Page 55 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.74, # 2, 2017, pp. 51 - 63

Azka et al. (2014) analyzed the factors that affect tax revenues in Pakistan. In the study,
corruption, political instability, trade openness, real per capita income and inflation are evaluated
as main determinants of tax collection, and tax to GDP ratio is used as an indicator of tax
revenues. The empirical results have shown that direct or indirect taxes are more affected by
corruption, political instability and inflation. Also, it is fact that corruption is a major obstacle in
increasing tax revenues for both direct taxes and indirect taxes.

In their study, Azka et al. (2014) have made some recommendations regarding the quality and
effectiveness of governance. The first recommendation is exporting and archiving
comprehensive records of all ministries and departments into a gigantic e-government system
online. Another recommendation is that government should focus on establishing consciousness
among people regarding the ethical and social obligations of tax payments and should empower
transparent collection and use of taxes that are collected by improving social welfare. The
recommendations of the study coincide with the main representative indicators for measuring
‘Governance Effectiveness’ in WGI project which are quality of bureaucracy, institutional
effectiveness, quality of primary education and satisfaction with transportation system.

3. Data, Methodology and Empirical Analysis

Governance means official and unofficial regulations that determine how public decisions are
made and public activities are carried out in terms of protecting the constitutional values of a
country. Herein, public administration is the establishing basis of the management. Governance
indicators evaluate, compare the corporate quality of countries and contribute to researches and
determining policies. At first, these indicators were used to analyze economical growth and
evaluate the performance of public sector. However today, governance indicators are used to
evaluate decisions regarding conditional development aid and contribute to realizing a
development for a longer term. Therefore, measuring the quality of governance is extremely
important. There is a series of various governance indicators used by various organizations
(DESA, 2007).

One of them is the project of World Bank’s Worldwide Governance Indicators which has six
broad dimensions of governance for over 200 countries and territories over the periods 1996-
2015. These six dimensions are control of corruption, government effectiveness, regulatory
quality, rule of law, voice and accountability, political stability and absence of violence (World
Bank, 2017). In this paper, we investigated the impact of control of corruption (CoC),
government effectiveness (GE), regulatory quality (RQ), rule of law (RoL) on the total tax
revenues in OECD countries using panel regression analysis during the periods 2002-2015. The
countries and the data period in our study were determined by the availability of data.

3.1. Data
The annual data of total tax revenues as a percent of GDP was used as a proxy for the tax
revenues. On the other hand, control of corruption index of World Bank (2017) was employed as

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