Digital highways to development: Mobile internet and tax revenues in Brazil

Investment in critical infrastructure is essential for long-term development. However, low tax revenues in developing countries often constrain such investment. In this paper, we examine whether the expansion of high-speed mobile internet infrastructure can generate additional tax revenue. To identify the causal effect, we exploit the staggered rollout of 3G and 4G infrastructure across municipalities in Brazil. Using an event study approach, we find that the expansion of this technology leads to a lasting increase in income tax revenue, driven almost entirely by higher corporate income tax collection. We show that the additional tax revenue results from increased economic activity and formalization following the expansion of high-speed mobile internet. Our findings indicate that investment in digital infrastructure can stimulate economic growth and strengthen fiscal capacity in developing countries. This means that policymakers in developing countries with low tax revenues should expand their focus beyond tax-collection reforms and integrate growth-enhancing investments into their agenda.