Assessing the sustainability of tax revenues in Azerbaijan: an analysis of the tax burden and tax gap

Abstract

This article examines various threshold indicators characterizing the sustainability of state budget tax revenues in Azerbaijan, including their critical levels, sources, and compliance status. It also evaluates the sustainability of Azerbaijan's tax revenues through the indicators of the tax burden and the tax gap, while assessing sustainability risks and structural problems, identifying their underlying causes, and proposing policy recommendations.

Based on statistical data for the period 2010–2023 and empirical analysis using a simple Ordinary Least Squares (OLS) regression model, the study finds that the tax gap has exhibited an increasing trend, whereas the tax burden remains below internationally recommended benchmark levels. This situation is identified as a significant risk factor affecting fiscal sustainability.

The research employs descriptive statistics, the Tax Sustainability Index (TSI) approach, international comparative analysis, and normative threshold assessment methods. Analytical evaluation is conducted using statistical threshold indicators designed to measure the sustainability of Azerbaijan's tax revenues. The primary objective is to assess the country's potential for sustainable tax policy through key tax sustainability indicators. The selected indicators are compared with international standards and best practices, their degree of compliance is evaluated, and policy reform recommendations are proposed.

The findings indicate that both Azerbaijan's tax burden and the ratio of collected tax revenues to their estimated potential remain at relatively low levels. The proposed policy recommendations are aimed at strengthening fiscal sustainability by enhancing tax revenue performance and improving the efficiency of the tax system.