Global Futures Initiative

The problem is acute. In the 2000s, the average OECD state had over $7,000 per capita in tax revenues while developing country governments had to get by on $95 per capita. Less than a hundred dollars per person to account for all the aspects of running a state. Little surprise public services are underprovided or absent with civil society actors being relied upon to fill the chasm of need for basic health services and education.

For poor countries the lack of investment in basic infrastructure limits future growth. The demands of competing in a globalized market require functioning electricity grids, running water, navigable roads, waterways, and airways, and an educated workforce. Yet on all these dimensions poor countries fall woefully short due to the lack of fiscal resources to invest and the absence of political will to remedy the situation. Instead governments are quick to endorse private solutions to the provision of public goods. Of course public-private partnerships can and do yield valuable benefits but nowhere have such collaborations yielded scalable solutions for primary education or basic healthcare, let alone the construction of national highway systems. As it was in the United States and Europe, the impetus for such nation-building investment must come from the governments’ coffers.

By limiting the scope of government activity, and therefore its relevance to citizens’ lives, low fiscal space alters the basis of government-citizen linkages. Rather than vote for parties on the basis of their ability to deliver broad public policy programs, voters enter into more transactional relationships with the state seeking delivery of patronage and access to bureaucratic services. Party loyalties weaken, resulting in roiling electoral volatility and anti-incumbency effects. This leads to a vicious cycle in which politicians have little incentive to seek long-term solutions since they’re unlikely to be around long enough to reap electoral profit from their efforts. Cross-nationally low fiscal space lowers the democratic payoff of holding elections and hurts future quality of governance too.

Poor countries need public finance and tax reform, investment in state capacity to collect taxes, and a rapid infusion of cash so governments can shore up stocks of legitimacy by providing services to their people. Fiscal space might not be the stuff of bumperstickers, but it arguably the greatest development challenge of the next decade.

Irfan Nooruddin is an associate professor in the Asian Studies Program in the School of Foreign Service.