ABSTRACT
One of the most important general hypotheses upon which most economists agree is that emerging nations must increasingly mobilise their own internal resources to promote economic growth, and perhaps the most important instrument by which resources may be marshalled is the implementation of an effective tax policy. This chapter utilises the revenue-income elasticity methodology to measure the responsiveness of revenue structures to GDP in the nations comprising the Central American Common Market, and to relate the theory of revenue-income elasticity of two fiscal policy criteria. The first issue in evaluating fiscal self-help performance is the ability of the tax structure to generate proportionately higher revenues both through discretionary action and through revenue growth that is automatically generated through economic activity. The second criterion relates to the responsiveness of revenue yields to movement in economic activity alone, or the revenue-income elasticity measure.
