Taxation Dynamics in Developing Economies

Taxation dynamics in developing economies are shaped by a complex interplay of economic structure, institutional capacity and external influences. Many low- and middle-income countries struggle to mobilise revenue from a narrow tax base, high levels of informality and weak compliance frameworks. The share of tax revenue in gross domestic product (GDP) often lags behind that of advanced economies, constraining public investment in infrastructure, health and education. Recent trends highlight the importance of environmental levies, digital transactions taxes and trade-related duties as emerging sources of fiscal revenue. Institutional reforms—such as risk-based audits, taxpayer registration drives and the modernisation of customs administrations—have proven critical in sustaining revenue growth. At the same time, globalisation and fluctuations in commodity prices expose domestic tax systems to external shocks, underscoring the need for greater resilience. Cross-regional comparisons reveal that countries combining modest corporate tax rates with strong enforcement and transparent governance tend to achieve more stable fiscal outcomes. Practical applications of these insights include tailored capacity-building programmes for revenue authorities, the design of growth-sensitive tax schedules and the phased introduction of green taxes to align fiscal and environmental objectives.

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Taxation Dynamics in Developing Economies publication trend

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Technical terms

Tax-to-GDP ratio: The share of total tax revenue relative to gross domestic product, used to assess a government’s capacity to mobilise fiscal resources.

Generalised Method of Moments (GMM): An econometric technique for panel data that addresses endogeneity and unobserved heterogeneity by using instrumental variables.

Trade openness: The extent of a country’s integration in international trade, typically measured by the ratio of exports plus imports to GDP.

Environmental tax effort: A metric of how much revenue governments raise through levies designed to mitigate environmental externalities, such as carbon or pollution taxes.

References

1. The effect of renewable energy aid and governance quality on environmental tax effort in Sub-Saharan Africa. Energy Reports (2024).
2. Impact of sustainable tax revenue and expenditure on the achievement of sustainable development goals in some selected African countries. Environment, Development and Sustainability (2023).
3. Tax revenue-economic growth relationship and the role of trade openness in developing countries. Cogent Business & Management (2023).