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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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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. Gerard Padro i Miquel & Nancy Qian & Yang Yao, 2012. "Social Fragmentation, Public Goods and Elections: Evidence from China," NBER Working Papers 18633, National Bureau of Economic Research, Inc.
  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. Bandiera, Oriana & Levy, Gilat, 2010. "Diversity and the Power of the Elites in Democratic Societies: A model and a test," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7985, C.E.P.R. Discussion Papers.
  4. 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.
  5. Bandiera, Oriana & Levy, Gilat, 2011. "Diversity and the power of the elites in democratic societies: Evidence from Indonesia," Journal of Public Economics, Elsevier, Elsevier, vol. 95(11), pages 1322-1330.

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