What does tax effort measure?

Tax effort is primarily defined as a measure of how much a government collects in taxes relative to its potential to collect taxes based on the economic capacity of its citizens. This typically takes into account factors such as income levels, economic activity, and the overall tax base of a country or region. By assessing tax effort, analysts can determine whether a government is effectively utilizing its taxation capabilities and how closely tax revenues align with the financial ability of its population to pay those taxes.

This concept is crucial for evaluating the efficiency and equity of a tax system. A high tax effort may indicate that a government is successfully mobilizing its economic resources, while a low tax effort could suggest underperformance in tax collection relative to available resources. Recognizing this helps policymakers identify areas for tax reform or improvements in compliance and administration.

In contrast, the other options focus on different aspects of taxation, such as administrative costs, tax incentives, and evasion rates, which do not directly measure the relationship between actual tax collection and the potential tax capacity of the population.