This dissertation explores three sets of relationships in the context of transitional states: (i) institutions and tax revenues, (ii) economic growth and tax structures, and (iii) the advice of international organizations and the implementation of PFM reform. It consists of three core chapters.
Employing panel data, Chapter 2 addresses a central question: does the quality of institutions affect tax revenue in lower-middle income transition countries? It presents an analysis of the role of institutions, measured by shadow economy, corruption, regulatory quality, government effectiveness and rule of law in determining the level of tax effort, as measured by the tax-to-GDP ratio. By tracing the origins of the tax systems in targeted countries since the fall of the Berlin Wall, Chapter 2 analyses the available data and relates the results to recent literature. It finds that the most likely causes of insufficient tax revenue stem from the low-quality institutions, specifically, the increased share of the shadow economy and level of corruption.
Chapter 3 employs panel data from a sample of transitional countries over the period 1991-2015. It finds that, in a particular transitional country, the higher the rate of economic growth, the higher the ratio of taxes to GDP. Moreover, economic growth, as measured by GDP per capita growth, among other pertinent variables, leads to changes in the tax structure. The findings also indicate that determining the causes of change in the composition of tax revenue during the course of economic development is helpful in creating a more effective tax revenue mix in transition economies.
Chapter 4 suggests that while international organizations facilitate the process of PFM reform in context of a specific transition country, and seem to be credible partners of local government in pursuing such reform, not all their advice has been implemented or implemented successfully. It finds that with the pace of implementing reform being slow, borrowed institutions based on international best practice are not always effective in improving the country's PFM systems. These findings are built upon the evidences from a review of policy documents, results of the PEFA assessment, and a survey among practitioners, officials and donors.