Improving tax revenues in the emerging markets: A Laffer curve analysis
Abstract
Abstract Emerging market and developing economies (EMDEs) can significantly improve their tax‐to‐GDP ratios by expanding the tax base and strengthening institutional quality. This paper develops a neoclassical growth model with heterogeneous agents‐ Ricardian and non‐Ricardian households‐to examine fiscal capacity using a Laffer curve framework. It highlights two key constraints in EMDEs: a large untaxed population‐including exempt and informally employed individuals, and institutional weakness reflected in tax evasion, poor audits, and weak compliance norms. Non‐Ricardians are untaxed; Ricardians may evade or pay taxes. Results show that raising tax rates alone is ineffective; broader compliance, limited exemptions, and institutional reforms are essential.
Fields of Study & Subjects
Taxation and Compliance Studies
Gender
Labor
and Family Dynamics
Fiscal Policy and Economic Growth
Publication details
- Journal / source
- Economic Inquiry
- Publisher
- Wiley
- Volume
- 64
- Issue
- 4
- Pages
- 1458-1492
- Publication date
- 13 June 2026
- Language
- EN