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Informal Taxation

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  • Olken, Benjamin A.

    (MIT)

  • Singhal, Monica

    (Harvard University)

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.

Suggested Citation

  • Olken, Benjamin A. & Singhal, Monica, 2009. "Informal Taxation," Working Paper Series rwp09-033, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp09-033
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    Cited by:

    1. Benjamin A. Olken & Monica Singhal, 2011. "Informal Taxation," American Economic Journal: Applied Economics, American Economic Association, vol. 3(4), pages 1-28, October.
    2. Lucie Gadenne, 2017. "Tax Me, but Spend Wisely? Sources of Public Finance and Government Accountability," American Economic Journal: Applied Economics, American Economic Association, vol. 9(1), pages 274-314, January.
    3. Niehaus, Paul & Sukhtankar, Sandip, 2013. "The marginal rate of corruption in public programs: Evidence from India," Journal of Public Economics, Elsevier, vol. 104(C), pages 52-64.
    4. 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.
    5. Martinsson, Peter & Medhin, Haileselassie & Persson, Emil, 2016. "Framing and Minimum Levels in Public Good Provision," Working Papers in Economics 656, University of Gothenburg, Department of Economics.
    6. 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.
    7. Bandiera, Oriana & Levy, Gilat, 2010. "Diversity and the Power of the Elites in Democratic Societies: A model and a test," CEPR Discussion Papers 7985, C.E.P.R. Discussion Papers.
    8. Archambault, Caroline & Chemin, Matthieu & de Laat, Joost, 2016. "Can peers increase the voluntary contributions in community driven projects? Evidence from a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PA), pages 62-77.
    9. Hungerman, Daniel M., 2014. "Public goods, hidden income, and tax evasion: Some nonstandard results from the warm-glow model," Journal of Development Economics, Elsevier, vol. 109(C), pages 188-202.
    10. Jack, B. Kelsey & Recalde, MarĂ­a P., 2015. "Leadership and the voluntary provision of public goods: Field evidence from Bolivia," Journal of Public Economics, Elsevier, vol. 122(C), pages 80-93.
    11. 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 (IfW), vol. 6, pages 1-44.
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    More about this item

    JEL classification:

    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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