Tax Effort in Developing Countries: What do Regression Measures Really Measure?
The basic issue is closely akin to Samuelson's fundamental general equilibrium conception of public sector activities [Samuelson, 1954]. As Musgrave explained, 'it is hardly possible to measure tax effort without regard for the expenditure side of the budget. Rather than thinking of the ability to give up the private use of resource use, one should inquire into the appropriate division of resource use between public and private goods.'4 However this normative criterion is consistently tempered by more practical considerations: 'Allowance must also be made for a county's ability to collect taxes and hence to meet its desired revenue target.' [Musgrave, 1969: 191].