Affiliation:
1. MIT and NBER, 50 Memorial Drive Building E52, Room 252A, Cambridge, MA 02142.
2. Harvard Kennedy School and NBER, 79 John F. Kennedy Street, Cambridge, MA 02138.
Abstract
Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this “informal taxation.” Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We discuss various explanations for and implications of these observed stylized facts. (JEL H24, H27, O12, O17, O23)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
70 articles.
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