Abstract
This paper analyzes macroeconomic indicators that determine tax revenues in six Southeast Asian countries during 2008 – 2019. The estimation results are then used to predict the value of taxable capacity to construct the deal of tax effort. Using the FE model equipped with the Driscoll-Kraay standard errors, this study finds positive and significant effects of per capita income, manufacturing, and trade openness on the actual tax-to-GDP ratio and tax effort. In contrast, inflation is considered a different determinant because of its insignificant effect on the two measures of tax performance. In addition, the authors also classify countries into three other groups based on the actual level of tax revenue and the effort put into collecting taxes. The benchmarks used to rank countries are all sample countries’ median substantial tax revenue and the tax effort index 1. Regardless of the classification, several policy implications are offered to increase tax collection productivity by focusing on the revenue bases used in the estimation model. Keywords: Tax Revenue, Tax Capacity, Tax Effort, Southeast Asia, Panel DataJEL: H2, O1, O2
Highlights
Tax performance in Southeast Asia is relatively low
Columns 1 and 2 of the table show the regression results with the FE model, while columns 3 and 4 show the regression results with the random effects (RE) model
Because the Hausman test results in column 1 state that the p-value of Wald chi2-statistics is below the threshold of 1%; the model with fixed effects is preferred
Summary
Tax performance in Southeast Asia is relatively low. The average tax revenue in the countries has been only around 13% of GDP in the last decade (World Bank, 2021). World Bank suggests that the “tipping point” of a country’s tax revenues is at 15% of GDP (Junquera-Varela & Haven, 2018) Tax revenues above this threshold are seen as a critical element for economic growth and, poverty reduction. This idea gains support from recent studies. Gaspar, Jaramillo and Wingender (2016) empirically proved that countries with tax revenues above 15% of GDP could achieve a per capita income that was 7.5 per cent higher than expected for ten years This level of taxation ensures that countries have the money they need to invest in the future and achieve sustainable economic growth
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