Domestic resource mobilization and economic development (Research seminar at ASE, Abomey-Calavi/Benin)

Developing countries are increasingly encouraged to improve upon their domestic revenue mobilization (DRM) in order to close their huge-financing gap. Our research team make contribute to the debate as to how this outcome can be achieved. First, we show that the Value-Added-Tax (VAT) is a critical tax instrument that has improved tax-revenue collection not only in developed countries - but also in developing countries, both in Sub-Saharan Africa (SSA) and elsewhere. Moreover, the marginal effect of VAT adoption (i.e. relative contribution of VAT to tax revenue) is estimated to be strong for SSA and other developing countries as compared to their developed counterparts. The positive effect of VAT on tax collection in SSA is reassuring because some earlier studies were not able to identify an overall positive effect for the region. We show that analysis of data over the recent period (where VAT has become more contributive) is important to highlight its positive role in SSA’s DRM efforts. Second, we provide micro and macro evidences indicating that a better quality of the institutional environment also plays a catalytical role in enhancing DRM.