As development assistance for health shrinks and the demand for health expenditures increases, developing countries are under mounting pressure to provide adequate resources for health. Governments can increase available public resources by benefiting from overall economic growth, borrowing, making efficiency gains, and reforming tax laws and improving tax administration, among others.
Authored by R4D Program Director Shan Soe-Lin for USAID’s Health Finance and Governance Project, Tax Reform and Resource Mobilization for Health examines whether improvements in tax revenue performance due to tax administration reform result in increases in available government funds that benefit the health sector and the conditions that facilitate greater allocations toward health spending.
The report shows that many countries are still far from reaching their tax capacity. If countries’ tax effort rose to the average rate, then government health expenditures could also increase by an additional $2-$8 per capita. However, the analysis of 188 countries over 18 years (1995 – 2012) found that increased tax revenues do not necessarily translate to increased health spending.
The study identifies four factors that favor the allocation of additional tax revenue toward the health sector:
- generating national political priority for health,
- creating tax funds specifically for health,
- earmarking a proportion of tax revenue mobilized, and
- decentralizing spending
This report is complemented by two in-depth country case studies, El Salvador and Rwanda. Both of these countries implemented successful tax administration reforms that, together with other measures, significantly increased government allocations to health.
Download the in-depth country case studies:
