Analysis of Revenue Potential and Revenue Effort in Developing Asian Countries

This study analyses fiscal performance across developing Asian countries over the period 1984 to 2010. The results indicate that per capita GDP, agriculture value addition, trade openness, debt and population growth are significant determinants of revenue to GDP ratio across countries. Among the institutional factors, control of corruption, law and order and bureaucracy quality has a significantly positive effect on revenue performance. The fiscal effort indices obtained for Asian countries show that while several ASEAN countries are performing well above their potential, some South Asian economies fall short of their revenue potential. An overall decline in revenue effort is found in nineties, however in eighties and again in twenties there is improvement in revenue performance. The results suggest that there is need of good policy measures such as broadening the tax base and improving the institutional quality to address this issue. The architect of revenue reforms must be country specific that requires broad investigation of the country’s revenue capacity, revenue performance, and institutional structure.