EPoD Spring 2019 Newsletter: Tax Capacity and Development

EPoD Spring 2019 Newsletter: Tax Capacity and Development

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EPoD researchers are working in developing countries to improve government tax capacity and understand citizens’ willingness to pay.

© 2012 Derek Brown for USAID, Courtesy of Photoshare

A government must be able to raise revenues effectively if it is to provide quality public goods and social protection for the poor. But the countries where the large majority of the world’s poor live often have low tax capacity, and low quality of services leads to low willingness of citizens to pay taxes. This puts local governments in a double-bind of collecting a low proportion of tax on a low national income which, in turn, can lead to dependence on foreign aid. 

EPoD researchers are working with governments in several countries to improve tax capacity, and branching into new research on how to repair the social compact and improve citizens’ willingness to pay taxes.

Supply versus Demand 

EPoD Faculty Affiliate Anders Jensen describes the main factors that keep low-income countries from collecting tax as falling under two categories: supply-side issues versus demand. Citizens in poorer countries generally have lower demand for taxation. This could be because they have less of an interest in redistribution, or they have less demand for public goods because they think the quality will not be very high. Anders’ research looks at both sides: how to change the capacity of governments to supply higher levels of taxes and how different levels of demand relate to government capacity of delivery. 

EPoD researchers join forces with local tax ministries in countries of focus to experiment with the supply side of taxation. A core question is how governments can mitigate constraints on revenue collection. For instance, Anders and his team are working with Ghana’s Ministry of Finance and Ministry of Local Government on new technologies that can enhance the local administration’s ability to observe taxpayers and automate processes. Read more here.

A goal for donors who aim to end poverty should be not only to help victims of war and famine but also to increase the tax and redistribution abilities of high-poverty middle-income countries by working with governments to increase data capacity, train staff members and put in place mechanisms to minimize graft. That could be the most effective way to reach the people who endure life at subsistence level.

Also on the supply side, EPoD Faculty Co-Director Asim Khwaja and coauthors Adnan Khan and Benjamin Olken are working with the tax ministry in Punjab, Pakistan to test whether motivating property tax collectors, such as through bonuses and merit-based postings, improved their performance and raised revenues. They found that incentives did increase collectors’ performance and thereby tax revenue growth, but not all incentives had the same outcome. Asim and former EPoD Senior Research Manager Tiffany Simon made this research the subject of the inaugural article in The Analytical Angle, a new column launched on Wednesday, March 27, where researchers from EPoD and the Centre for Economic Research in Pakistan (CERP) write about current policy questions facing Pakistan. The Analytical Angle will appear monthly in Dawn, Pakistan’s premier English-language newspaper.

On the demand side, EPoD also seeks to understand how to increase citizens’ willingness to pay taxes. Asim and his team aim to strengthen the link between taxes paid and local services received in order to build trust between citizens and their government. Read more here.

Moving forward, EPoD continues to use experimental evidence to improve tax collection as a means of curbing poverty. Anders’ most recent project provides new evidence on consumption patterns across income distribution levels in low income countries through a comparative analysis of 30 countries. EPoD Faculty Co-Director Rema Hanna is exploring a new project on the role of tax administration as a key determinant of tax collection in Indonesia.

Further Reading on EPoD’s Work in Taxation…

  • Asim discusses his experiments incentivizing tax collectors in Punjab, Pakistan | Harvard Magazine
  • EPoD Co-Director Rohini Pande and former EPoD Research Fellow Lucy Page argue that ending extreme poverty will require expanding state capacity and giving the poor power to demand reforms | Journal of Economic Perspectives
  • When performance incentives are carefully designed, they can be a politically and financially practical approach to reforming the civil service in Pakistan | Asim Khwaja, Adnan Khan, and Tiffany Simon for the EPoD blog 
  • Read about Anders’ work on expanding the tax base in Zambia and strengthening consumer participation in VAT compliance in Rwanda.
  • Read about a pilot project that EPoD and CERP conducted with the Punjab Excise and Taxation Department using digital maps to improve accountability among tax collectors, as part of the Building Capacity to Use Research Evidence (BCURE) program.

Upcoming Events

EPoD will host Edward “Ted” Miguel, Oxfam Professor in Environmental and Resource Economics at the Department of Economics at UC Berkeley and Faculty Director of the Center for Effective Global Action, at a development seminar at the Harvard Kennedy School on March 28. His talk is titled: “General Equilibrium Welfare Effects of Cash Transfers: Experimental Evidence from Kenya.”  

EPoD will host Yasuyuki Sawada, Chief Economist of the Asian Development Bank, in a public event at Harvard Kennedy School in the Malkin Penthouse at 2PM on April 17. Dr. Sawada's research fields are macro- and micro-development economics, microeconometrics, economics of disasters, and field surveys and experiments. The event, “Towards a Disaster-Resilient Asia: A Conversation with Yasuyuki Sawada", will be held in collaboration with the HKS PhD Program and feature an introduction by EPoD Co-Director Rema Hanna, as well as an interactive discussion with the  audience led by Director of EPoD Research Ammar Malik. This is a public program, but space is limited; if you are interested in attending RSVP here.

EPoD Faculty Affiliate Dan Levy will co-chair the Leading Successful Programs: Using Evidence to Assess Effectiveness Executive Education program at the Harvard Kennedy School from April 28 - May 3. Enrollment for this year is now closed, but you can reach out to Program Director Anna Shanley at anna_shanley@hks.harvard.edu if you’d like to hear more about future offerings. To learn about Executive Education at HKS or find the program that’s right for you, please contact exed@hks.harvard.edu.

Other News

EPoD Faculty Co-Director Rohini Pande received the Carolyn Bell Shaw Award during the annual meeting of the American Economic Association (AEA) in Atlanta on January 4. The award is given annually by the AEA Committee on the Status of Women in the Economics Profession (CSWEP) to recognize and honor an individual who has furthered the status of women in the economics profession. EPoD visiting scholar Natalia Rigol gave the introduction, which focused on how Rohini mentored her and other young academics, such as when Natalia started as a Research Fellow at EPoD 10 years ago. Each year, EPoD accepts a number of promising young researchers as Research Fellows to work under the mentorship of our Faculty affiliates. To learn more, visit EPoD’s Jobs & Opportunities page. Watch the full speech here:

EPoD and CERP collaborated to deliver Building Capacity to Use Evidence Research (BCURE) training workshops to over 220 civil servants in Pakistan from January to March. Funded under a program by the Ministry of Planning, Development and Reform and UNDP Pakistan, this continuation of EPoD’s BCURE training program encourages policymakers to use evidence in decision making and equips them with practical skills to effectively apply data. Participants came from multiple courses in Pakistan’s National School for Public Policy and its constituent units in Islamabad, Karachi, Peshawar, and Quetta. EPoD’s total number of Pakistani trainees is now over 2,700, with over 2,500 of these trained by local instructors who have completed an EPoD Training of Trainers (ToT) workshop.

On January 17-18 EPoD’s Director of Research, Ammar Malik, presented on gender in the age of mobility at the World Bank Transforming Transportation conference. The session in its entirety can be found online here

From February 2 to 3, EPoD India at the Institute for Financial Management and Research (IFMR), International Growth Centre (IGC), and the Asian Development Research Institute (ADRI) in Bihar conducted the Winter School training program, which included 32 state-level officials and practitioners. The training leveraged EPoD’s blended-learning BCURE modules on Descriptive Evidence and Using Data Systems, with an aim of building skills to effectively use data and evidence for decision-making. For photos from this training, click here. This training was made possible under an agreement between EPoD and IFMR; other organizations interested in using EPoD’s BCURE content should contact EPoD_Training@hks.harvard.edu.

The RISE Pakistan Country Research Team, which comprises researchers from EPoD and CERP, held its first Policy Dialogue on March 7 titled “Uniformity, Diversity & Equity in Pakistan’s Complex Education Landscape.” The political economy roundtable brought together a range of senior policymakers, academics, practitioners, and stakeholders from the public and private sectors to discuss pressing policy questions for governance and education service delivery, as the provincial and federal governments set course for the next 5 years.