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Tax Systems

How to Fix Fragile States? The OECD Reckons it’s All Down to Tax Systems.

Duncan Green's picture

‘Over-generous tax exemptions awarded to multinational enterprises often deprive fragile states of potential revenues that could be used to fund their most pressing needs.’ Another broadside from rent-a-mob? Nope, it’s the ultra respectable OECD in its Fragile States 2014 report.

After years of growth, aid to fragile states started to fall in 2011, so the report centres around an urgent call for OECD member states to help their more fragile cousins find a post-aid arrangement that funds essential state functions and builds the ‘social contract’ with citizens.

The key is a shift from aid dependence to ‘domestic resource mobilization’ (taxes and natural resource royalties), currently averaging a feeble 14% of GDP across fragile states and far too dependent on royalties from oil, gas and mineral extraction. Foreign direct investment (factories, farms etc) is generally low in volume and volatile.