Our dataset includes 110 developing and developed countries and covers the period of 19942009.<sup>4</sup> Countries are selected based on data availability.<sup>5</sup> For the purpose of consistency, all series are extracted from World Bank’s World Development Indicator (WDI) Database and they are all for central government only. The average values of the tax rate for each country are reported in column (2) of Table A1 in the Annex.<sup>6</sup> Given that differences in income levels and across regions can be important factors in determining tax revenues of countries, tax rates are investigated across income groups and regions. Simple averages are calculated for each group. The data points for the years of 1994, 1998, 2003, and 2009 are reported in the following figures. The results confirm the ones presented in Bird (2007), Fox, et al. (2005), and Le, Moreno-Dodson, and Rojchaichaninthorn (2008).

# **_Income Classification and Taxation_**

One important factor determining tax revenue of countries is their income levels. When countries are classified based on the share of tax revenues in percentage of GDP across income groups, it can be seen that differences across groups are sharp (see Figure 1).<sup>7</sup> The low-income group has the lowest tax-to-GDP ratio, but it has been improving since 1998. The improvement is clearer especially in recent years. For this group of countries, the average share of taxes in GDP increased to 13.6 percent of GDP in 2009 from 10.5 percent in 2003 and 10 percent in 1998. Throughout the years, each group managed to increase their average tax-to-GDP ratio, but this increase is much higher in the low-income group. Even there is still a large room for further improvement, recent developments are very promising, given the fact that this group of countries always finds it difficult to raise enough public funds to finance enormous development needs.

The share of taxes in percentage of GDP is almost 6 percentage points higher for the middleincome group when compared to the average share in the low-income group. This share in the middle-income group has been consistently rising since 1998; it was 17.1 percent in 1998, and 19.3 percent in 2009.

> 4 Since this paper is the second part of Le, Moreno-Dodson, and Rojchaichaninthorn (2008), changes in data need to be emphasized. In the new dataset, new countries have been added and the time period has been extended from 2003 to 2009. The following new countries are added: Bahamas, Benin, Burkina Faso, Cape Verde, Honduras, Hong Kong SAR (China), Israel, Lao PDR, Macao (China), Macedonia, Maldives, Mali, Myanmar, Niger, Singapore, and Togo.

> 5 Since their taxation policies are mainly outliers, the following oil-exporting countries are excluded in the paper: Algeria, Angola, Ecuador, Equatorial Guinea, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.

> 6 The detailed variable definitions are given in Table A2 in the Annex.

> 7 The income groups are defined based on the World Bank definition. High-income economies are those in which 2009 GNI per capita was $12,196 or more. Low-income economies are those in which 2009 GNI per capita was $995 or less. Middle-income economies are those in which 2009 GNI per capita was between $996 and $12,195. The list of included countries is given in Table A3 in the Annex.

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