Finding the Win Set: Evidence on Tax Preferences in Malawi

• In Event: State and Fiscal Capacity: Integrating Historical and Contemporary Approaches

Abstract

To provide public goods and services, governments need revenue. Yet in many developing countries, tax revenues remain low, even as GDP per capita has increased. This makes it critical to understand the barriers to taxation. For example, if the types of taxes supported by politicians and bureaucrats are opposed by citizens, taxation will be difficult to sustain. In particular, we may worry that there will be tension between taxes that can gain political support, and those that will actually be possible to enforce. This paper uses a conjoint survey experiment, conducted on both small business owners and government officials in Malawi, to provide evidence on the degree to which there is overlap in the tax preferences of citizens and government, both in terms of which taxes are political feasible, and those with which citizens are likely to comply. In the experiment, respondents see pairs of proposed new tax on businesses that vary along six dimensions: whether the tax is proportional or a fixed amount; the breadth of the tax base; the fraction of taxpayers who will be audited; the penalty for noncompliance; the level of transparency; and how the money will be spent. These map onto three aspects of taxation: the tax structure, the degree of enforcement, and the degree to which the tax will be spent in a way that matches the typical social contract. For each pair of tax plans, respondents of both types were asked which tax they would most support being introduced, and then which tax they think citizens would be more likely to pay. Encouragingly, we find that while some types of taxes (particularly those seen as “fair”) garner more support than others, there is not significant conflict between the preferences of citizens and government officials.

Authors

• Lucy E. S. Martin, University of North Carolina, Chapel Hill

• Brigitte Seim, University of Minnesota

• Simon Hoellerbauer, Vassar College