Tax
DFID-funded research has made a key contribution in drawing attention to the importance of taxation in building effective states.
- Taxation can make governments more accountable and legitimate. Democratic elections do not themselves ensure the legitimacy of the state; neither do quick-impact projects in which aid agencies seek to fill urgent needs. Legitimacy comes in large part from government delivery of services that people want and need. In order to meet these needs, states require the capacity to raise and not just spend public revenues effectively. When tax reform is properly designed, taxpayers have a perception of having a stake in government. Taxpayers can organise to demand that taxes are used in specific ways – an important bargaining process between state and society. In this way key groups of taxpayers, particularly the urban middle class, can be convinced that paying taxes is worth their while. In Ghana, policies to expand taxation have been more successful during periods when the government possessed large amounts of goodwill, reinforcing the notion that citizens’ willingness to pay taxes is linked to their attitudes to the legitimacy of the state. Read chapter 8, ‘Tax as State-Building’, of The Politics of Poverty.
- Because many low-income countries are very dependent on international aid, donors policies should seek to improve the incentives of government leaders to enhance tax collection efforts. When donors bypass the state in the provision of social services through non-state organisations such as NGOs this can undermine state incentives to boost tax revenues, as research on Afghanistan has suggested.
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