draining development.pdf - Khazar University

The Practical Political Economy of Illicit Flows 479high degree of overlap between the various lists of weak or failed states. Langbeinand Knack (2010) show that, despite the effort that goes into the constructionof the World Bank’s flagship Worldwide Governance Indicators, the indicatorsare highly correlated. For the present purposes, the concepts of stateweakness or fragility can be considered to refer to a common syndrome. SeeWorldwide Governance Indicators (database), World Bank, Washington, DC,http://info.worldbank.org/governance/wgi/index.asp.9. For literature on the incentives for elites to weaken state institutions deliberately,see Ganev (2007) and Mathew and Moore (2011).10. Abuja, Kano, and Onitsha, “Nigeria’s Prospects: A Man and a Morass; Can theNew Government of Goodluck Jonathan Clean Up Corruption and Set EnterpriseFree in Africa’s Most Populous Country?” Economist, May 28–June 3, 2011,28–29.11. My classification differs from that employed by Stephanie Blankenburg andMushtaq Khan in their chapter in this volume mainly in that I treat tax havensas a distinct category.12. The other features of economic structure that consistently correlate with ahigher tax take are (a) the size of the nonagricultural economy and (b) the ratioof foreign trade to GDP (Gupta 2007; Pessino and Fenochietto 2010; Piancastelli2001). For explanations of the higher taxability of high income economies, seeGordon and Li (2009) and Moore (2008).13. There is little or no effort to implement the core process of a true VAT: the reconciliationof mandatory invoices relating to interbusiness transactions.14. We also know that tax exemptions for companies have become more commonin Sub-Saharan Africa since 1980, especially in the more damaging form of taxholidays, as opposed to investment allowances that can be offset against tax liabilities(Keen and Mansour 2010).15. Ideally, we would measure the corporate income tax take as a proportion ofcorporate profits. However, the latter figures are not available.16. Tax effort is defined as actual tax collection as a percentage of the collections onecould expect given the structure of national economies.17. See chapter 7 by Lorraine Eden in this volume. A report released by China’sCentral Bank in June 2011 and quickly recalled suggested that, from the mid-1990s up until 2008, between 16,000 and 18,000 officials and employees of stateownedcompanies had fled China, mainly to the United States, having used offshorebank accounts to transfer more than US$120 billion overseas. See “ChineseOfficials Stole $120 Billion, Fled Mainly to US,” BBC News Asia-Pacific, June 17,2011, http://www.bbc.co.uk/news/world-asia-pacific-13813688.18. I have not provided detailed statistical evidence to support table 14.2. This supportis generally to be found in major data series such as the World Bank’sWorldwide Governance Indicators, where the best national level proxy scores forthe concepts I have used in table 14.2 generally correlate significantly with averageper capita income levels. There are important questions about the extent to