Economics Research Community Seminar – Dr Soeren Henn

Title: Engaging or Avoiding the State: How Empowerment Affects Citizen Payments for Public Services

Date: 30 November 2022
Time: 13:00-14:00
Location: NUBS 4.06

Speaker: Dr Soeren Henn, NUBS

If you would like to attend, please register using the following link: https://forms.office.com/r/W1SLkTsY7Y.

Abstract

Building effective state services requires revenue. Yet, many developing countries find themselves in a low-revenue equilibrium in which citizens avoid interacting with the state because they fear exploitation by predatory state agents and in which many payments made to state agents are informal and fail to reach state coffers. We study the effects of two randomized interventions—one that improved citizen information about their statutory payment obligations and one that offered protection from abuse by predatory officials—on the payments made by households and firms in Kinshasa, DRC. We present a formal model that builds upon descriptive data from an original survey that shows formal and informal payments are complements rather than substitutes. To explain this pattern, we model citizens as making a two-part decision over whether: (1) to become visible to the state in the first place (in order to access benefits) and (2), if visible, to collude with a state agent to avoid an official payment or to insist on making an official payment. The model generates predictions on how empowerment affects not only the intensive margin—the formal and informal amounts paid by citizens—but also the extensive margin—whether citizens shift from invisibility to visibility with collusion to visibility with formality. We find that providing citizens with protection caused an increase in tax payments. In addition, there is suggestive evidence businesses benefit from better tax information and pay more taxes. However, overall payment amounts remain largely unchanged by our treatments.