Strategic Taxation: Fiscal Capacity and Accountability in African States

Governments in developing countries lack the fiscal capacity to fund critical public goods, alleviate poverty, and invest in economic development. This book develops and tests a new theory that explains why fiscal capacity in African states is low. It argues that taxation leads citizens to demand more from leaders, and that governments' willingness to tax depends on their ability to satisfy citizens' demands while maintaining rent extraction. Empirical approaches demonstrate that taxation increases citizens' demands on leaders, and that democracy can lead to lower taxation in low-capacity states. Case studies in Uganda provide additional support for the theory.

Format: Paperback / softback
Length: 248 pages
Publication date: 20 July 2023
Publisher: Oxford University Press Inc

Across the developing world, governments continue to grapple with the challenge of lacking the fiscal capacity to fund critical public goods, alleviate poverty, and invest in economic development. Despite the knowledge gap, there is a pressing need to understand how to effectively build strong states in these contexts. This book presents a novel theory to explain the low fiscal capacity in African states. Drawing upon insights from psychology and behavioral economics, the book argues that taxation induces citizens to demand more from their leaders in an attempt to recover lost income from taxation. It further posits that governments' willingness to tax is contingent upon their ability to satisfy citizens' demands while maintaining rent extraction.

In low-capacity states, rent-seeking leaders strategically underinvest in fiscal capacity to avoid the heightened demands they face under taxation. Contrary to prevailing theories, Martin demonstrates that this approach can result in lower taxation in democracies compared to autocracies. Citizen accountability demands pose a greater threat to rulers in democracies, leading to increased scrutiny and pressure on their actions.

The book employs a multi-faceted empirical approach to test the theory. Laboratory experiments conducted in Uganda and Ghana, coupled with Afrobarometer data, provide compelling evidence that taxation increases citizens' demands on leaders. Global cross-national panel data further substantiate that democracy can lead to lower taxation in low-capacity states when taxation is sustainable. However, when taxation becomes unsustainable, it is associated with poorer governance outcomes.

To further support the theory, the book includes case studies based on the author's fieldwork and original survey data in Uganda. These case studies provide valuable insights into the challenges and opportunities for building state capacity, particularly fiscal capacity, in modern developing countries.

In conclusion, this book offers a fresh perspective on the low fiscal capacity in African states. By integrating psychological and economic principles, it provides a novel theory that explains the dynamics between taxation, citizen demands, and government behavior. The empirical evidence and case studies presented contribute to a better understanding of the challenges and strategies for building strong states in developing countries.

Weight: 346g
Dimension: 157 x 237 x 17 (mm)
ISBN-13: 9780197672648