ABSTRACT
The determinants of government capacity to raise revenue and the determinants of revenues actually raised have been focal issues in intergovernmental relations and constitute a natural bridge between the disciplines of economics and political science. This chapter explores the underpinnings of the relative political extraction (RPE) concept in economic theory and suggests some refinements for both theory and measurement technique. Frontier estimation techniques are more congruent with the theory. Three types of constraints determine the economic frontier: endowments, production technology, and revenue raising technology. The chapter reviews that the literature about the economics of taxation and government size is beyond the domain. The concept of tax capacity and attempts to measure it originate in the early applied local public finance literature. Political scientists developed the concepts of tax capacity and tax effort into models of RPE that seek to explain deviations between observed revenues and estimated capacity.
