Does conditionality in IMF-supported programs promote revenue reform?
- 579 Downloads
This paper studies whether revenue conditionality in Fund programs had any impact on the revenue performance of 126 low- and middle-income countries during 1993–2013. The results indicate that such conditionality had a positive impact on tax revenue, with strongest improvement felt on taxes on goods and services, including the VAT. Revenue conditionality matters more for low-income countries, particularly those where revenue ratios are below the group average. Moreover, revenue conditionality appears to be more effective when targeted to a specific tax. These results hold after controlling for potential endogeneity, sample selection bias, and when revenues are adjusted for economic cycle.
KeywordsTax revenue reform Structural conditionality IMF
JEL ClassificationC33 E62 F33 H2
We would like to thank the Editor Ron Davies and two anonymous referees for excellent suggestions. We are grateful to Santiago Acosta-Ormaechea, Celine Allard, Katherine Baer, Sabina Bhatia, Martin Cerisola, Karla Chaman, Francesco Columba, Ruud De Mooij, Jonathan Dunn, Nisreen Farhan, Katherine Ferry, Geoff Gottlieb, Michael Keen, Christina Kolerus, Svitlana Maslova, Masahiro Nozaki, Iva Petrova, Marcos Poplawski-Ribeiro, Saad Quayyum, and Philippe Wingender for many helpful suggestions on an earlier draft of the paper, and to Haoyu Wang for outstanding assistance with consolidating the data. The views expressed herein are those of the authors and should not be attributed to the IMF, its executive board, or its management.
- Acemoglu, D., Naidu, S., Restrepo, P., & Robinson, J. (2014). Democracy does cause growth. NBER Working Papers 2004, National Bureau of Economic Research.Google Scholar
- Acosta-Ormaechea, S., & Yoo, J. (2012). Tax composition and economic growth. IMF Working Paper 12/257 (Washington: International Monetary Fund).Google Scholar
- Angrist, J., Jorda, O., & Kuersteiner, G. (2013). Semiparametric estimates of monetary policy effects: String theory revisited. NBER Working Papers 19355, National Bureau of Economic Research.Google Scholar
- Arezki, R., Quintyn, M., & Toscani, F. (2012). Structural reforms, IMF programs and capacity building: An empirical investigation. IMF Working Paper 12/232 (Washington: International Monetary Fund).Google Scholar
- Bazzi, S., & Clemens, M. (2013). Blunt instruments: Avoiding common pitfalls in identifying the causes of economic growth. American Economic Journal: Macroeconomics, 5(2), 152–186.Google Scholar
- Bond, S., Hoeffler, A., & Temple, J. (2001). GMM estimation of empirical growth models. CEPR discussion paper 3048.Google Scholar
- Brun, J., Chambas, G., & Laporte, B. (2010). IMF programs and tax effort: What role for institutions in Africa? Etudes et Documents E2010.33, Centre d’Etudes et de Recherches sur le Developpement International.Google Scholar
- Bulir, A., & Moon, S. (2003). Do IMF-supported programs help make fiscal adjustment more durable? IMF Working Paper 03/38 (Washington: International Monetary Fund).Google Scholar
- Cho, H. (2009). Do IMF programs discipline budget deficit? The effects of IMF programs on government budget balance, expenditure, and revenue. The Korean Journal of International Relations, 49(6), 7–33.Google Scholar
- Conway, P. (2003). Endogenous IMF conditionality: Theoretical and empirical implications. Chapel Hill: University of North Caroline (mimeo).Google Scholar
- Dahlberg, S., Holmberg, S., Rothstein, B., Hartmann, F., & Svensson, R. (2015). The quality of government basic dataset: Version Jan15. University of Gothenburg, The Quality of Government Institute. http://www.qog.pol.gu.se.
- Easterly, W. (2005). What did structural adjustment adjust? The association of policies and growth with repeated IMF and World Bank adjustment loans. Journal of Development Economics, 76, 1–22.Google Scholar
- Edwards, S., & Santaella, J. (1993). Devaluation controversies in the developing countries: Lessons from the Bretton Woods Era. In M. Bordo & B. Eichengreen (Eds.), A retrospective on the bretton woods system (pp. 405–455). Chicago: University of Chicago.Google Scholar
- Ghura, D. (1998). Tax revenue in sub-Saharan Africa: Effects of economic policies and corruption. IMF Working Paper 98/135 (Washington: International Monetary Fund).Google Scholar
- Guitian, M. (1981). Fund conditionality: Evolution of principles and practices. IMF Pamphlet Series 38 (Washington: International Monetary Fund).Google Scholar
- Gujarati, D., & Porter, D. (2009). Basic econometrics. Boston: McGraw-Hill Irwin.Google Scholar
- Heckman, J. (1976). The common structure of statistical models of truncation, sample selection and limited dependent variables and a simple estimator for such models. Annals of Economic and Social Measurement, 5(4), 475–492.Google Scholar
- Imbens, G. (2004). Nonparametric estimation of average treatment effects under exogeneity: A review. Review of Economics and Statistics, 86(1), 6–29.Google Scholar
- Independent Evaluation Office of the International Monetary Fund. (2003). Fiscal adjustment in IMF-supported programs. Evaluation report (Washington: International Monetary Fund).Google Scholar
- International Monetary Fund. (2005). Review of the 2002 conditionality guidelines. IMF Report, March (Washington: International Monetary Fund). http://www.imf.org/external/pubs/cat/longres.cfm?sk=18519.0.
- International Monetary Fund. (2012). 2011 review of conditionality. (Washington: International Monetary Fund) June. http://www.imf.org/external/pp/longres.aspx?id=4692.
- International Monetary Fund. (2013). Issues in international taxation and the role of the IMF. (Washington: International Monetary Fund). http://www.imf.org/external/np/pp/eng/2013/062813.pdf.
- Jenkins, G., Jenkins, H., & Kuo, C. (2006). Is the VAT naturally progressive?. Ontario: Queens University (mimeo).Google Scholar
- Keen, M., & Ligthart, J. (2001). Coordinating tariff reductions and domestic tax reform. Journal of International Economics, 56, 407–425.Google Scholar
- Mumssen, C., Gunduz, Y., Ebeke, C., & Kaltani, L. (2013). IMF-supported programs in low income countries: Economic impact over the short and longer term, IMF Working Paper 13/273 (Washington: International Monetary Fund).Google Scholar
- Muñoz, S., & Cho, S. (2004). Social impact of a tax reform: The case of Ethiopia. In S. Gupta, B. Clements, & G. Inchauste (Eds.), Helping countries develop: The role of fiscal policy (pp. 353–384). Washington: International Monetary Fund.Google Scholar
- Nsouli, S., Atoian, R., & Mourmouras, A. (2006). Institutions, program implementation, and macroeconomic performance. In A. Mody & A. Rebucci (Eds.), IMF supported programs: Recent staff research. Washington, DC: International Monetary Fund.Google Scholar
- OECD. (2010). Tax Policy Reform and Economic Growth, OECD Tax Policy Studies 20. Paris: Organization for Economic Co-operation and Development.Google Scholar
- Pessino, C., & Fenochietto, R. (2010). Determining countries’ tax effort. Hacienda Pública Española/Revista de Economía Pública, 195(4), 65–87.Google Scholar
- Reichmann, T., & Stillson, R. (1978). Experience with programs of balance of payments adjustment: Stand-by arrangements in the highest tranches, 1963–72. IMF Staff Papers 25. (Washington: International Monetary Fund).Google Scholar
- Roodman, D. (2009a). How to do xtabond2: An introduction to difference and system GMM in Stata. The Stata Journal, 9(1), 86–136.Google Scholar
- Sen Gupta, A. (2007). Determinants of tax revenue efforts in developing countries, IMF Working Paper 07/184. Washington: International Monetary Fund.Google Scholar
- Stock, J., & Yogo, M. (2005). Testing for weak instruments in linear IV regression. In D. Andrews & J. Stock (Eds.), Identification and inference for econometric models: Essays in honor of Thomas Rothenberg. New York: Cambridge University Press.Google Scholar
- Thomas, A., & Ramakrishnan, U. (2006). The incidence and effectiveness of prior actions in IMF-supported programs, IMF working paper 06/213. Washington: International Monetary Fund.Google Scholar
- Wooldridge, J. (1995). Score diagnostics for linear models estimated by two stage least squares. In G. S. Maddala, P. C. B. Phillips, & T. N. Srinivasan (Eds.), Advances in econometrics and quantitative economics: Essays in honor of professor C. R. Rao (pp. 66–87). Oxford: Blackwell.Google Scholar