Economics & Development

This chapter examines the taxation of multinational enterprises (MNEs) and high-net-worth individuals (HNWIs), whose growing economic importance, mobility, and complex organizational structures present significant challenges for revenue mobilization, particularly in emerging market and developing economies (EMDEs). It explores how globalization has increased opportunities for profit shifting, tax avoidance, and preferential tax treatment, often undermining revenue collection, equity, and public trust in tax systems. The chapter highlights recent advances in tax transparency and international cooperation, summarized through the ABCD framework: Automatic Exchange of Financial Information, Beneficial Ownership Registries, Country-by-Country Reporting, and Digital Sector Taxation. These innovations are improving the visibility of income, wealth, and cross-border activities, enabling more effective taxation of top economic actors. The chapter also discusses future directions for personal and corporate income tax reform, emphasizing broader tax bases, stronger progressivity, reduced tax distortions, and improved coordination between tax instruments to enhance both efficiency and fairness while strengthening domestic revenue mobilization.

This chapter presents a practical framework to help governments in emerging market and developing economies (EMDEs) determine whether to raise additional tax revenue, which tax instruments to use, and how to allocate the proceeds. Building on the Marginal Value of Public Funds (MVPF) framework, it introduces the Welfare-Weighted Marginal Value of Public Funds (WMVPF), a metric that measures the welfare cost to citizens of raising an additional dollar of government revenue. The chapter demonstrates how WMVPF can be used to compare tax policy options, including value-added taxes, personal income taxes, and corporate income taxes, using examples from Indonesia and Mexico. It also shows how the framework guides decisions on both revenue mobilization and public spending by identifying the most efficient ways to raise and allocate funds. Finally, the chapter explains why focusing on marginal tax reforms is more practical and actionable than attempting to estimate a single optimal tax-to-GDP ratio.