Tax Capacity, Fiscal Federalism

and Development

,
,
1, 2015
q  ︎

A. Total Tax Revenue to GDP

50

OLS Coefficient: 5.72 (1.24)

40
Total taxes / GDP
30
20
10
0

7 8 9 10 11
Log GDP per Capita in 2005

Source: Kleven, Kreiner, Saez (2015)

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A. Country-level taxes and income B. Global-level taxes and income

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5 year averages of share of taxes in GDP
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Share of taxes in GDP (1999)
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Log GDP per capita in 2000 5 year averages of log GDP per capita

High income in 2000 Mid income in 2000 1900-39 1940-49 1950-69

Low income in 2000 Fitted values 1970-99 Fitted values

Figure 3: Tax revenue and GDP per capita

such tax allocations may encourage smuggling, this is a much easier propo-
sition than collecting income taxes. The latter requires major investments
in enforcement and compliance structures throughout the entire economy.
1. 
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A. Country-level income and trade taxes by GDP B. Global-level income and trade taxes by time period
.8

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5 year averages of share of income tax
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Share of income taxes (1999)
.4

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.2

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0 .2 .4 .6 0 .2 .4 .6
Share of trade taxes (1999) 5 year averages of share of trade tax

High income in 2000 Mid income in 2000 1900-39 1940-49 1950-69

Low income in 2000 Fitted values 1970-99 Fitted values

Figure 4: Income taxes and trade taxes (2012)

similar with a very similar slope of the regression lines.

Figure 5 zooms in on the income tax, plotting the relationship between
the share of income taxes in total taxes and income per capita, in the current
cross section as well as the historical time series. The left panel separates
the observations into three groups by tax take: countries that raise more
than 25% of taxes in GDP, countries that raise 15-25% of taxes in GDP, and
1. 
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 80
Top Statutory Income Tax Rate in 1990s
0 20 40 60

0 .1 .2 .3 .4 .5
Share of Taxes in GDP (1999)

High income in 2000 Mid income in 2000

Low income in 2000 Fitted values

(2012)
Figure 6: Top statutory income tax rate and total tax take

progressivity into account. With this qualification, the fact that high-income
countries raise much more tax revenue than low-income countries suggests
that narrower tax bases driven by compliance di culties are much bigger
issues among low-income countries. This reinforces the earlier observation
that fiscal capacity is considerably less developed in poor countries.
1. 
1990
2000
q  21

19

q  . ( 17

) 15

13
q 
11

q  2008 7

5
00 01 02 03 04 05 06 07 08 09 10 11 12 13
20 20 20 20 20 20 20 20 20 20 20 20 20 20

Ghana Kenya Nigeria Sub-Saharan Africa (developing only)

2. 
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q 

q  (1927):

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Source: Singhal (2014)
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Source: Singhal (2014)

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Source: Kleven, Knudsen, Kreiner, Pedersen, Saez (2011) !

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.5
DENMARK
SW EDEN
NORWAY Italy
.4
Germany
Tax / GDP ratio

United Kingdom
Brazil
.3

Japan

United States
.2
.1

Mexico

0 .2 .4 .6 .8
Fraction self-employed

Source: Kleven (2014) !

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 300
millions of receip
Phase-in ends

200 100
Phase-in begins

0
2007m1 2007m7 2008m1 2008m7 2009m1 2009m7 2010m1 2010m7 2011m1 2011m7

Notes: The figure shows the total number of receipts (millions of receipts) – with and without a SSN – electronically reported to
the tax authority by month by establishments in Sao Paulo. The vertical lines highlight the key dates for the implementation of
the NFP program. Between Oct.07 (Phase-in begins line) and May.08 (Phase-in ends line) 8 groups of sectors were phased-in in
the policy of submitting receipts electronically to the tax authority. The possibility of inserting a SSN in the receipt for tax rebate
purposes was introduced along with the electronic submission of receipts. The first lottery based on the purchases with SSN
receipts was introduced in Dec.2008.

Figure 3: Consumer Participation

Figure 4: Are Consumers Paying Attention to the Rewards Schedule?
.
a. Number of consumers asking for SSN receipts and b:a:Average expenditure
Timing of lottery in SSN
results - Google receipts
searches perFiscal
for Nota month by.
Paulista
number of consumers with online accounts consumers with online accounts.
Lottery results are released around

1.2
600
th
20

Search volume relatively to the 1st day of the month

the 15 of each month

Average monthly expenditure in US$

1.15
500
15
millions of consumers

1.1
400
10

1.05
300
5

1
0

200
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
2009m1 2010m1 2011m1 2012m1 day of the month

Consumers with online accounts Consumers that ask for SSN receipts Nota Fiscal Paulista Futebol (soccer)
2009m1 2010m1 2011m1 2012m1

Notes: The dashed line in Figure 3a displays total number b:

ofTiming
consumers asking
of tax rebate for SSN- receipts
disbursements each month,
Rewards requested for depositand the solidbank
in consumers’ lineaccounts
is
the total number of consumers that had set up online account at the tax authority’s website between Jan. 2009 and Dec. 2011.
Any person holding a Brazilian SSN is eligible to ask for receipts. In ordertwo toannual disbursements of tax rebates:
collect rewards and opt in for lotteries consumers
100

April and October

need to enroll online. Figure 3b shows the average monthly expenditure by consumers with online accounts between Jan. 2009
Rewards requested for bank account deposits

and Dec. 2011. Monthly expenditure is the sum of the total value of SSN receipts by individual. The spikes of expenditure around
December of each year follows the seasonal variation in consumption due to Christmas shopping.
80

39
(millions US$)
20 40 60 0

2009m4 2009m10 2010m4 2010m10 2011m4 2011m10

Notes: Figure 4a displays the search volume from Google Trends website for Google searches with terms related to ”nfp” or ”nota
fiscal paulista” or ”nota paulista” pooled by day of the month from IPs addresses in the state of Sao Paulo between Oct. 2007
and Dec. 2011. It also displays searches for “futebol” (soccer in Portuguese) pooled by day of the month from IPs addresses in the
state of Sao Paulo for the same time period. The lottery results are released around the 15th of each month marked by the solid
vertical line. In Figure 4b each data point is the total amount in millions of US$ requested for direct deposit in consumer’s bank
accounts. As described in section II.B, the tax authority does a biannual disbursement of the tax rebates: every April and October.
 Figure 5: Compliance Effect – Retail vs. Wholesale
a. Raw data: reported revenue changes
3
2.5
2
1.5
1
.5
0

2005m1 2005m11 2006m9 2007m7 2008m5 2009m3 2010m1 2010m11 2011m9

Retail Wholesale

b. Difference coefficients for 6-month time bins - Log reported revenue by sector
17.6
eported Revenue

DD coef. = 0.22***
[0.042]
17.4
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 07_Connerley_Ch6.qxd
144
Table 6.1 Median Levels of Decentralization Measures by Geographic Region, 1995 (percentage)

Decentralization Number of Sub-Saharan Latin Middle Eastern Former Western

Measure Observations Africa East Asia South Asia America East Europe Soviet Union Europe

4/19/10
Number of tiers 164 4 4 4 3 3.5 3 4 3
Percent elected 155 33.3 35.4 33.3 62.5 0.0 83.3 33.3 69.0
Subnational share

3:21 PM
of public
expenditure 67 4.7 10.8 37.6 9.6 8.4 16.9 27.6 24.1
Subnational share
of total tax

Page 144
revenue 53 4.0 6.5 N/A 6.7 6.3 7.3 24.2 13.4
Subnational share
of public
employment 90 23.1 41.0 50.0 20.8 35.8 26.4 35.4 48.4
Stipulated
autonomy 133 6.9 11.8 20.0 23.5 0.0 8.3 15.4 33.0
Residual authority 133 3.8 5.9 20.0 22.2 0.0 16.7 7.7 23.8
Federal 164 4.8 5.2 28.6 14.8 5.3 9.1 7.1 23.8

Sources: Daniel Treisman, Defining and Measuring Decentralization: A Global Perspective (Los Angeles: University of California, 2002);
D. Elazar, Federal Systems of the World: A Handbook of Federal, Confederal and Autonomy Arrangements, 2nd ed. (London: Longman, 1994);
S. Saideman, D. Lanoue, M. Campenni, and S. Stanton, “Democratization, Political Institutions, and Ethnic Conflict: A Pooled Time-Series
Analysis, 1985–1998,” Comparative Political Studies 35 (1) (2002): 103–129.
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