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One of the main goals of the literature on optimal tax systems is to reduce the gap between the highly stylized theory of optimal taxation and the practice of fiscal policy reform. Unfortunately, however, we know little about the extent to which the international experience follows the policy prescriptions derived from economic theory or how those policy prescriptions would change with economic development. Based on the standard theory of optimal tax systems, this paper predicts the possible effects of economic development on the optimal level and composition of tax revenue and empirically tests these predictions with yearly data on three tax instruments from countries at different stages of development. On average, as countries develop they are shown to collect more tax revenue and switch from regressive tax instruments, like the value added tax, to more progressive taxes that become more productive with development, like personal and corporate income taxes.


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