Waylaid Dialectic

January 18, 2011

No Representation Without Taxation?

Filed under: Aid — terence @ 12:09 pm
Tags: ,

I like taxes, I really do. I’m a left-liberal after all. Tax and spend is like bread and butter to me.

Nevertheless, I don’t buy the idea that if people paid more taxes in developing countries they’d be more likely to meaningfully hold their governments to account. And that resource rents and aid, by virtue of being forms of government revenue which sit outside the tax cycle, contribute to worse governance (at least through this particular mechanism.) If you believe this then, as Matt suggests, a partial cure to the woes of poor governance in aid dependent or resource rich countries would be to start taxing people more. Either out of their income  or from resource money or aid money which you’ve given directly to them as some form of unconditional cash transfer.

I understand the logic of all this; I just don’t buy it.

For a start, its advocates seem to assume away the potential problems of such approaches (i.e. the difficulties associated with  setting up an honest, non-exploitative tax-gathering mechanism in countries where bureaucracies don’t work well in general).

But, above and beyond that, I think they’re misdiagnosing the problem of accountability in many developing countries. At least in those countries which I know a bit about, the issue is not that the population isn’t holding the state to account, but rather that they are holding it to account in very particular ways — primarily through clientelistic demands on politicians. In Western Melanesia the competition to get into parliament suggests that some people at least have a very good idea of the resources available to the state. It’s just that the complicated political ecology of this part of the world means that the only real strategy for liberating some of those resources is personalist and targeted from politicians to supporters. Which isn’t to say that there aren’t information issues involved, in a sense. If the voting public could be made aware of the benefits of well-run health systems (for example) and the potential to realise these benefits, politics might change dramatically (more on this in a second). But, this is quite a different issue from voters not knowing or caring about the resources available to their state.

Also, I’m not sure that this is how accountability really works in the developed world (individual citizens angry that their taxes are being wasted). Generally, I think that the main mechanism involved is collective action from groups of concerned citizens (who are a small subset of the population). Or to put it another way the goodish governance we see in most developed countries can be laid first and foremost at the feet of Civil Society Organisations.

All of which makes me think that the best means of fostering improved patterns of government accountability in developing countries are the un-sexy ones. Voter education. Changes to voting systems which undermine clientelism. Working with civil society…

To the extent that I think there is one easy obvious thing aid agencies could do it’s this: forget about making that next new aid transparency website. Rather, invest some time and money in publishing what you give to country X in fora (papers, TV, the radio, via CSOs) that people in country X actually use. No need for tax collectors, and you’ve just opened the black box of aid. Which probably would help.

(ps Matt, I hope this doesn’t seem too critical? It’s definitely not intended that way. Just continuing the debate).

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3 Comments

  1. Terence – don’t worry it doesn’t seem too critical (but it’s ok, you’re *allowed* be critical now, I want people to take the gloves off more often!).

    I think your concerns are very reasonable. I certainly don’t believe that the tax link is a sufficient condition for everything to be ok, and it might not even be necessary. I did not intend to give the impression that I thought a working tax system would be easy to accomplish – it is a long, tumultuous process, but one that is completely untenable when governments are being supported by large volumes of aid. You give the example of Western Melanisia, yet small island nations have historically been receiving the highest amounts of per-capita aid – the state depends on aid and people depend on the state, rather than mutual dependence.

    I wasn’t suggesting that every time someone goes to the ballot box they actually think “what am I getting for my taxes?” but that taxation helps establish a culture where the government is generally expected to perform. The average East African, while being concerned with what they can *get* from the government and may say they want their government to do great things, probably has exceedingly low expectations over what the government will actually do.

    In some of the more rural villages in Malawi, the government barely exists, so even if you started showering with pamphlets about the aid that should be reaching them, I think it is unlikely that they are going to feel the same sense of entitlement that they would if you sent a tax collector around for even 1% of their income. Aid that is never seen doesn’t feel as real – people care a lot more about money they’ve actually held than they do about abstract transfers between distant governments.

    On the issue of clientalistic politics – this is definitely an issue. I mentioned it in my original post (lobbying in the US is just another form of this…). I think that even if only a sub-section of the population is doing the capturing, this can still be beneficial for development, as long as the sub-section’s interests are aligned correctly (i.e. securing favorable deals for industries with a big growth potential vs just stealing money and sending it overseas), or, as you say, collective groups of citizens. Ranil knows more about this than I do, but I think this is generally the story in S.E. Asia.

    After focusing so much on citizens, I still think they key issue is with how the government operates – even with some indirect links (the donors give money to the government and then tell citizens “Hey, hold them to account for this) When the government depends on tax revenue, it not only has to keep citizens happy, but its incentives are aligned for progress (economic growth = increase in income = increase in revenue). When they government depends on aid, poorer progress often means more aid, and despite donor rhetoric we’re too averse to the idea of depriving the poor of immediate aid that, in the absence of evidence of overt corruption, the tap is rarely shut off.

    So yes, I think your prescriptions are right, but I doubt they’ll be enough. With the exception of Norway, which already had decent institutions when they struck oil, there aren’t very many governments with large non-tax windfalls that perform very decently (dear god, look at Alaska). Aid is just another windfall, and we need to be mindful of that.

    Comment by Matt — January 18, 2011 @ 8:20 pm

  2. 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

    Comment by Suvojit — January 19, 2011 @ 4:02 am

  3. Thanks Matt and Suvojit,

    Those are both really interesting responses. Sorry, I’ve got to run off to a course now but will try and reply later.

    cheers

    Terence

    Comment by terence — January 19, 2011 @ 7:26 am


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