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taxation

How do household contributions to public goods respond to cash transfers? Guest post by Michael Walker

This is the eighteenth and final entry in this year's job market series. You can read them all here
 

A central question in development economics is how to fund public goods. Informal taxation, whereby households make direct contributions to local public goods (such as water resources, roads and schools) outside of the formal tax system, is an important source of funding for public goods in many low-income countries, especially Kenya (Olken and Singhal 2011, Ngau 1987, Barkan and Holmquist 1986). Informal taxes are coordinated and collected by local leaders and enforced via social sanctions rather than the state. In a formal tax system, legal statutes dictate how taxes change with household income. But how does informal taxation respond to changes in household income?  

My job market paper first quantifies informal taxation in Kenya. Using household panel data, I estimate informal tax schedules over the income distribution and test whether informal taxes respond to changes in earned income. Second, I estimate how informal taxation and public goods respond to a large, one-time increase in income from a randomized unconditional cash transfer program targeting poor households.   

Taxing Clients? How Clientelism Hurts Citizen Tax Morale in Benin: Guest post by Sanata Sy-Sahande

This is the seventh in this year’s job market series.
Developing countries regularly underperform in their capacity to collect taxes, with tax revenue to GDP ratios that are 20 to 30 percent less than those of high-income countries (Besley and Persson, 2014). This tax capacity gap represents lost revenue that could have provided much-needed public goods and services while reducing reliance on foreign aid. This issue is especially relevant in Africa, where “shadow economies” comprise up to 75% of national GDP (Schneider and Enste 2000), indicating that large swaths of these countries’ populations manage to evade taxation. What accounts for this failure to convince citizens to pay taxes?
 
Structural roadblocks to tax collections in developing countries include poor service quality, dysfunctional bureaucracies, and outdated equipment. In contrast, my job market paper provides a political explanation centered on clientelism, or politicians' exchange of targeted goods for votes from loyal supporters.

No participation without taxation? Evidence from randomized tax collection in the D.R. Congo: Guest post by Jonathan Weigel

This is the first in this year’s series of posts by PhD students on the job market. Reminder that submissions close this Wednesday at noon.
 
Good political institutions are thought to be essential for sustained economic development (Acemoglu et al., 2016). But where do inclusive, accountable institutions come from? One prominent explanation centers on taxation (Schumpeter, 1918; Besley and Persson, 2009, 2013). Historically, when states began systematically taxing their populations to pay for wars, citizens protested fiercely, demanding public goods and political rights: “no taxation without representation.” This process triggered the co-evolution of tax compliance, citizen participation in politics, and accountable governance. Today, policymakers often promote taxation in developing countries to jumpstart this same virtuous cycle. “Bringing small businesses into the tax net,” writes the IMF, “can help secure their participation in the political process and improve government accountability” (IMF, 2011).

Doing Experiments with Socially Good but Privately Bad Treatments

David McKenzie's picture
Most experiments in development economics involve giving the treatment group something they want (e.g. cash, health care, schooling for their kids) or at least offering something they might want and can choose whether or not to take up (e.g. business training, financial education). Indeed among the most common justifications for randomization is that there is not enough of the treatment for everyone who wants it, leading to oversubscription or randomized phase-in designs.