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From Words to Action: Operationalising the DRM Political Agenda beyond statements

23-09-2011

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Although the question of how developing countries can improve domestic resource mobilisation (DRM) has never been off the agenda, the issue is increasingly the subject of renewed interest. This is the case both in developing countries, eager to increase their policy space and free themselves from the strings attached to donor aid, and in developed countries, forced to increasingly look for the best “value for money” at a time of spending cuts at home.

There are a range of initiatives and conferences which place the issue of DRM at the centre of their reflections – the UN conferences on Financing for Development, the G20 Multi-Year Action Plan on Development, the OECD’s DAC/CFA Tax and Development Programme, the UN LDC IV Conference in May 2011, new IMF Donor Trust Funds, the African Economic Outlook 2010, and many others…

Yet, now that the topic has made it to the top of the agenda, the question is, how can actors at all levels deliver on these priorities and go beyond mere statements? This was the focus of the latest International Tax Compact (ITC) meeting held from 12th to 14th September 2011 in Bonn. As last year, ECDPM attended the civil society meeting along with representatives from the Tax Justice Network, the African Tax Administration Forum, various African country government representatives from revenue authorities and ministries of finance, and think-tanks.

Set up in 2009 as an informal platform for dialogue and action to support developing countries in their domestic resource mobilisation efforts and fight against inappropriate tax practices, the International Tax Compact has become a key actor of the international tax and development agenda, contributing through concrete research and dialogue facilitation to improved development cooperation on tax matters.

In a scoping Discussion Paper that is forthcoming, ECDPM summarises the principal issues we believe developing countries face in raising revenues, with a view to guiding our own future work on the topic. To do this, we single out the five perspectives most commonly used to look at domestic resource mobilisation issues, based on a reading of the wide literature on the topic. These are:

  1. taxation and public financial management;
  2. taxation and state-building;
  3. taxation for economic growth;
  4. extractive resource taxation; and
  5. international taxation.

Although each of these has been the focus of research, the most interesting questions and issues appear to lie at the intersection of each of these. For instance, how to align public financial management reforms relating to tax with the objectives of promoting economic growth and state-capacity is fundamental, while the day-to-day implications of such objectives are by no means simple. Many of the issues we discuss were touched upon during the ITC meeting, and the discussions highlighted the important research being conducted on both the nature of the challenges developing countries must overcome and the technical and governance aspects of tax reforms.

Understanding who wins, who loses

Yet, one clear message from the meeting was also the need for more research, notably on how developing countries can efficiently benefit from various option reforms. This is a feeling we share. By reviewing the current state of knowledge on taxation in the development discourse, we indeed realise that a number of remaining critical questions call for further enquiry.

The road towards a full and effective operationalisation of the domestic resource mobilisation agenda will probably be long and to avoid getting lost on the way, it is important to acknowledge the fact that beyond the technicalities, public resource mobilisation is first and foremost a political issue: inevitably, there will be winners and loosers from tax reforms. Determining feasible reform options consequently requires one to understand not only the relationships between involved people, groups and institutions, as well as between groups and individuals within institutions, but also the historical context of their relations, the incentives they face institutionally and individually, the accountability relations in place, and the economic and political power relationships. Once we understand better the underlying political economy of specific tax and administration reforms, at the domestic as well as international level (i.e. including in partners/donors countries and by foreign/multinational companies), there is a greater likelihood of genuinely addressing the problems. In that sense, we could not be more in agreement with the ITC Concluding Communiqué from the Bonn meeting, that  “Support must be based on more realistic assessments which take sufficiently into account the political economy of tax reforms in developing countries and existing capacity constraints and needs of tax administrations”.

With this in mind, ECDPM is committed to facilitate future dialogue and conduct research on this vast and complex theme. We will release a scoping Discussion Paper in the course of next week, it will be available here and in the next issue of ECDPM’s Weekly Compass.

Bruce Byiers is Policy Officer Political Economy of Reforms and Development at ECDPM.

Mélissa Dalleau, who co-authored this article, is Junior Policy Officer Economic and Trade Cooperation at ECDPM.

This blog post features the authors personal views and does not represent the view of ECDPM.

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Economic Transformation and TradeDevelopment Finance and TaxationDomestic resource mobilisationTax

External authors

Mélissa Dalleau