Explaining the Variation in Tax Structures in the MENA Region

This paper examines the tax structures of the Middle East and North Africa (MENA) countries by focusing on the quality of governance and demographic changes as two influential factors in region’s economies. The objective of is to determine whether these factors can explain the variation in the tax structures of these countries. Results from regressions on the MENA countries and the ones based on a larger sample of 61 countries show that these factors affected the level of taxation, measured by the tax ratio, more strongly than they affected the tax composition. While the quality of governance seems to have affected the tax structures in the MENA countries more than in other comparable Non-OECD countries, demographics seems to have played a bigger role in determining the tax structures in other Non-OECD countries. However, neither of these factors explained changes in the income tax share satisfactorily. One key result is that the increase in the quality of governance has decreased the reliance on domestic taxes on goods and services. The paper provides a discussion on the policy implications of these results.