Tax reform and fiscal space in developing countries


This paper investigates empirically the effect of tax reform on fiscal space in developing countries. The analysis has used an unbalanced panel dataset comprising 99 developing countries (of which 37 Least developed countries—LDCs) over the period 1980–2015. It has shown empirical evidence that tax reform is associated with greater fiscal space in developing countries, with this positive impact being particularly higher for LDCs than for the set of other countries in the full sample. Furthermore, the higher the degree of openness to international trade, the greater is the positive effect of tax reform on fiscal space. In light of the importance of securing greater fiscal space to finance development needs, policymakers in developing countries should pursue their tax reform in the context of greater trade openness, notably with the assistance of both bilateral partners (developed countries) and relevant international institutions.

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  1. 1.

    See Botev et al. (2016), Cheng and Pitterle (2018) and Haley (2018) for a literature survey on the measure of fiscal space.

  2. 2.

    See also Gnangnon (2019a, b).

  3. 3.

    See the literature on the determinants of tax revenue (e.g. Baunsgaard and Keen 2010; Crivelli 2016; Crivelli and Gupta 2014; Gnangnon and Brun 2017; Gnangnon and Brun, 2018a; 2018b; Khattry and Rao 2002).

  4. 4.

    Further information on criteria used on the choice of countries included in this category could be obtained online at

  5. 5.

    We recognize that the use of the fiscal space indicator based on the De Facto Tax Base averaged over 4-year period for robustness check analysis might seem ad-hoc. However, the use of this alternative measure of fiscal space helps check the robustness of the results based on the "FSPACE5" indicator, in the absence of another reliable measure of the extent of tax transition reform.

  6. 6.

    See for example Morrissey et al. (2016); Yohou and Goujon (2017) for an analysis of the effect of shocks and exposure to shocks on public revenue.


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The Authors would like to express their gratitude to the anonymous Reviewers for their useful comments on this article. The latter represents the personal opinions of individual staff members of the WTO and is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors or omissions are the fault of the authors.

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Appendix 1

See Table 5.

Table 5 List of developed countries (Old Industrialized countries) used to compute the index of tax reform

Appendix 2

See Table 6.

Table 6 Definition and source of variables

Appendix 3

See Table 7.

Table 7 List of countries used in the analysis

Appendix 4

See Table 8.

Table 8 Standard descriptive statistics on the variables used in the analysis

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Gnangnon, S.K., Brun, JF. Tax reform and fiscal space in developing countries. Eurasian Econ Rev 10, 237–265 (2020).

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  • Tax reform
  • De Facto Fiscal Space
  • Developing countries

JEL Classification

  • H20
  • H30
  • E62