Economic Sectors and Tax Revenue: A Global Cross-Country Analysis

Abstract

Several countries have problems in achieving the tax ratio, which is still below the ideal level. The purpose of this study is to examine the effect of economic sector contribution on tax revenue. The research method used is quantitative with balanced panel data from 2002 - 2021 for 129 countries. Tests were conducted on the overall country, income level, and regional area of each country. The results show variation, the contribution of the agricultural sector consistently has a negative effect on tax revenue for the majority of tests, except for the lower income levels and the East Asia and Pacific regions, which both have no effect. Industry sector contribution has a positive effect on tax revenue only for low income levels and the East Asia and Pacific region. The opposite finding, where industry sector contribution has a negative effect on tax revenue, is found in the majority of tests, except for the Middle East and North Africa region and the Sub-Saharan Africa region, both of which have no effect. The contribution of the services sector also consistently has a negative effect on tax revenue for the majority of tests, except for the East Asia and Pacific region, the Middle East and North Africa region, and the South Asia region where all three have no effect. The negative effect of the agricultural sector shows the need for structural transformation towards higher value-added sectors such as agro-industry. Meanwhile, the negative effect of the industrial and service sectors requires tax policy arrangements that reduce tax avoidance and tax evasion.