Fiscal Challenges, Development Opportunities? 20 Key Questions on Domestic Resource Mobilisation

In the current economic context, marked in particular by the continuing global financial crisis, the issue of domestic resource mobilisation (DRM) has received increasing attention from developing country governments and donors alike. 

Relying increasingly on domestic resources could allow developing countries to distance themselves from the volatility of official development assistance (ODA) and can increase their policy space strengthening accountability and achieve greater country ownership of their own development strategies.

Key Purpose of ECDPM Study

This scoping paper lays out the current state of knowledge on taxation in the development discourse amidst an abundance of literature, research initiatives and work programmes on Domestic Resource Mobilisation.

This paper identifies five such perspectives or focal points emerging from the literature: (i) taxation and public financial management (PFM); (ii) taxation and state building; (iii) taxation for economic growth; (iv) extractive resource taxation; and (v) international taxation.

Key Findings of ECDPM

• There is no easy solution to breaking out of the “low revenue trap” equilibrium in which many developing countries seem to find themselves.
• We need to look at the alignment of long-term strategic goals of fiscal policy with the practical implications of short-term revenue requirements.
• Public resource mobilisation is above all a political issue with inevitable winners and losers from tax reforms - the number of actors currently involved in the field of DRM and taxation is significant contributing to political momentum.
• A large number of developing countries have launched a new generation of fiscal decentralisation programmes that hold the potential of positive impact on fiscal legitimacy.
• The road towards improved domestic resource mobilisation in developing countries may be rough and difficult but holds the potential of win-win gains.

Read Discussion Paper 125