More taxes for Africa

If you have not heard it already, one thing you will hear a lot more of in the next decade is not that Africa needs more aid, but that it needs more taxes.

A traditional reason you hear is that it builds state capacity. It might give voters an economic incentive to organize politically. And there’s a big literature saying that it makes a state more accountable because it forces them to bargain with the middle class.

But what if there was something psychologically different about taxes for the average voter? Here is an excellent paper from Lucy Martin, a Yale PhD student of mine who is on the market:

While corruption is a key challenge for state development, we still know little about what factors affect citizens’ toleration of non-accountable behavior by government officials. This paper argues that taxation is a significant predictor of citizens’ demands, introducing and formalizing a micro-level theory of how taxation affects citizens’ preferences over accountability.

By taking away earned income, taxation pushes loss-averse citizens below their reference point, increasing the utility citizens lose from corruption and making them more likely to enact costly sanctions against non-accountable officials.

 

Novel laboratory experiments, conducted in Uganda, find that taxation increases citizens’ willingness to punish leaders by 12% overall, and by 30% among the group who has the most experience paying taxes in Uganda.

Additional experiments confirm that this effect is driven by the loss aversion mechanism, and a conjoint survey experiment demonstrates support for taxation’s effect on citizen behavior among politically-active Ugandans.

Basically, citizens will hold leaders more accountable for taxes than aid, simply because they feel the loss of funds they once had (or think they had) more acutely than funds they might receive. Fairness could also be part of what is going on. The paper is recommended.

On a similar subject, there’s an excellent paper on taxation in developing countries by my colleague Kimuli Kasara. The paper makes a few great points, including that the whole idea that the rich vote more than the poor is yet another way we take something that happens in America and assume it’s true in the rest of the world.

Kasara and Suryanarayan make a good case that wealthy voters are more likely to turn out at the polls where the state has the bureaucratic capacity to tax them. Which (in Africa at least) they often do not. Lucy’s work could be one mechanism that strengthens the impulse.

I think taxation and the politics of public finance are probably one of the biggest areas of future research. For a look at what I assigned for my PhD course, search for “tax” on the syllabus. Suggestions welcome.