(introduction...)

Even if international taxation transferred some funds to developing countries, they would still need to rely primarily on generating their own resources. Unfortunately, governments in many of the poorer countries have seen their revenues eroded. Much of this is due to economic decline. When business enterprises are producing less, and more people are out of work, there is less income to tax.

The poorer countries are also generally less successful at tax collection. Not only do they collect less in absolute terms, but they also gather less as a proportion of GDP. This is illustrated in figure 2.3, which shows that high-income countries collect more than twice as much as a proportion of GDP - and that the gap seems to be widening.

A second difference between richer and poorer countries is in the source of tax revenues. This is illustrated in figure 2.4. The limited extent of formal employment in developing countries reduces the potential for collecting social security contributions or personal income tax. In Bangladesh, for example, only 0.5 per cent of the population was liable for personal income tax in 1991. Many developing countries have had to make up for the shortage of personal taxpayers by focusing direct taxation on larger enterprises, particularly those involved in mineral extraction.