Approaches and Impact: IFIs Tax Policy in Developing Countries

A joint report by Eurodad and ActionAid

Tax policy has been at the heart of policy advice from the International Financial Institutions (IFIs) to developing countries for the last twenty years. Tax reforms became an increasingly important part of the structural adjustment programmes promoted by the World Bank and the IMF in developing countries from the late 1980’s.

This paper reviews existing literature on the IFIs approach to tax policy reform during the last decade. NGO and academic research suggest that the IFIs have used technical assistance and policy advice to encourage developing countries to reform their tax systems according to a consistent template of interlinked policy prescriptions.

This set of policy reforms has been called a ‘consensus’ on tax policy which has been referred to by numerous authors. However, there seems to be a recent move in the right direction. A new IMF paper responds to many of the criticisms made of the tax consensus, such as ‘one size fits all,’ and the lack of attention to the equity impacts of reform advice.

The first section of this paper examines the policy reforms promoted by the IMF in particular and what has been said about the tax consensus. The second section examines the different mechanisms through which the IMF and the World Bank have influence over developing country governments and the tax policies that they set.