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World Bank Support for Domestic Revenue Mobilization

Chapter 5 | Findings and Recommendations

The World Bank scaled up its support for domestic revenue mobilization (DRM) between 2016 and 2019, especially to International Development Association–eligible countries and in Sub-Saharan Africa. An increase in operations supporting tax policy reform was particularly pronounced in development policy operations (DPOs). Recently, the number of diagnostic tools on DRM has increased significantly. Each has potentially important value added in informing policy dialogue, operational design, and priority setting, but there is no clear framework to guide task team leaders in setting priorities for reforms and capacity-building support across tax issues.

The availability of funding through the Global Tax Program has allowed the World Bank to increase its analytical support to client countries for DRM and improve the analytical foundations of DRM work more broadly. At the same time, it presents challenges in ensuring that this valuable analysis is sufficiently well integrated into operational work and priority setting.

Ramping up DRM support has intensified pressure on limited regular staff and an increasing cadre of consultants. Significant staff turnover and several shifts of responsibility for tax issues within the institution have exacerbated the pressures and made continuity more challenging. On the positive side, important improvements were made in collaboration with development partners.

Green and health taxes took on greater prominence in the evaluation period, though from a low level. The work of the Global Tobacco Control Program has been particularly effective, making extensive use of collaboration across Global Practices and with external partners.

Attention to the expected distributional implications of DRM interventions has increased in low-income countries, from a low level, but was less evident in operations in middle-income countries. Reporting of the ex post impact of tax reform was infrequent in Implementation Completion and Results Reports.

Results from investment projects supporting DRM were generally favorable. The share of investment projects rated satisfactory was 41 percent, with 35 percent rated moderately satisfactory. DRM-related investment projects were more likely to have satisfactory outcome ratings than other World Bank investment projects.

DPOs showed a marked improvement in achievement of DRM-related objectives, although the indicators used to measure impact were often inadequate. Targets for DRM-related results indicators in DPOs were largely achieved, but results indicators were often too high level or did not adequately capture the impact of prior actions or progress toward objectives.

Case study analysis suggests that results from DPO-supported DRM policy reforms were often not sustained. Even for operations that recorded significant achievements at closing, progress was frequently reversed over time because of policy reversals. This was particularly the case for reductions in tax exemptions and tax expenditures.

Staff self-evaluations at the project and operation levels yielded few DRM-related lessons, suggesting scope for greater attention to learning from experience with DRM-focused projects and operations.

This evaluation finds that the World Bank scaled up its support for DRM between 2016 and 2019, especially to IDA-eligible countries and in Sub-Saharan Africa. Support was greatest in countries with lower revenue-to-GDP ratios and in the South Asia Region. At the same time, the tax-to-GDP ratio for low- and middle-income countries continued its declining trend (even before COVID-19).

The increase in support for DRM has put greater demands on limited regular World Bank staff and an increasing number of consultants—significant staff turnover and several shifts of responsibility for tax issues within the Bank Group over the past decade have exacerbated pressures and made continuity more challenging. The shifting responsibility for tax issues has complicated the World Bank’s ability to have a long-term, integrated strategy and vision and budgetary predictability for DRM. The creation of the Global Tax Program in 2018 has improved the predictability of funding, but the heavy reliance on consultants has exacerbated challenges for internal collaboration and continuity, with some exceptions such as work on tobacco taxation.

World Bank interventions and priorities in support of DRM at the country level were generally well grounded in analytical work that identified major country-specific constraints to DRM. At the same time, the number of tax tools and diagnostics from within and outside the World Bank has increased significantly. These include TADAT, three new tool kits on international tax, tax treaty explorers, the Innovations in Tax Compliance Conceptual Framework, Commitment to Equity Assessment Diagnostic Framework tools, Tax DIAMOND, microsimulation models, tax analysis modules (tax policy assessment frameworks), tax gap models, and tax incentive analyses. Each one focuses on a distinct dimension of DRM and has potentially important value added in informing policy dialogue, operational design, and priority setting, but their proliferation puts pressure on the capacity of task team leaders (many of whom are not tax experts) to effectively identify and prioritize reforms and constraints with the greatest potential for impact at the country level. Although medium-term revenue strategies under the PCT have potential to generate an integrated perspective on country-specific needs and reform priorities, the PCT is not yet able to provide a framework to prioritize across tax objectives that can be easily drawn on to directly and routinely inform priorities in CPFs, CPF updates, and the articulation of prior actions in DPOs.

The World Bank has significantly scaled up awareness and advocacy for the use of health taxes as a source of revenue, to preserve human capital, and to reduce already heavily burdened health systems in developing economies. The health taxes program has made a significant contribution to analytical work and to raising awareness of the win-win potential of these taxes and reforms in a number of countries. Demand for health tax interventions has grown substantially from a very low base, and it is expected to continue growing rapidly. Green and health taxes took on greater prominence in the evaluation period, though from a low level, reflecting the evolution of the international policy agenda. Although evidence is limited, prior actions in this area have generally been successful in achieving targeted outcomes.

Attention to the expected distributional implications of DRM interventions has increased from a low level in low-income countries but has not gained prominence in middle-income countries. Analytical work on the distributional implications of tax policy increased relative to the previous three-year period, although there is still little work to do at the country level on the incidence of proposed tax reforms (that is, which groups are most likely to shoulder the effective burden of tax reforms). The World Bank has generally paid attention to the expected distributional impacts of DRM interventions but has paid less attention to ex post impacts.

Operations have increased emphasis on tax policy reform. This was particularly pronounced in DPOs, where prior actions often supported changes in tax rates (VAT, corporate income tax, and personal income tax) or reductions in tax expenditures and exemptions.

More than two-thirds of DRM-related DPO results indicators achieved their targets, but many of these indicators had weaknesses. Many DPOs approved over the evaluation period have not yet been evaluated, but targets for DRM-related results indicators were generally met, though case study evidence shows that progress was often not sustained. Moreover, many of the results indicators intended to capture the impact of DRM-related prior actions showed several weaknesses, limiting their value in capturing actual impact. Higher-level indicators, such as revenue-to-GDP ratios, may be appropriate for longer-term country strategies and programs, but they are used excessively where more focused alternatives would be better to measure impact at the level of individual operations.

The World Bank increased its use of prior actions in DPOs to support the reduction of tax exemptions over the evaluation period. Approaches varied, with prior actions seeking to increase transparency regarding tax expenditures, eliminate exemptions, and strengthen accountability in granting exemptions. However, case study evidence suggests that tax policy reforms supported by DPOs were often reversed after disbursement, even for operations that recorded significant achievements shortly after closing. Risks often materialized, even though the preparation of projects and operations regularly involved political economy analyses and project documents identified related risks (with varying degrees of specificity). Although informed risk taking should not be discouraged, this suggests the need for more concrete mitigating measures. For example, sequencing and complementarity of instruments supporting DRM need to be considered more strategically, and prior actions should be designed with an aim of making their reversal more difficult. For tax exemptions, changes in governance frameworks that made it more difficult to grant exemptions tended to be more resilient, whereas eliminating specific exemptions was often overridden over time under pressure from vested interests.

How easily some World Bank–supported tax policy reforms can be reversed points to potential tension between the successive provision of budget support to clients that fail to make concrete and sustained progress on DRM. Specifically, the provision of budget financing can reduce how urgently clients approach DRM and the priority they assign to sustaining progress. This suggests that a failure to make and sustain progress on DRM should be considered more explicitly in deciding on the size and frequency of subsequent budget support, at least outside the context of countercyclical support during a crisis.

Staff self-evaluations of operations and projects yielded few DRM-related lessons, and those were insufficiently specific. Only 3 of 60 closed operations and projects that focused on DRM had DRM-specific lessons. Moreover, when reported, the lessons were generic, suggesting minimal value added in informing future interventions supporting DRM. This suggests scope for greater attention to learning from experience with DRM-focused projects and operations.


Given the fungibility of financing, the following recommendations recognize the enabling role that improved DRM plays in promoting a wide range of country-level development objectives across sectors, including health, education, climate adaptation, and infrastructure development and maintenance. As such, efforts to improve DRM should be seen as contributing directly to ensuring the availability of more predictable financing for development priorities such as achievement of the SDGs and the twin goals. They should not be viewed in isolation. That said, support for DRM should also recognize that willingness to pay taxes is partly a function of the degree of confidence taxpayers have in their governments and of the quality and accessibility of the public services they provide.

IEG’s recommendations are largely consistent with or build on the World Bank DRM Approach to Implement Green, Resilient, and Inclusive Development as presented to the Board in June 2021, in which World Bank management pointed to the need to increase human and financial resources dedicated to DRM. In the presentation (World Bank 2021b), World Bank management expresses the intention to

  • Scale up country support to reshape fairer, equitable, and greener tax systems based on country priorities and demands;
  • Introduce DRM-related activities into World Bank operations, from the CPFs and Systematic Country Diagnostics to lending operations and technical assistance; and
  • Increase World Bank’s human and financial resources to timely respond to greater demands from countries for support to address current revenue challenges, and to help them prepare for future challenges. This could involve mainstreaming DRM experts in regional Equitable Growth, Finance, and Institutions units.

More resources may be warranted, but there is scope for the World Bank to make better use of the resources it currently has for supporting DRM. In this spirit, the following recommendations are made and are particularly relevant in the wake of the COVID-19 pandemic (which has exacerbated preexisting DRM challenges) and because many lower-income countries face mounting risks of debt distress.

The following are the recommendations from this evaluation:

  1. On a country-by-country basis, regularly take stock of the findings of the broad range of tax diagnostics tools and instruments to (i) identify knowledge gaps and (ii) more systematically inform priority setting for country-level policy dialogue, capacity building, and operations to improve DRM. Rigorous analysis and diagnostics are needed to inform country-specific DRM strategy and operational priorities, particularly in IDA-eligible countries. The range of specialized DRM tools and diagnostics from within and outside the World Bank is wide and increasing. Each may serve a useful purpose, but their proliferation risks complicating the ability of task team leaders (many of whom are not tax experts) to distill and set DRM reform priorities for inclusion in country strategies and budget support operations. Therefore, there is a need for a periodic country-specific stocktaking of diagnostic findings to identify information gaps and set priorities for analytical and operational World Bank support to improve DRM. The outcome of this exercise should be timed and used to inform Country Partnership Frameworks, CPF updates, and the identification of prior actions in DPOs.
  2. Given the potentially large and regressive fiscal impact of tax exemptions, the World Bank should regularly assess the effectiveness and efficiency of tax exemptions in achieving country-specific policy objectives, with an eye to more actively supporting the sustainable reduction of regressive tax exemptions through policy advice and prior actions in DPOs. World Bank staff should be equipped with and regularly make use of tools to assess the merits of the existing stock of tax exemptions and tax expenditures in individual countries—particularly those with low tax-to-GDP ratios—and the results should inform policy priorities in Country Partnership Frameworks, policy analysis, and prior actions in DPOs.
  3. The frequency with which tax policy reforms are reversed calls for strengthening incentives to sustain reforms and make reversal more challenging. As part of this effort, the World Bank should seek to support not only the publication of tax exemptions and expenditures but also ways to control the future proliferation of new tax expenditures and exemptions that undermine longer-term growth, equity, and accountability objectives. In efforts to reduce tax exemptions, and where feasible, prior actions should prioritize measures that improve the governance framework for granting exemptions. These efforts would also help alleviate the potential tension between the incentives for a country with a low tax-to-GDP ratio to improve DRM performance and the repeated provision of significant budget support by the World Bank.
  4. Provide clearer guidance to staff on the choice of results indicators to measure the impact of DRM support, facilitate learning from experience, improve monitoring of progress toward DRM-related objectives, and promote an outcome orientation in the World Bank’s support for DRM. Given how often shortcomings were identified in results indicators intended to capture progress on DRM, the World Bank staff needs more concrete and targeted guidance on good practice in defining results indicators for tracking the impact of World Bank DRM interventions. Improving the quality of DRM results indicators will facilitate learning from experience and strengthen the outcome orientation of World Bank support in this area.