There is a widespread concern that, in some parts of the world, governments are unable to exercise effective authority. When governments fail, more sinister forces thrive: warlords, arms smugglers, narcotics enterprises, kidnap gangs, terrorist networks, armed militias. Why do governments fail? This book explores an old idea that has returned to prominence: that authority, effectiveness, accountability and responsiveness is closely related to the ways in which governments are financed. It matters that governments tax their citizens rather than live from oil revenues and foreign aid, and it matters how they tax them. Taxation stimulates demands for representation, and an effective revenue authority is the central pillar of state capacity. Using case studies from Africa, Asia, Eastern Europe and Latin America, this book presents and evaluates these arguments, updates theories derived from European history in the light of conditions in contemporary poorer countries, and draws conclusions for policy-makers.

Issues of taxation and development, which have long been a central concern of the IMF, have attracted wider and renewed interest in the last few years. This paper reflects on three broad lessons of experience: that developing countries differ vastly in tax matters, and in ways that are less than fully understood; that the history of ‘big ideas’ in guiding tax reform for developing countries is decidedly mixed; and that the value of the emphasis often placed in this context on ‘informality’ is decidedly limited. It also asks whether ideas of ‘state building’ emphasized in some of the recent literature are likely to lead to practical advice much different from that commonly offered now.

Widespread voluntary tax compliance plays a significant role in countries’ efforts to raise the revenues necessary to achieve Sustainable Development Goals. As part of this process, governments are increasingly reaching out to taxpayers – current and future – to teach, communicate and assist them in order to foster a “culture of compliance” based on rights and responsibilities, in which citizens see paying taxes as an integral aspect of their relationship with their government.

An empirical finding by Gaspar, Jaramillo and Wingender (2016) shows that once countries cross a tax-to-GDP threshold of around 123⁄4 percent, real GDP per capita increases sharply and in a sustained manner over the following decade. In this paper, we attempt via four case studies—Spain, China, Colombia, and Nigeria—to illustrate that the improvements in tax capacity have been part of a deeper process of state capacity building. We discuss the political conditions that supported tax capacity building, highlighting three important political ingredients: constitutive institutions, inclusive politics and credible leadership.

An exploration of how states address the often conflicting challenges of development, order, and inclusion.

Dr Moore's enterprising book focuses on an apparent paradox: the failure of Sri Lanka's highly politicized smallholder electorate to place on the national political agenda issues relating to the public distribution of material resources. Sri Lanka has more than fifty years' history of pluralist democracy and such issues directly affect the interests of the smallholder population. Yet successive Sri Lankan governments have pursued economic policies favouring food consumers and the state itself at the expense of agricultural producers. In exploring the features of Sri Lanka's history, geography, politics and economy which explain this paradox, the author looks in detail at some of the dominant features of contemporary Sri Lanka: the political consequences of the plantation experience; the persistence of elite political leadership; and the causes and consequences of ethnic conflict.

The Fund has long played a lead role in supporting developing countries’ efforts to improve their revenue mobilization. This paper draws on that experience to review issues and good practice, and to assess prospects in this key area.

The practical implications of adopting a state-building approach to tax reform need clarity now that the international community has come to recognise the importance of taxation as a 'state-building' process. This article seeks to address this gap. It identifies seven operating principles (political inclusion; accountability and transparency; perceived fairness; effectiveness; political commitment to shared prosperity; legitimisation of social norms and economic interests; and effective revenue-raising) as the essential characteristics for state-building taxation, and offers recommendations on potential reforms to implement them, illustrated by DFID/World Bank tax reforms in Yemen, Sierra Leone and Vietnam.

Tax capacity—the policy, institutional, and technical capabilities to collect tax revenue—is part of a deeper process of state building that is essential for achieving the sustainable development goals. This Staff Discussion Note shows that developing countries have made some progress in revenue mobilization during the past decades. However, much more is needed. We find that a staggering 9 percentage-point increase in the tax-to-GDP ratio is feasible through a combination of tax system reform and institutional capacity building. Achieving this calls for a holistic and institution-based approach that focuses on improving policy, administration and legal implementation of core taxes. The note offers practical lessons and guidance, based on IMF capacity building experience in this area.