Recent work draws attention to the fragility of domestic tax revenues—a vital resource for the developing world—to illicit financial flows. To cope with two major challenges in the illicit financial flows–tax revenues relationship—related to the mere illicit financial flows measurement and reverse causality—this paper exploits the Financial Action Task Force data using an impact assessment analysis. Estimations reveal a significant tax revenue loss in countries associated with important illicit financial flows with respect to comparable countries without important illicit financial flows. Moreover, this causal effect—estimated as being economically meaningful—is supported by a large robustness section, and in particular remains unchanged when using several “doubly robust” estimators. Lastly, it unveils heterogeneities in the impact of illicit financial flows on tax revenues, related to the type of tax—a significant loss for indirect but not for direct taxes—and the considered environment. Therefore, policies combating illicit financial flows—for example, by developing institutions or a sound financial system, as shown by the estimations—may provide additional tax revenues for the developing world.
Información
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Autor
Combes,Jean-Louis, Minea,Alexandru, Sawadogo,Pegdewende Nestor
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Fecha del documento
2021/09/23
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Tipo de documento
Documento de trabajo sobre investigaciones relativas a políticas
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Número del informe
WPS9781
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Volumen
1
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Total Volume(s)
1
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País
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Región
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Fecha de divulgación
2021/09/23
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Disclosure Status
Disclosed
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Nom. del doc.
Do Illicit Financial Flows Hurt Tax Revenues ? Evidence from the Developing World
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Palabras clave
tax revenue; Combating the Financing of Terrorism; real value of tax revenue; Goods and Service Tax; determinants of tax revenue; real rate of return; weapons of mass destruction; loss of tax revenue; Financial Action Task Force; illicit financial flows; domestic tax revenue; value added tax; propensity score matching; standard error; low tax revenues; illicit money flow; department of economics; financing of investment; allocation of resource; international financial system; domestic regulatory framework; international political economy; high inflation rate; average of tax; domestic revenue mobilization; sound financial system; direct tax revenue; public sector indebtedness; global financial system; effect of trade; high inflation episode; international standard; standard deviation; matching method
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