draining development.pdf - Khazar University

80 Draining Development(compared with only 8.3 percent of GDP collected in taxes) (Gray2001).• In Niger, the political chaos of the 1990s saw rampant tax evasiontrigger a major decline in fiscal revenues (Ndulu et al. 2008).• In Pakistan, as the legitimacy of the state collapsed, the size of theinformal economy increased from 20 percent of GDP in 1973 to 51percent in 1995, while tax evasion more than trebled over the sameperiod and continued thereafter within the climate of continuingpolitical turmoil and military rule; the tax-GDP ratio fell from 13.2percent in 1998 to 10.6 percent in 2006 (Saeed 1996).• In Paraguay, the political optimism and improved tax complianceafter the end of the Stroessner dictatorship had faded by 2003, whenincreasing tax evasion and corruption were depriving the state ofabout two-thirds of potential revenues (Freedom House 2008). 25• In West Bank and Gaza during the period 1994 to 2000, the decliningperceived legitimacy of the Palestinian Authority reflected an apparentlyincreasing tolerance of tax administrative procedures that facilitatedevasion and corruption (Fjeldstad and al-Zagha 2004).The political foundations of tax systems are apparent in the contrastbetween states in the Caribbean and states in Latin America given thatCaribbean countries inherited parliamentary institutions rather thanthe presidential regimes of Latin America. This constitutional differenceapparently created a broader acceptance of the need for an effective taxsystem across the Caribbean because parliamentary systems offer thepossibility of negotiating a compromise among elites in forming a government.By contrast, Latin American political structures created avicious circle of political instability and more regressive tax structures(Schneider, Lledo, and Moore 2004).The collapse of the Soviet Union and the resulting political uncertaintiesin the transition countries over the progress toward representationthrough taxation underline the political foundations of tax evasion(Gehlbach 2008). 26 For instance, in Armenia, evasion became endemic asthe tax-GDP ratio halved from 29 percent in 1991 to 14.8 percent in1994. Although it recovered to 17 percent in 1997, the tax-GDP ratioremained well below the level in other transition economies that had amore secure political consensus on national purpose and that had not