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Designing tax systems in Developing Countries - An evaluation of the Dominican tax system

Bergman, Elin LU (2011) NEKM01 20111
Department of Economics
Abstract
The Dominican Republic is a small open economy, highly dependent on trade for its economic growth. During the past decades, the country has taken major steps to liberalize its trade regimes. As a consequence revenues from import duties and tariffs have fallen sharply. This has put an immediate pressure on the country to reform its tax system in order to increase revenue from domestic sources to cover up for the loss in trade taxes. The purpose of this study is to evaluate the Dominican tax reforms and current tax structure against four criteria’s; revenue effects, economic efficiency, equity and administrative simplicity. The study also aims at identifying ways to further improve the tax system in the Dominican Republic. The study shows... (More)
The Dominican Republic is a small open economy, highly dependent on trade for its economic growth. During the past decades, the country has taken major steps to liberalize its trade regimes. As a consequence revenues from import duties and tariffs have fallen sharply. This has put an immediate pressure on the country to reform its tax system in order to increase revenue from domestic sources to cover up for the loss in trade taxes. The purpose of this study is to evaluate the Dominican tax reforms and current tax structure against four criteria’s; revenue effects, economic efficiency, equity and administrative simplicity. The study also aims at identifying ways to further improve the tax system in the Dominican Republic. The study shows that the Dominican Republic has been successful in shifting the tax system from relying on trade to instead derive income from domestic sources. This has been possible mainly through a simplified tax design and a broadened tax base both for income taxes and consumption taxes. Improvements made in terms of economic efficiency, equity as well as administrative simplicity have be found. The study concludes that the generous tax incentives given to foreign firm’s represents lots of forgone tax revenue and that they might not be motivated from a cost benefit perspective. By limiting the tax incentives, the Dominican Republic could improve the revenue generating capacity of its tax system and secure future growth in tax revenues. Further the study concludes that widespread corruption in public institutions hampers the possibilities to generate higher revenue levels. (Less)
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author
Bergman, Elin LU
supervisor
organization
course
NEKM01 20111
year
type
H1 - Master's Degree (One Year)
subject
keywords
Tax reform, The Dominican Republic, Taxation and development, Tax design
language
English
id
1897668
date added to LUP
2011-05-20 15:42:49
date last changed
2011-05-20 15:42:49
@misc{1897668,
  abstract     = {The Dominican Republic is a small open economy, highly dependent on trade for its economic growth. During the past decades, the country has taken major steps to liberalize its trade regimes. As a consequence revenues from import duties and tariffs have fallen sharply. This has put an immediate pressure on the country to reform its tax system in order to increase revenue from domestic sources to cover up for the loss in trade taxes. The purpose of this study is to evaluate the Dominican tax reforms and current tax structure against four criteria’s; revenue effects, economic efficiency, equity and administrative simplicity. The study also aims at identifying ways to further improve the tax system in the Dominican Republic. The study shows that the Dominican Republic has been successful in shifting the tax system from relying on trade to instead derive income from domestic sources. This has been possible mainly through a simplified tax design and a broadened tax base both for income taxes and consumption taxes. Improvements made in terms of economic efficiency, equity as well as administrative simplicity have be found. The study concludes that the generous tax incentives given to foreign firm’s represents lots of forgone tax revenue and that they might not be motivated from a cost benefit perspective. By limiting the tax incentives, the Dominican Republic could improve the revenue generating capacity of its tax system and secure future growth in tax revenues. Further the study concludes that widespread corruption in public institutions hampers the possibilities to generate higher revenue levels.},
  author       = {Bergman, Elin},
  keyword      = {Tax reform,The Dominican Republic,Taxation and development,Tax design},
  language     = {eng},
  note         = {Student Paper},
  title        = {Designing tax systems in Developing Countries - An evaluation of the Dominican tax system},
  year         = {2011},
}