SIPRI Insights on Peace and Security - USING TAXATION TO FUND MILITARY SPENDING

The World Bank estimates that the global average of taxation as a share of gross domestic product (GDP)—known as tax effort— was 14 per cent in 2020.10 For the wealthier countries that are members of the Organisation for Economic Co-operation and Development (OECD), tax effort averaged 34 per cent.11 Despite the importance of taxation as a source of funding for the state, no study has tackled its. [...] The regression model for analysis of the financing of military spending through taxation The general form of the regression model is In ? ? ,? = α0+β1 ln ? ? ,? + θ? ? ,? +β2 ? ? ,? In ? ? ,? + ρ? + τ? +ϵ? ,? where ? ? ,? is the military spending (in constant 2020 US dollars) of country i at time t, ? ? ,? is taxation as a share of gross domestic product (GDP), β1 is the coefficient for taxat. [...] The qualitative findings in the context of a country with sustained economic and humanitarian crises exemplifies the importance of considering the potential negative consequences of financing the increase in milit ary spending. [...] The moder ate hike in 2015 is partially explained by rising inflation, excise taxes on alcohol and tobacco, and the introduction of a military levy.42 The special mili tary levy—which was initially presented as a temporary measure but is still in place—takes 1.5 per cent of the income from transactions involving transfer of ownership of goods valued in foreign currencies.43 Because of the war, lev. [...] Debt became the most important of these sources in the first years of the war as the country’s reserves quickly ran dry.50 In 2014 reserves shrank to $7.5 billion, the equivalent to two months of imports or 20 per cent of short-term debt.51 After the annexation of Crimea, debt levels rose acutely.