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Informal Taxation

 
Presenter: Benjamin Olken, Associate Professor of Economics in the MIT Department of Economics   
                                                       
Chair:  Emmanuel Skoufias, Lead Economist,  PRMPR

When: Thursday, October 22nd, 12:30pm
 
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 wide- spread, 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 propose a simple model of information and enforcement constraints that parsimoniously explains the patterns in the data.

Bio: Benjamin Olken is an Associate Professor of Economics in the MIT Department of Economics. He completed his Ph.D. in Economics at Harvard in 2004. He spent the 2004-2005 year as a post-doctoral fellow at the National Bureau of Economic Research, and from 2005-2008 was a Junior Fellow at the Harvard Society of Fellows. His research focuses on empirical political economy questions in developing countries, with a particular emphasis on corruption. Most of his field work takes place in Indonesia, where he first lived in 1997-1998 as a Henry Luce Scholar. His research in Indonesia includes several randomized field experiments and extensive data collection, ranging from digging up roads in to uncover corruption in rural Java to tracing the bribes paid by truck drivers in Sumatra. Current research projects include the economic impacts of climate change, the relationship between political decentralization and illegal logging in Indonesia, and a randomized field experiment that examines whether developing country governments can use community-based mechanisms to improve targeting of aid programs to the poor.

Materials:

  • "Informal Taxation," by Benjamin A. Olken (MIT and NBER) and Monica Singhal (Harvard University and NBER)

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