Structural Determinants of Tax Revenue: A Balanced Panel with Driscoll–Kraay Errors for the Central American Northern Triangle, 1991–2023.

Abstract

This study examines the structural determinants of tax revenue in Guatemala, El Salvador, and Honduras over the period 1991–2023. Using a balanced panel dataset and a fixed-effects model with Driscoll–Kraay robust standard errors, the analysis evaluates the role of demographic conditions, labor market performance, and trade openness in explaining variations in tax revenue as a percentage of GDP. The empirical strategy incorporates macroeconomic controls and applies alternative model specifications, including a global model and a parsimonious specification, to assess the robustness of results. The findings indicate that population size and trade openness exert a positive and statistically significant effect on tax revenue, while unemployment is associated with a negative impact. In contrast, short-run economic growth, inflation, and gross capital formation do not display consistent significance across specifications. These results suggest that tax performance in small and open economies is driven primarily by structural factors rather than short-term cyclical fluctuations. The study contributes to the empirical literature on fiscal performance in developing economies by providing region-specific evidence for the Northern Triangle of Central America and offers relevant insights for the design of tax policies aimed at strengthening revenue capacity through structural and labor market-oriented reforms.