Taxing the Exiters: How Privatization Shapes Accountability

• In Event: Political Economy in Africa

Abstract

According to fiscal contract theories, paying taxes should mobilize citizens to hold their government accountable for the provision of public services. Although existing research suggests that this taxation-accountability link is highly contextual, there is evidence that citizens are indeed more willing to hold the government accountable when they feel a sense of ownership over government revenue (i.e., when they pay taxes) and when the contributions they make are visible (i.e., direct rather than indirect taxes). In turn, wealthier individuals are the most likely to have the ability to overcome the informational and organizational hurdles to effectively mobilize for improved government performance. However, in cities across the Global South, the middle and upper classes increasingly opt for the private provision of services typically thought to be the state’s responsibility. How does private service provision affect the link between taxation and accountability? I expect that as these groups patronize state substitutes, their incentives to mobilize for high-quality public service delivery dissipate. Further, while exit itself can pressure an entity to improve to win back the loyalty of those who left, if those switching to private services still pay their taxes, there is little pressure on governments to improve. This creates an equilibrium in which those who can opt out of state service delivery do so, and those who cannot get stuck with low-quality public services. I test this theory in the context of Lagos, Nigeria, one of the fastest growing cities in the world, using a combination of fine-grained administrative data on property tax billing and payment, publicly-available data on polling-unit level turnout in the 2023 presidential election, and original survey data. I find that while private service patrons do, in fact, continue to mobilize politically after exit, this is not motivated by the extraction of taxes by the state. Instead, I propose that the nature of private service provision shapes people’s organizational capacities in varying ways.

Author

• Nicole E. Wilson, Northwestern University