Chapter 4 | Page 159 enabling environment for individuals to realise their rights. Identifying the optimal level of taxation that takes account of fairness and progressivity, addressing pro-cyclicality, managing debt and deficit and the overall effectiveness of the tax policy are key considerations in this context. As discussed earlier, financial constraints on developing countries are exacerbated by borrowing, especially in non-bond financing. It can be argued that such policies weaken the distinction between fiscal and monetary policy and crowd out private sector investment.87 The unsustainability of current account deficits and fiscal deficits creates another set of difficulties for developing countries, particularly in relation to meeting internal and external deficit sustainability conditions. This widens the gap between internal and external rates of interests, with higher domestic rates tending to weaken the level of domestic investment and growth.88 As a result, the impact of deficits can also vary depending on the modes of finance. Although dependence on broader taxation is a sign of good quality in government,89 under-resourcing, misallocation of resources for tax administration authorities and lack of necessary skills are concerns in many developing countries.90 The ability of institutions to collect taxes, especially in hard-to-reach areas such as the informal sector,91 depends very much on the level of investment and capacity of these institutions. 87 Jha, above n 73. 88 Ibid., 20. 89 Mick Moore, 'Between coercion and contract: competing narratives on taxation and governance' in Deborah A Bräutigam, Odd-Helge Fjeldstad and Mick Moore (eds), Taxation and State-Building in Developing Countries (Cambridge University Press, Cambridge, 2008) 34, 34. 90 International Monetary Fund, above n 14. 91 See for example, Timothy Besley and Torsten Persson, 'Taxation and Development' in Alan Auerbach et al (eds), Handbook of Public Economics (Elsevier, 2013) 51, 22.