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Fiscal capacity in “post”-conflict states: Evidence from trade on Congo river

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  • Olsson, Ola
  • Baaz, Maria Eriksson
  • Martinsson, Peter

Abstract

In many post-conflict states with a weak fiscal capacity, illicit domestic levies on trade remain a serious obstacle to economic development. In this paper, we explore the interplay between traders and authorities on Congo River - a key transport corridor in one of the world’s poorest and most conflict-ridden countries; DR Congo. We outline a general theoretical framework featuring transport operators who need to pass multiple taxing stations and negotiate over taxes with several authorities on their way to a central market place. We then examine empirically the organization, extent, and factors explaining the level of taxes charged by various authorities across stations, by collecting primary data from boat operators. Most of the de facto taxes charged on Congo River have no explicit support in laws or government regulations and have been characterized as a “fend for yourself”-system of funding. Our study shows that traders have to pass more than 10 stations downstream where about 20 different authorities charge taxes. In line with hold-up theory, we find that the average level of taxation tends to increase downstream closer to Kinshasa, but authorities that were explicitly prohibited from taxing in a recent decree instead extract more payments upstream. Our results illustrate a highly dysfunctional taxing regime that nonetheless is strikingly similar to anecdotal evidence of the situation on the Rhine before 1800. In the long run, a removal of domestic river taxation on Congo River should have the potential to raise trade substantially.

Suggested Citation

  • Olsson, Ola & Baaz, Maria Eriksson & Martinsson, Peter, 2020. "Fiscal capacity in “post”-conflict states: Evidence from trade on Congo river," Journal of Development Economics, Elsevier, vol. 146(C).
  • Handle: RePEc:eee:deveco:v:146:y:2020:i:c:s030438782030081x
    DOI: 10.1016/j.jdeveco.2020.102506
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    Cited by:

    1. Diana Ricciulli-Marín, 2020. "The Fiscal Cost of Conflict: Evidence from La Violencia in Colombia," Cuadernos de Historia Económica 53, Banco de la Republica de Colombia.
    2. Diana Ricciulli, 2020. "The Fiscal Cost of Conflict: Evidence from La Violencia in Colombia," Documentos CEDE 18537, Universidad de los Andes, Facultad de Economía, CEDE.

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    More about this item

    Keywords

    Taxation; Congo; Trade; Corruption; River transport;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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