Tax revenue potential and effort: Worldwide estimates using a new dataset

Domestic revenue mobilization has gained renewed attention in the post 2015 period owing in part to the “billions to trillions” drive to mobilize resources to finance the sustainable development goals. While authorities now realize the importance of strengthening efforts to collect more taxes, attempts to quantify the tax potential, and consequently the magnitude of the gap to close by countries wishing to improve their tax revenue outcomes, have been limited. This study provides estimates of tax potential and effort in a panel of 150 countries around the world. Using stochastic frontier methods, the analysis is based on a new Government Revenue Dataset from the International Centre for Tax and Development and spans a 20-year period during 1996–2015. Results indicate that while there is marked heterogeneity in individual country outcomes, countries that operate closer to their tax potential have high levels of income, large shares of non-agricultural output, large trade shares in GDP, invest more in human capital development, have more developed financial sectors, more stable domestic environments (with low inflation), more urbanized populations, and lower corruption.