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

DDTC Working Paper 0213

                                                        Table 5 - Random Effect
                                                                                 Model 1           Model 2
                                                                            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
                   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
                                                                    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:
                   2006.                                            aspx?fileName=wgidataset.xlsx#doc.
   4   5   6   7   8   9   10   11   12