Strengthening state capacity in low income countries requires raising tax revenue while maintaining political stability. The risk of inciting political unrest when attempting to increase taxes may trap governments in a low-tax equilibrium, but public goods provision may improve both tax compliance and political stability. To test these questions empirically, I partner with the national tax authority and a local mayor’s office in Haiti to cross-randomize both tax collection and public goods across one of the country’s largest cities. Effects are measured both via administrative data on tax revenue as well as through novel measures of political unrest. In the paper’s main result, I show that hand-delivering property tax invoices reduces individual tax compliance by 48%, and increases independently observed measures of localized political violence by 192%. In contrast, providing a valuable and visible public good (namely municipal garbage removal) increases tax compliance by 27%, and reduces localized political violence by 85%. Importantly, public goods provision significantly mitigates the adverse effects of tax collection in neighborhoods receiving both treatments. A cost accounting exercise suggests that providing the public good in this setting could pay for itself within the first year. These findings suggest that it may be possible to peacefully shift to a new equilibrium of higher tax compliance with a sufficient initial investment perhaps financed through foreign aid or other transfers.

That is a paper from Benjamin Krause, a job market candidate from UC Berkeley.  Here is his home page and CV.  He was also four years Chief of Staff to Sean Penn, check out the vita.

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How to build Haitian state capacity

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