Revenue Instability Research Articles

Tax revenue instability in Sub‐Saharan Africa: Does institutional quality matter?

AbstractSub‐Saharan African (SSA) nations face a dual fiscal challenge: the need to increase tax revenue mobilization and to manage revenue instability. This paper examines the causal impact of institutional quality on tax revenue stability in SSA from 2000 to 2020. Using UNU‐WIDER data and the System GMM technique, the study finds that institutional quality reduces tax revenue instability, with a stronger effect on indirect tax revenues than on direct taxes. This result is robust to changes in the measure of tax revenue instability, the measure of quality of institutions, the sample, and the time horizon. The effect is particularly pronounced in resource‐rich countries and in countries experiencing economic growth. The article's results are relevant to tax policy, specifically the necessary adjustments to improve tax revenue stability through institutional quality.

Nonprofit Revenue Strategy and Downside Risk: Applying Portfolio Theory and Extreme Value Theory

The risk of revenue instability is a concern for any nonprofit. Existing research leads to the well-known strategy of equalizing revenues across sources to reduce revenue volatility. This study offers several expansions to this strategy. First, rather than focusing solely on deviations from mean revenue, I incorporate extreme revenue loss, or downside risk, as it threatens organizational survival and occurs more frequently than expected. Second, while revenue equalization is indifferent to the type of revenue source, I incorporate portfolio diversification that seeks a negative correlation between sources to avoid simultaneous losses. Using 2008 to 2012 financial data, results of fixed-effects regression suggest that portfolio diversification can reduce revenue volatility and downside risk. Moreover, the relationships between financial flexibility, growth potential, and revenue risk are more nuanced compared to existing research focused solely on deviation risk. The results can help nonprofits consider incorporating downside risk in revenue portfolio management to enhance financial security.

Internet, Participation in International Trade, and Tax Revenue Instability

This study investigates the effect of the Internet on tax revenue instability (TRI), notably through the international trade channel. It used a sample of 142 countries over the period 1995-2017 and relied primarily on the two-step system generalized method of moments estimator. The findings indicate that greater access to the Internet negatively affects TRI, and this effect works through the trade openness avenue. Especially, countries enjoy a higher negative effect of the Internet on TRI as they experience a greater trade openness. Moreover, Internet access reduces TRI in countries that have experienced a greater extent of tax reform and a greater export product concentration. Therefore, these findings add to the potential benefits of Internet adoption by showing that it could also help stabilize tax revenue, particularly through countries’ participation in international trade.

High season, low growth: The impact of tourism seasonality and vulnerability to tourism on the emergence of high-growth firms

The beneficial effects of tourism for growth are well known, but the negative ones are also among increasingly investigated issues. One of the open questions relates to the individual channels through which tourism effects translate into local economic outcomes. Using datasets on the population of firms and tourist arrivals over the 2012–2019 period in a small, tourism-led economy, this note shows that seasonality and overall vulnerability of a destination to tourism exert negative effects on the share of high-growth firms, consistent with recent findings of respective effects on housing affordability. Several times stronger effects of seasonality can be associated with capital underutilization, revenue instability, and sensitivity to external shocks. Still, future research is needed to corroborate these issues across space and time.

Methodological principles of loss of profit assessment

Methodological principles of loss of profit assessment

Tax revenue instability and tax revenue in developed and developing countries

Purpose This paper aims to explore the effect of non-resource tax revenue instability on non-resource tax revenue in developed and developing countries. Design/methodology/approach The analysis has used an unbalanced panel data set of 146 countries over the period 1981–2016, as well as the two-step system generalized methods of moment approach. Findings The empirical analysis has suggested that non-resource tax revenue instability influences negatively non-resource tax revenue share of gross domestic product. The magnitude of this negative effect is higher in less developed countries than in relatively advanced countries. This negative effect materializes through public expenditure instability: non-resource tax revenue instability exerts a higher effect on non-resource tax revenue share as the degree of public expenditure instability increases. Finally, non-resource tax revenue instability exerts a higher negative effect on non-resource tax revenue share as economic growth volatility rises, inflation volatility increases and terms of trade instability increases. Research limitations/implications The main policy implication of this analysis is that policies that help ensure the stability of non-resource tax revenue also contribute to improving countries’ non-resource tax revenue share. For example, governments’ measures that help cope with or prevent the severe adverse effects of shocks on economies (shocks that could translate into higher tax revenue instability) would ultimately help enhance countries’ tax revenue performance. Practical implications The severity of the current COVID-19 pandemic shock (which is a supply and demand shock) and the macroeconomic uncertainty that it has generated – inter alia, in terms of economic growth instability, terms of trade instability, inflation volatility and public expenditure instability – are likely to result in severe tax revenue losses. Governments in both developed and developing countries would surely learn from the management of this crisis so as to prepare for possible future economic, financial and health crises with a view to dampening their adverse macroeconomic effects, including here their negative tax revenue effects. Originality/value To the best of the author’s knowledge, this topic is being addressed in the empirical literature for the first time.

Services export diversification and services export revenue stability: does trade openness matter?

PurposeThe international trade literature has established that export product diversification lowers export product revenue instability. The current analysis investigates whether this finding carries over services exports.Design/methodology/approachThe empirical analysis covers a sample of 152 countries over the period 1980–2014 and employs the two-step system generalized method of moments (GMM) approach.FindingsThe empirical findings indicate that services export diversification reduces services export revenue instability both over the full sample as well as over sub-samples of high-income countries (HICs), least developed countries (LDCs) as well as developing countries (i.e. non-HICs) that are not LDCs. HICs appear to experience a higher positive effect of services export diversification on services export revenue instability than in developing countries. The analysis also shows that countries that further open-up to international trade enjoy a greater reducing effect of services export diversification on the instability of services export revenue.Research limitations/implicationsThis analysis, therefore, adds to the existing studies on the relationship between export product diversification and the instability of revenue derived from goods exports by focusing on the services export side. An important message from the analysis is that countries that diversify their services export basket enjoy lower services export revenue instability when they further integrate into the world trade market.Practical implicationsThis study highlights the importance of services export diversification, including for stabilizing services export revenue to services traders. Diversifying services export items, including across traditional and modern services sectors involves the implementation of a wide range of policies and measures, of which the liberalization of the services sectors through reduction and eventually the elimination of services trade barriers; the improvement of the business environment and the development of domestic financial markets (see for example, Hoekman, 2017). It could be interesting that another study consider policies and measures that could promote services export diversification.Originality/valueTo the best of the authors’ knowledge, this is the first time this topic is being addressed, including empirically.

Tax Transition and Tax Revenue Instability in Subsahara Africa

The tax transition has been a major turning point in tax policy in sub-Saharan Africa. However, few studies have empirically analyzed its implications for the performance of national tax revenues. In this study, we analyze the impact of the tax transition on non-resources domestic tax revenues instability. The findings suggest that tax transition has a non-linear impact on non-resources domestic tax revenues instability. Its effect depends on level of economic development and public aid.

Tax reform and public debt instability in developing countries: The trade openness and public revenue instability channels

This article investigates the effect of tax reform – which entails a convergence of developing countries’ tax structure towards that of developed countries – on public debt instability in developing countries. The empirical analysis has shown that a greater extent of tax reform reduces the instability of public debt, including when countries experience lower public revenue instability or when they open-up their economies to international trade. These findings have important policy implications.

Robust structural determinants of public deficits in developing countries

ABSTRACT Many macroeconomic, institutional, demographic, social and political variables have been proposed by previous studies as significant determinants of public deficits in developing countries. This paper asks whether their estimated impact on public deficits is robust under thousands of possible alternative specifications. We deal with model uncertainty using Sala-i-Martin’s Extreme Bound Analysis. Our results clearly show that external shocks, the debt ratio, financial development, the level of democracy and government control over expenditures are robustly associated with fiscal deficits. Public deficits are lower in countries which provide better stability of public expenditure in the face of revenue instability and which are less exposed to negative external shocks. In contrast, fiscal deficits increase with the debt ratio, financial development and the level of democracy. The relative importance of external shocks in all the regressions argues in favour of greater economic diversification in order to mitigate the impact of negative shocks on public finances.

General Budget Support and Tax Revenue Instability in Developing Countries

The main thrust of this article is to investigate the effect of general budget support (GBS) resources on tax revenue instability in recipient-countries, including when the latter experience higher economic growth volatility and higher terms of trade instability. The empirical findings suggest that GBS flows exert a negative effect on tax revenue instability, with the magnitude (in absolute value) of this negative effect being lower in Sub-Saharan African (SSA) countries compared to NonSSA countries in the sample. Additionally, the magnitude of the negative effect of GBS resources on tax revenue instability increases as countries experience higher economic growth volatility or greater terms of trade instability. It is worth noting that the magnitude of the GBS effect on tax revenue instability is small, including compared to other development aid inflows. Thus, from an economic perspective, GBS flows exert a lower effect on tax revenue instability than do other development aid flows.

Development trends of local taxes in the system of local budgets in Ukraine

Effective system of local self-government is a key to the successful development of a democratic state. It should be aimed at ensuring the effective performance of functions by the authorities, creating environment for obtaining quality services by citizens, and introducing and expanding the system of local taxes.Local taxes make the financial basis for the activities of local self-government bodies. However, nowadays, the lack of their volume and revenue instability are considered as a matter of national concern. Funding of state delegated powers, which is mainly due to transfer payments, is characterized by the delayed receipt of revenues and the lack of revenue in terms of targets, thereby creating problems with financing from local budgets.The article investigates the essentials of local taxation in the system of local budgets in Ukraine. It also summarizes methodological approaches to determining the nature of local taxes, clarifies their fiscal role in the local tax system and local budgets, and analyzes the existing practice of formation and implementation of local taxes in local budget revenues. Besides, prospective lines of improvement of the local taxation system are investigated and recommendations for its development are elaborated. Also, the subject to reform of the system of tax and budgetary relations was substantiated; changes in some administration mechanisms, the list expansion due to environmental fees and strengthened control over the unshadowing of small and medium businesses were offered.

Tax Reform and Public Revenue Instability in Developing Countries: Does the Volatility of Development Aid Matter?

AbstractThis paper examines the relationship between tax transition reform, development aid volatility, and public revenue instability in developing countries. Empirical findings show that tax reform exerts a negative effect on tax revenue instability, and the magnitude of this negative effect diminishes as the degree of development aid volatility increases. Specifically, beyond a certain level of development aid volatility, tax reform enhances tax revenue instability. Overall, these findings suggest that higher development aid flows to developing countries should be accompanied by a lower aid volatility so as to ensure that tax reform would generate lower tax revenue instability in recipient countries. © 2019 John Wiley & Sons, Ltd.

The Japanese Electric Power Policy Studied through the Business Structure of the Power Industry: A Long-term Analysis before and after "Deregulation"

The Federation of Electric Power Companies (FEPC) of Japan has long been releasing the detailed financial statements of their member corporations (on their website). We have analyzed the transition of Japan's electric power policy through the business structure of the electric power industry using the FEPC financial data over 53 years. Thus, we have clarified the problems and distortions built into the power industry by Japan's power policy as stated in the following: (1) During the regulation period, the dual-price mechanism for the industrial use and the home-use sectors had been effectuated, where (2) the former shared two thirds of the power demand but yielded only small profits or even losses; and the latter, sharing only one third of the demand, yielded nearly all of the industry's profits; however, (3) since the start of complete retail deregulation, this dual-price mechanism has come to suffer paralysis and the power majors began a cutthroat competition, which now seems to result in diminution of profitability in the home-use sector (the industry's former treasure box). This price-cutting war is considered very dangerous for the sustainability of this industry because this business is highly equipment-intensive and is severely vulnerable to any revenue instability. Meanwhile, declining demand due to the declining population is inevitable, and the power infrastructure will become excessively capacitive against demand. At the policy level of the government, recognition to this is overwhelmingly short. There is a possibility that the most powerful risk of both the electric power industries and social economy will be the way of the electric power policy that leads electricity demand from the expected growth rate and prepares the power supply configuration based on it.

Impact of multilateral trade liberalization and aid for trade for productive capacity building on export revenue instability

This paper investigates the impact of multilateral trade liberalization (MTP) and Aid for Trade (AFT) for productive capacity building on export revenue instability in developing countries. The empirical analysis covers 119 countries over the period 2002–2013. Using the within fixed effects estimator, it shows that both MTP and AFT for productive capacity building exert a reducing impact on export revenue instability. However, these two impacts are dependent on countries’ level of development. Furthermore, the higher the level of AFT for productive capacity building (in % GDP), the greater the magnitude of the negative impact of MTP on export revenue instability.

Options-based negotiation management of PPP–BOT infrastructure projects

The success of public–private partnership (PPP)–build–operate–transfer (BOT) projects largely depends on effectively mitigating the impact of a variety of risks and uncertainties, especially those influencing the revenue over time. Revenue instability is one of the main obstacles of PPP form of procurement. Government support, which is established as a clause in the concession agreement, should be carefully designed and well formulated. Options which arise from certain clauses in the contract are more valuable for risky projects. The purpose of this paper’s proposed model is to evaluate early fund generation options and also to calculate equitable bounds for a guaranteed revenue for the project sponsor under uncertainty and risk. The model is specially designed to alleviate the concern of revenue risk. To illustrate its applicability the methodology is then applied to a freeway PPP project and a power plant PPP project in Iran. The results show that the value of these options can indeed be significant and by applying the proposed systematic negotiation mechanism both public and private sectors can take advantage of its flexibility at the negotiation table. The proposed mechanisms can facilitate negotiations on the verge of a break down as well as accelerating ongoing negotiations that have become moribund.

Consumer goods and export during economic slowdowns

Purpose The difference in the export performance of different countries during the Great Recession 2008-2009 attracted some attention. It was frequently argued that the differences in export concentration were responsible for the differences in export performance: countries with more concentrated export portfolio suffered more during the recession compared to countries with more diversified export portfolio. Empirical evidence frequently failed to hold up this hypothesis, especially in the case of commodity concentration of export. Using disaggregated trade data and resorting to well-known theories of consumption demand, this paper argues that one of the main reasons for the difference in the export performance of different countries during the recession lay in the composition of the export basket and the general nature of the demand for different types of commodities. Design/methodology/approach Graphs and tables are first used to give a visual confirmation of the hypotheses advanced by the paper. Some theoretical arguments (proof) are advanced why consumer goods export should be less susceptible to recession. Finally cross-country data are used for regression analysis to test the export instability hypothesis. Findings All empirical evidence lend strong support to the hypothesis. Countries whose export basket comprised greater proportion of consumer goods suffered relatively less during the recession. Research limitations/implications The research could be enriched by using both time series and cross-section data and making a distinction between different types of consumer goods, namely, agricultural and manufactured goods. Data limitations did not permit this: United Nations Conference on Trade and Development (UNCTAD) data, used for this study, do not differentiate between these types of goods. Practical implications Export of more consumer goods may help reduce export revenue instability along business cycles. Originality/value To the best of the authors’ knowledge, there is no study that had ever attributed greater export stability to consumer goods export except those by the author(s).

Implementing Consumption‐Based Fixed Rates in Davis, Calif.

Water utilities in California must promote water conservation, yet have a limited suite of rate structures that can be used to charge for water. Under traditional rate structures, a strong price‐based conservation signal can produce conservation yet result in revenue instability. California public water utilities face additional challenges as a result of the standards for reporting, accounting, and proportionality under Proposition 218. One solution for resolving these structural tensions between conservation and fiscal solvency in a Proposition 218 environment is the implementation of consumption‐based fixed rates (CBFR). This article describes the design and implementation of CBFR in Davis, Calif.

Tax structure and revenue instability: the Great Recession and the states

Abstract The Great Recession had the most severe impact on state tax revenues of any downturn since the Great Depression. We hypothesize that states with more progressive tax structures are more vulnerable to economic downturns, and that progressivity and income volatility may interact to amplify the recession’s fiscal impact. We find that, while potential revenue exposure is greater in more progressive states, the most important source of variation was differences in income concentration and capital gains shares in the top 5 percent of taxpayers. Though the interaction between income volatility and high tax burdens at the top did produce large decreases in tax revenue in a few states, tax progressivity accounted for little of the overall interstate variation in revenue volatility. JEL codes H24; H71

Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies

This paper focuses on the sources and consequences of the instability of tax revenue in Sub-Saharan African countries. We took advantage of a unique and extraordinarily rich dataset on the composition of tax revenues for a large number of countries. Using panel data for 37 countries observed over the period 1980-2005, our results are twofold. First, the instability of government tax revenue leads to the instability of both public investment and government consumption, and also reduces the level of public investment. Second, the reliance on domestic indirect taxation-based systems appears to have a robust stabilising effect.