Tax Capacity and Effort and Economic Implications: Evidence from Jordan

The study aims at discussing tax effort determinants, in general, and estimating a tax effort index for Jordan for the period 1990-2013, in particular. An econometric analysis model is used to estimate the tax capacity considering a number of determinants where tax burden is regressed on several factors. The study uses the FGLS-SUR as a method for data analysis. Results reveal that tax effort is related positively to economic openness, and the contribution of services and manufacturing sectors to gross domestic products, while tax negatively to both the contribution of agriculture and mining sectors to gross domestic products. The values of the estimated tax effort show fluctuation during the period that can be attributed to the continuous amendments in tax laws and other legislations as part of the economic adjustment programs undertaken during the period of the study. The study recommends that no additional taxes should be enacted for the time being. A better policy to increase government revenues would be to enhance tax collection procedures, and minimize both tax avoidance and evasion.