Our new policy paper, ‘Increasing tax revenues to bridge the education financing gap’ shows that, if governments in low and middle income countries modestly increased their tax-raising efforts and devoted a fifth of their budget to education, they could fill over half of the annual funding gap for basic and lower secondary education by 2015.

Aid to education will still be crucial for quite a while. Many of the world’s poorest countries cannot expect domestic taxes alone to provide the financing needed to meet the EFA goals in the near future. That’s why the Global Partnership for Education is seeking US$3.5 billion in new funding, as it explains in a new report released this week, 250 Million Reasons to Invest in Education: The Case for Investment.

Even so, sustained economic growth in many of the world’s poorest countries has increased the resources that they can raise domestically to finance their education strategies. Many countries furthest from the Education for All goals, however, do not sufficiently tap their tax base and the fruits of this economic growth, as a result, are not being fairly distributed. Currently only seven of 67 countries analyzed for our new policy paper generate 20% of GDP in taxes and allocate 20% of their budgets to education.

It is estimated that countries need to raise 20% of their GDP in taxes to achieve the Millennium Development Goals. On current rates, only 4 of the 48 countries currently raising less than 20% of GDP in tax would reach the 20% threshold by 2015.

Raising domestic resources would bring dramatic improvements to the lives of millions of children by providing them with a quality education. Across the 67 countries analyzed, even modest moves towards these targets would more than double the average spending per primary school age child.

In some countries, the effect would be particularly strong. In Pakistan, tax revenue is just 10% of GDP and education receives only around 10% of government expenditure. If the government increased its tax revenue to 14% of GDP by 2015 and allocated one-fifth of this to education, it could raise sufficient funds to get all of its children and adolescents into school.

This is not to say that change can happen overnight. It took European economies a century to increase their tax revenue from 12% to 46% of GDP. However, with support from donors and the international community, many more developing countries could reap the benefits of a well-functioning taxation system. Doing so would allow them to support their education systems with domestic revenue instead of borrowing or relying on external finance.

While low and middle income countries as a group rely heavily on tax from corporations, many of them forgo considerable revenue from businesses by granting too many tax exemptions. In much of sub-Saharan Africa, these exemptions can amount to the equivalent of 5% of GDP.

Tax evasion is another scourge of poor countries that desperately need to raise more money. For many of these countries, tax evasion results in resources being used to build personal fortunes for the minority elite, rather than strong education systems for the benefit of the majority.

The paper shows that if the trillions of dollars estimated to be hidden away in tax havens were subject to capital gains tax, and 20% of the resulting income was allocated to education, up to US$56 billion in additional funds could be raised for the sector.

This week, finance ministers are meeting in Abuja to discuss how to find more finances to achieve their goals. In three weeks, global leaders are meeting in Mexico for the High Level Meeting of the Global Partnership for Effective Development Cooperation at which domestic finances are on the agenda. It is crucial that these leaders wake up to the vast potential held in better-managed tax systems.

Our policy paper highlights three concrete measures that governments and leaders must take so that future generations can reap the rewards of current economic growth: reduce tax exemptions, tackle tax evasion and diversify the tax base. Such efforts would go a long way towards ensuring that children are in school and learning by 2015, and would provide a solid base for funding more ambitious goals after 2015.