Archive for May, 2007

Tax Potential vs. Tax Effort: A Cross-Country Analysis of Armenia’s Stubbornly Low Tax Collection

(Source: IMF)

Click to read: Tax Potential vs. Tax Effort: A Cross-Country Analysis of Armenia’s Stubbornly Low Tax Collection, by Hamid R. Davoodi and David A. Grigorian

IMF Working Paper
Middle East and Central Asia Department
Authorized for distribution by Saade Chami and Erik De Vrijer
May 2007

Abstract

Despite recording double digit growth since 2000, Armenia’s tax-to-GDP ratio has been fairly stable
at about 14½ percent. This paper catalogues a range of factors that may account for Armenia’s
stubbornly for tax collection by benchmarking Armenia’s tax-to-GDP against some comparator
countries and conducting an extensive econometric study of the main determinants of tax collection.
We find empirical support for the hypothesis that the persistence of Armenia’s low tax-GDP ratio can
be traced to persistence of weak institutions and a large shadow economy. The gap between the
potential and actual tax collection in Armenia could be as high as 6½ percent of GDP. We conclude
with some policy recommendations that, if adopted, can boost revenue buoyancy.

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