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Informal Taxation

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  • Benjamin A. Olken
  • Monica Singhal

Abstract

Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this "informal taxation." Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We propose a simple model of information and enforcement constraints that parsimoniously explains the patterns in the data.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15221.

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Date of creation: Aug 2009
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Publication status: published as Benjamin A. Olken & Monica Singhal, 2011. "Informal Taxation," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 1-28, October.
Handle: RePEc:nbr:nberwo:15221

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Cited by:
  1. Oriana Bandiera & Gilat Levy, 2010. "Diversity and the Power of the Elites inDemocraticSocieties: A Model and a Test," STICERD - Economic Organisation and Public Policy Discussion Papers Series 018, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Koen P.R. Bartels & Guido Cozzi & Noemi Mantovan, 2011. "Public Spending and Volunteering: "The Big Society", Crowding Out, and Volunteering Capital," Working Papers 2011_09, Durham University Business School.
  3. Ivanyna, Maksym & von Haldenwang, Christian, 2012. "A comparative view on the tax performance of developing countries: Regional patterns, non-tax revenue and governance," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(32), pages 1-44.
  4. Padro, Gerard & Qian, Nancy & Yao, Yang, 2013. "Social Fragmentation, Public Goods and Elections: Evidence from China," CEPR Discussion Papers 9278, C.E.P.R. Discussion Papers.
  5. Bandiera, Oriana & Levy, Gilat, 2011. "Diversity and the power of the elites in democratic societies: Evidence from Indonesia," Journal of Public Economics, Elsevier, vol. 95(11), pages 1322-1330.

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