Many reasons to ’not’ comply: How government corruption and weak state capacity erode the fiscal contract in Sub-Saharan Africa.

Sarah Berens (University of Cologne) & Armin von Schiller (German Development Institute)

Presented at EPSA, Milan, 2017

 

Abstract: In this paper, we explore how citizens’ perceptions of the state’s honesty and competence affect fiscal contracts. For such implicit contracts between taxpayers and the state to hold, citizens must accept the state as legitimate collector of taxes. Lack of acceptance can lead to tax evasion or tax flight. We analyze the relative empirical relevance of two rationales that might reduce individual acceptance of taxation through the state: the belief that the state is incapable of efficient usage of tax revenue versus the perception that public officials ‘abuse’ their authority for rent-seeking purposes. Citizens, we claim, are well aware of state limitations and, therefore, punish deviant behavior of public officials more strongly than state incapacity. This should however be particularly true for individuals from the lower social strata for whom rent-seeking behavior in the form of corruption is a more salient problem. We expect individuals from the middle and upper classes to be more concerned about capacity. Employing cross-sectional survey data from the Afrobarometer for 31 countries from Sub-Saharan Africa from 2011-2013 we are able to disentangle the effect of these two factors. We find that perceived corruption reduces acceptance for the state as legitimate collector of taxes. The findings support our intuition regarding the variability of the effect: especially the less educationally privileged have significantly lower acceptance for the state as collector of taxes when corruption is widespread. In contrast to our expectation, the incapacity effect is, however, greater in magnitude for the average individual compared to corruption. When confronted with incapacity, tax legitimacy decreases at a faster rate.