Growth, Debt, and Politics: Economic Adjustment and the Political Performance of Developing Countries

By Lewis W. Snider | Go to book overview

Appendix 2.1
Estimating Predicted Extractive Capability, 1950-1992

The Model and Parameter Estimation

The construction of the measure relative political extraction involves two points of reference. The first is the actual performance of a country in collecting tax revenues, its achieved extraction. The second is an estimate of the level of tax revenues that could be raised if the political and economic systems operated at an average level of capability compared to other countries with similar tax bases. This is taxable capacity. Once these two reference points are established, the extraction achieved (i.e. the actual taxes collected as a percentage of GDP) can be divided by the estimate of its taxable capacity. A ratio of 1.00 indicates a country is extracting what would be expected given its estimated taxable capacity compared to the average country (in a sample of countries) with a similar taxable capacity. A ratio greater than one suggests the government's actual extractive capacity is greater than would be expected on the basis of its (predicted) taxable capacity compared to other countries with similar capacities. A ratio of less than one indicates a government's extractive capacity is below its potential when compared to other countries with similar tax bases.

The steps taken to construct this indicator can be summarized as follows:

Political Extraction
(Taxes Collected / Available Resources) / Taxable Capacity.

Taxable Capacity = ß0 + ß1 (Exports/GNP) + ß2 (Mineral Production/GNP) - ß3 (Agricultural Production/GDP).

The elements that reflect fiscal and economic sources of extractive capability are measured in national currency and defined as follows:

Adjtax = Taxes collected/available resources. This is
measured as (tax revenues - social security taxes)
/GDP.
GNP = Gross National Product. This includes income
produced locally which accrues to non-residents
and excludes income received from abroad by
residents.
GDP = Gross Domestic Product. This excludes income
produced locally which accrues to non-residents
and includes income received from abroad by
residents.

-64-

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