Economics & Development

This chapter examines how tax systems can raise revenue while balancing economic efficiency and equity, with a particular focus on challenges faced by emerging market and developing economies (EMDEs). It highlights how poorly designed taxes can distort labor, investment, production, and consumption decisions, while inequitable tax systems can undermine public trust and social cohesion. Drawing on public finance research, the chapter analyzes the efficiency and equity implications of major tax instruments, including corporate income taxes, personal income taxes, social security contributions, and value-added taxes. It argues that many EMDEs operate below the fiscal frontier due to weaknesses in tax design and administration, creating opportunities to improve both efficiency and equity simultaneously. The chapter concludes by identifying tax reforms that can help countries move closer to the efficiency–equity frontier while supporting sustainable revenue mobilization.