Page 9 - Working Paper (The Myths and Realities of Tax Performance Under Semi-Autonomous Revenue Authorities)

DDTC Working Paper 0213
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Table 5 - Random Effect
Model 1 Model 2
Indicator
Coefficient Z-Stat Coefficient Z-Stat
Institution (SARA or Non-SARA 3.425 2.92*** 3.002 2.62***
Consumption (% PDB) 0.069 2.65***
FDI Inflows -0.002 -0.42
Value added of industrial sector 0.219 6.45*** 0.23 7.36***
Openness (international trade/GDP) 0.014 2.62***
Population Growth -0.103 -0.59
Age dependency ratio -0.145 -6.36***
Number of observation 519 515
R 2 0.225 0.150
Dependent variable is tax revenue (% PDB). Symbol***, **, and * indicate that coefficient of independent variable is statistically significant at 99, 95, and
90 %.
Table 6 - Results from Logit and Probit Model
Logit Probit
Independent Variable
Coefficient Z-Stat Coefficient Z-Stat
Government effectiveness 0.405 1.75* 0.111 1.67*
Rule of law -2.951 -1.35 -0.075 -1.27
Democracy level 0.527 1.71* 0.102 0.94
Number of Observations 587 587
Pseudo R2 0.015 0.136
Dependent variable is tax revenue (% PDB). Symbol***, **, and * indicate that coefficient of independent variable is statistically significant at 99, 95, and
90 %.
In essence, it concludes that institutional model use the governance indicators which are taken
of tax authorities plays an important role to improve from the Worldwide Governance Indicators, World
tax revenue. A country which adopts SARA models Bank, namely: government effectiveness and rule
will have the potential for increaseing tax ratio by of law. In addition, we use political indicator that
3-5%. These findings provide evidence that SARA shows the level of democracy in a country, which is
model does impact tax revenue as a result of more taken from the Polity IV database.
effective and efficient tax authorities.
From the regression analysis using panel
6. Decision to Adopt SARA logit and probit models, we find that government
effectiveness factors have a significant impact to
the SARA at the level of 90 % (see Table 6). Any
A question, then raises: why not all countries
increase in the value of government effectiveness
adopt the SARA model when it is thought to be more
by 1 point will drive the decision to adopt
superior? There is no exact answer theoritically
SARA possibilities between 0.11 to 0.40 points,
and empirically. Therefore, we tried to do a binary
considering other factors constant. In other words,
choice regression models to reinforce what criteria
SARA will tend to be adopted in countries that
that can provide better answer for a country’s
have better government effectiveness. Government
decision to adopt SARA. 23
effectiveness variable indicates captures
perceptions of the quality of public services, the
The adoption of SARA is not solely influenced
quality of the civil service and the degree of its
by economic considerations but also take into
24
account political and institutional factors. Or independence from political pressures, the quality
of policy formulation and implementation, and the
in other words, countries only choose SARA if
credibility of the government’s commitment to such
there are condusive and supporting political and
25
policies. In addition, this variable also indicates
economic environments. To include variables
the quality of policy making and implementation,
related to political and institutional structure, we
as well as the government’s commitment to policies
23 Binary choice regression with institutional model of tax authority
(SARA=1, non-SARA=0) as dependent variable.
24 Maureen Kidd dan William Crandall, “Revenue Authorities: Issues and 25 Details on the description on governance indicator could
Problems in Evaluating Their Success”, IMF Working Paper WP/06/240, be access: http://info.worldbank.org/governance/wgi/index.
2006. aspx?fileName=wgidataset.xlsx#doc.