Taxation is difficult; but it matters for development

In arguing back against the taxation-development link, terrence writes that the advocates of ‘taxation as a means of improving local accountability’ don’t take into account the accountability systems that work in developing countries; and also that they ignore implementation problems on the ground in setting up efficient and equitable systems of taxation.

Developing systems of taxation in poor countries is not a substitute for engaging with civil society. However, I believe that more concrete the agenda for civil society organisations, the better their chances of succeeding are in the long-term. Taxation is one such compelling agenda. When governments and citizens are tied into a taxation-public service delivery cycle, and when information on taxes collected and spent are available widely, civil society automatically has a platform to represent that active subset of the population. So yes of course, more transparency is key – be it in any sphere.

However, aid transparency will not have the same effects as better systems of taxation and transparency surrounding the same – not in a country with significant income inequalities, where aid matters little to a good proportion of the population; where a prosperous middle-class does not see obvious benefits of aid projects on their own lives and therefore, does not care how much aid is received and how it is spent. Progressive taxes on the other hand, can affect both the rich and the poor and will surely matter more in rallying public opinion.

I agree that in many developing country contexts, patronage of the wrong kind marks the relationship between elected representatives and the voting public. Taxation-induced accountability is an opportunity to set this right by encouraging positive patronage relationships. Holding this view does not imply ignoring implementation problems in developing systems of taxation. See this paper by Mick Moore

All else being equal, the dependence of governments on general taxation has positive effects on the quality of governance. But that relationship is not automatic. How governments tax also matters. We cannot assume that, because they are fully dependent on taxation for revenues, governments will be capable, accountable, or responsive. They may levy taxes coercively, and thereby damage state-society relations and reinforce poor governance. Public authorities in contemporary poor countries face some incentives to tax coercively. Establishing more consensual taxation practices is an important practical route to improving governance. 

See more research on taxation and development at IDS


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