Tax-To-GDP Ratio

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DEFINITION of 'Tax-To-GDP Ratio'

The ratio of tax collection against the national gross domestic product (GDP). Some states increase the tax-to-GDP ratio by a certain percentage in order to cover deficiencies in the state budget revenue. In states where the tax revenue has gone up significantly, the percentage of tax revenue that is applied towards state revenue and foreign debt is sometimes higher.

BREAKING DOWN 'Tax-To-GDP Ratio'

This ratio is the total government tax collections divided by the country's GDP. Some countries, like Sweden, have a high tax-to-GDP ratio (as high as 54%). Other countries, like India, have a low ratio. When tax revenues grow at a slower rate than the GDP of a country, the tax-to-GDP ratio drops. Taxes paid by individuals and corporations often account for the majority of tax receipts, especially in developed countries.

Customs and duties paid by users of goods and services also make up a portion of tax receipts.

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