potential tax revenue, tax evasiondeclined between 1972 and 1974, thereafter rose rapidly, and was about 60percent of actual tax revenue and 37 percent of potential tax revenue in 1990,representing sevenfold and fourfold increases, respectively. See Chipeta (2002);Therkildsen (2001).13. In 1999, only 3.4 percent of the Russian population thought they could trust thestate (Oleinik 1999).14. It has been calculated that, in India in the 1980s, up to 45 percent of gross nationalproduct was produced by distortionary government policies (for example, artificialprice setting, the protection of state-owned enterprises, and governmentmonopolies) (Mohammad and Whalley 1984).15. In Bangladesh, for example, criminal prosecution for grand evasion is almostunknown; in India, tax evasion, estimated at from Rs 400 billion to Rs 1 trillion,is at the heart of the informal economy, in which politically influential industriesoperate (Vittal 1999).16. Schneider and Enste (2000) outline the political determinants of tax evasionand the informal sector.17. On the missing middle, or the absence of medium-size firms as a result of disproportionatetax burdens, see Kauffmann (2005).18. Wa Wamwere (2003, 176) describes this as follows: “The cream of governmentservice goes to the ruling ethnic elites, the crumbs to the lesser ethnic elites, anddust to members of the so-called ruling ethnic community.” See also Kimenyi(2006).19. For taxation, four political dimensions of the state then shape the effectivenessof tax systems, as follows: (a) the degree of concentration of state power (forexample, a unitary or federal system), (b) the state’s reach into society (forexample, the capacity to collect information and attain adequate territorial