what is the tax to gdp ratio 
the tax to gdp ratio is a gauge of a nation s tax revenue relative to the size of its economy as measured by gross domestic product gdp the ratio provides a useful look at a country s tax revenue because it reveals potential taxation relative to the economy it also enables a view of the overall direction of a nation s tax policy and international comparisons between the tax revenues of different countries understanding the tax to gdp ratiotaxes are a critical measure of a nation s development and governance the tax to gdp ratio determines how well a nation s government directs its economic resources higher tax revenues mean a country can spend more on improving infrastructure health and education which are keys to the long term prospects for a country s economy and people tax policy and economic developmenttax revenues above 15 of a country s gross domestic product gdp are a key ingredient for economic growth and poverty reduction according to the world bank this level of taxation ensures that countries have the money necessary to invest in the future and achieve sustainable economic growth 1developed countries generally have a far higher ratio the average among members of the organisation for economic cooperation and development was 34 0 in 2022 2the tax to gdp ratio in the united states was 27 7 in 2022 2according to one theory people generally begin to demand more services from the government as economies become more developed and incomes rise their demands might focus on healthcare public transportation or education this would explain why the european union s tax to gdp ratio of 26 7 in 2022 was so much higher than most asia pacific nations 3 tax to gdp ratios in these countries ranged from 10 9 in indonesia to 25 3 in samoa only japan korea new zealand and nauru were higher than the eu and all but nauru averaged less than the oecd average 4the direction of tax policypolicymakers use the tax to gdp ratio to compare tax receipts from year to year because it offers a better measure of the rise and fall in tax revenue than simple amounts tax revenues are closely related to economic activity rising during times of faster economic growth and declining during recessions as a percentage tax revenues generally rise and fall faster than gdp but the ratio should stay relatively consistent barring extreme swings in growth the ratio can shift dramatically however in cases of significant shifts in tax law or during severe economic downturns the united states ranked 31st out of 38 oecd countries in terms of its tax to gdp ratio in 2022 2