How Can Lower-Income Countries Collect More Taxes? The Role of Technology, Tax Agents, and Politics

Abstract

Increasing tax revenues is a major policy goal in many low- and lower-middle-income countries. While economic growth is an important determinant of taxation, available evidence indicates that it does not automatically increase taxation. Rather, countries must make targeted investments in their tax capacity. In this paper, we examine the rapidly growing body of evidence on different interventions to improve tax capacity and increase tax revenues in lower income countries, with a focus on two key inputs: information technology and tax officials. We examine the role and limitations of digitization for identifying taxable entities, verifying tax liabilities, and ensuring collection of tax owed. We also consider how the deployment and incentives of tax officials shape their performance, and the interplay between them and technology tools. Lastly, we emphasize the importance of political incentives and consider the conditions under which governments choose to invest in tax capacity and expand tax collection.