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A chief difference characteristic of Low Income Countries (LICs) is the low tax revenue, although there has been some improvement in recent years. The reasons for this include their inadequate tax base, political considerations, and their limited administrative capacity to collect taxes.

Given this narrow tax base, the revenue maximization strategy of LICs has been to set relatively high tax rates, which compromise the business climate and encourage tax evasion and a growing informal sector.

Moreover, the tax structures of these countries are quite different from those of advanced and emerging markets.

For instance, much of the tax revenue is derived from trade tax, which makes government policy vulnerable to trade shocks.

Also, the large informal and agriculture sectors in these countries hardly contribute to the tax effort.

The Work Package is subdivided in two sub-packages: 

  • TX1 will contribute to the ongoing debate on diagnostic tools for the assessment of the quality of tax systems in developing countries. 
  • TX2 will address domestic resource mobilization from the perspective of "preserving natural resources" and encouraging good environmental practices.