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Tolling on the River: Trade and Informal Taxation on the Congo

Author

Listed:
  • Olsson, Ola

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Eriksson Baaz, Maria

    (School of Global Studies, University of Gothenburg)

  • Martinsson, Peter

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

It is by now generally agreed that government corruption is a serious impediment to economic growth. An intensive use of informal tolls and bribes on roads and waterways still prevail in several developing countries, hampering trade and economic development. On the basis of a general model of a trader travelling downstream past multiple stations and taxing authorities, we study the extent and magnitude of informal taxation on traders in Democratic Republic of Congo. River Congo is arguably one of the most important transportation routes in Africa in one of the world’s poorest countries. We show that informal tax payments per individual journey still make up about 14 percent of the variable costs and 9 times the monthly salary of a public official. Price discrimination in taxing is present in the sense that the value of the cargo is the main determinant of informal taxes paid whereas personal or other characteristics do not seem to have a strong impact. In line with hold-up theory, the average level of informal taxation tends to increase downstream closer to Kinshasa, but authorities that were explicitly banned from taxing instead extract more payments upstream.

Suggested Citation

  • Olsson, Ola & Eriksson Baaz, Maria & Martinsson, Peter, 2016. "Tolling on the River: Trade and Informal Taxation on the Congo," Working Papers in Economics 679, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0679
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    File URL: http://hdl.handle.net/2077/49667
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    References listed on IDEAS

    as
    1. Benjamin A. Olken & Rohini Pande, 2012. "Corruption in Developing Countries," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 479-509, July.
    2. Robin Burgess & Matthew Hansen & Benjamin A. Olken & Peter Potapov & Stefanie Sieber, 2012. "The Political Economy of Deforestation in the Tropics," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1707-1754.
    3. Benjamin A. Olken & Patrick Barron, 2009. "The Simple Economics of Extortion: Evidence from Trucking in Aceh," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 417-452, June.
    4. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    5. Theodore Trefon, 2009. "Public Service Provision in a Failed State: Looking Beyond Predation in the Democratic Republic of Congo," Review of African Political Economy, Taylor & Francis Journals, vol. 36(119), pages 9-21, March.
    6. Benjamin A. Olken, 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," Journal of Political Economy, University of Chicago Press, vol. 115, pages 200-249.
    7. Tom Herdt & Kristof Titeca, 2016. "Governance with Empty Pockets: The Education Sector in the Democratic Republic of Congo," Development and Change, International Institute of Social Studies, vol. 47(3), pages 472-494, May.
    8. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Informal taxes; Congo; trade; corruption; river transport;

    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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