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May 28, 2026

Building tax capacity through better administration

Higher tax revenue in developing countries may depend as much on organizational reforms as on structural economic change.

Tyler Smith

Protesters against a proposed tax bill gather in front of the gate of the House of Representatives in Manila, Philippines.

Source: Herman R. Lumanog

For decades, economists have sought to understand why developing countries collect so little tax revenue. Tax-to-GDP ratios in low-income countries typically hover around 10 to 15 percent, while wealthy economies routinely collect 30 to 40 percent. 

The predominant explanation has emphasized "information trails"—third-party reporting from banks, employers, and other firms that make income visible to tax authorities. Under this view, tax capacity grows alongside structural economic transformations such as the shift from self-employment to formal wage work and the expansion of the banking sector, suggesting that low-income countries have few short-term policy levers to increase revenue.

In a paper in the Journal of Economic Literature, authors Anders D. Jensen and Jonathan L. Weigel present a complementary approach. They argue that tax administration, the organizational machinery of the tax authority itself, represents an underappreciated and reformable source of state capacity. 

Drawing on Max Weber's century-old typology of bureaucracy, the authors consider how organizational structure and professionalization shape revenue collection across developing countries.

Panels A and B of Figure 1 from the paper help to illustrate the association between state effectiveness and tax take.

Panels A and B of Figure 1 from Jensen and Weigel (2026)

Panel A plots tax revenue (excluding social security contributions) as a share of GDP against the number of full-time tax officers per capita, drawing on data from the International Survey on Revenue Administration. The estimated linear fit in the chart slopes upward, indicating that countries employing more professional tax personnel tend to collect more revenue.

Panel B depicts a similar relationship using meritocratic recruitment scores from the Varieties of Democracy project, which captures the extent to which public administration appointments reflect skills rather than personal or political connections. The positive slope suggests that countries staffing their bureaucracies through competitive, merit-based processes collect more tax revenue than those relying on patronage.

The researchers caution that these correlations cannot establish causality given reverse causation and omitted variables. However, the patterns motivate their deeper review of micro-level evidence. Numerous individual country studies from around the world show that specialized taxpayer offices, better recruitment strategies, and performance-based bonuses can meaningfully raise revenue. 

Finally, the authors argue that the legitimacy of the state complements these administrative reforms. Cross-country evidence suggests that there are larger returns to administrative investment when governments enjoy greater public trust.