Taxing for Growth ; Revisiting the 15 Percent Threshold

Tax revenue collection is essential to the state’s ability to address market failures, provide goods and services such as health and education, invest in infrastructure, stabilize the economy in response to shocks, and maintain sustainable debt dynamics. Using a regression discontinuity design, this paper demonstrates that there is a tax threshold around 15 percent of gross domestic product where future inclusive growth improves significantly. This may be due to increased productive spending, more progressive taxes, and lower output volatility. The paper also shows that low-income countries graduate to middle-income status around the same threshold.