Assessing tax collection efficiency of G20 countries: an analysis of tax potential, tax evasion and anti-corruption efforts
| Date | 12 September 2023 |
| Pages | 489-504 |
| DOI | https://doi.org/10.1108/JMLC-04-2023-0082 |
| Published date | 12 September 2023 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Usama Alqalawi,Ahmad Alwaked,Anas Al Qudah |
Assessing tax collection efficiency
of G20 countries: an analysis of
tax potential, tax evasion and
anti-corruption efforts
Usama Alqalawi
Business Faculty, The Hashemite University, Zarqa, Jordan, and
Ahmad Alwaked and Anas Al Qudah
Business Faculty, Yarmouk University, Irbid, Jordan
Abstract
Purpose –This paper aims to determine the tax potentialof G20 countries and estimate the tax revenue
they could generate.The study evaluates the effectivenessof tax revenue collection for G20 nations from2008
to 2020 and investigates the relationship between tax collection efficiency and tax evasion. The study also
examines the link between tax collection efficiency and a proxy for tax evasion through anti-corruption
efforts.
Design/methodology/approach –The study assumes that tax collectionis a function of gross domestic
product (GDP), population,imports and price level. The study uses a stochastic frontier analysisto calculate
the efficiency of tax collection. It estimatesthe loss in total tax collection due to inefficiency by comparing
actual andbest-practice tax collection.
Findings –The findings indicatethat anti-corruption measures and technologicaladvancements positively
impact tax collection efficiency. Great Britain is identified as the most efficient country in tax collection,
whereas Saudi Arabia is the least efficient. Germany has the highest losses in tax collection due to
inefficiency,while Australia experiences the lowest losses in tax collection.
Originality/value –This study suggests several practical implications. For example, legislators and
policymakers shouldpay more attention to anti-corruption policies. Also, tax agenesis should focus on better
understandingvariations in tax collection efficiency betweencountries and how they relate to tax evasion.
Keywords Efficiency, Tax efficiency, Corruption, Tax evasion
Paper type Research paper
1. Introduction
Tax collection (revenue) is anessential part of government revenue for almost all countries.
This paper will test the efficiency of tax collection for G20 nations from 2008 to 2020.
Mainly, the study will test if governments collected tax is as efficient as possible.
Furthermore, thestudy will link tax collection efficiency and tax evasion.
The importance of studies comes from the fact that increasing tax collection is a
fundamental goal in the development policy agenda. Countries inefficient in tax collection
will eventually run a budget deficit as their government expenditure will exceed tax
JEL classification –D73, H21, H26
Future recommendations: The study can be extended further by taking more sources of taxes and
more causes of inefficiencies. Moreover, the same analysis can be made for various income level
countries for a richer insight into the issue.
Tax collection
efficiency of
G20 countries
489
Journalof Money Laundering
Control
Vol.27 No. 3, 2024
pp. 489-504
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2023-0082
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
collection. Their government will borrow money to solve the problem, increasing public
debt. According to Tanzi and Zee (2001),the ideal tax structure would provide the necessary
tax collection without burdening the public purse, inhibiting economic growth and
diverging much from international tax norms. However, when countries try to build
effective tax systems, they encounter enormous obstacles. The design of tax systems is
frequently the art of the feasible ratherthan the pursuit of the optimal.
By knowing the efficiency of taxcollection, countries can estimate the amount of wastage
of tax revenue. Furthermore, it can start plans to regain the waste and reduce or eliminate
the budget deficit and government debt. Nerudova and Dobranschi (2019) state that
increasing the efficiency of tax administrations is needed to decrease costs whiledelivering
good quality servicesto individuals and businesses.
Many previous studies developed models to estimate the tax gap and tax evasion.
However, these models fail to predict the efficiency impact on the tax gap or tax evasion.
Hence, empirically investigating the effect of tax evasion on efficiency would be valuable
from the standpoints of both theory and policy.
This paper has five main objectives. Firstly,determine the importance of each source of
tax revenue. Secondly, estimate the efficiency of tax collection for G20 countries. Thirdly,
investigate how tax collection efficiencychange over time. Fourthly, the amount of loss that
occurred due to inefficiency. Finally, test the correlation between efficiency and anti-
corruption effort.
This paper is structured as follows: In Section 2, we review relevant existing literature
and build the theoretical framework, while Section 3 outlines our methodology, data
collection process and definitions. Section 4 presents our findings and analysis, and the
concluding sectionoffers policy recommendations from a broader perspective.
2. Literature review and theoretical framework
Tax collection efficiency is an essential aspect of economic development in any country.
Taxes are a vital source of revenue for governments to finance public goods and services,
and they significantly reduce inequality by redistributing income from high-income
individuals to low-income groups. However, tax evasion threatens tax collection efficiency,
depriving governments of the revenue needed to provide essential public services (Piketty
and Saez, 2013). Anti-corruptionefforts are one way of addressing tax evasion, as corruption
is often a significant facilitator of tax evasion. This theoretical framework examines the
relationship between tax collection efficiency and a proxy for tax evasion through anti-
corruption efforts.
Tax collection efficiency refers to the ability of governments to collect taxes from their
citizens and businesses efficiently. Tax collection efficiency is critical for economic
development, as it enables governments to raise revenue to finance public goods and
services, such as infrastructure, education, and healthcare. Efficient tax collection also
reduces the burden on taxpayers by ensuring that the tax system is fair, transparent and
predictable. Countrieswith high tax collection efficiency tend to have better public services,
lower levels of inequalityand higher economic growth rates (Bird and Zolt, 2005).
Tax evasion is the deliberateand illegal avoidance or non-payment of taxes. Tax evasion
significantly threatens tax collection efficiency, depriving governments of the revenue
needed to provide essential public services. Tax evasion is a widespread problem in both
developed and developing countries, and it can take various forms, including underreporting
income, hiding assets and falsely claiming deductions (Nimer et al., 2022). Corruption often
facilitates tax evasion, as corrupt officials may accept bribes to overlook tax evasion or provide
taxpayers with inside information on how to evade taxes (Slemrod and Yitzhaki, 2002).
JMLC
27,3
490
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