Tax Earmarking and Political Participation: Theory and Evidence from Ghana

Mats Ahrenshop

No 18406, Working Papers from Institute of Development Studies, International Centre for Tax and Development

Abstract: Earmarking taxes for specific expenditure categories is thought to be a crucial factor in the development of the early modern European fiscal states and remains a widespread yet fiscally rigid and often inefficient policy tool. I explore a decidedly political logic to the puzzling prevalence of tax earmarking. In this paper, I test an initial micro-behavioural condition for this political logic of earmarking: that general fund taxation may produce more political mobilisation than earmarking would, threatening the political survival of governments in lowcapacity states. I outline two interrelated mechanisms for this expectation: citizens’ discontent with the absence of government-provided information aboutthe revenue uses of taxpayers’ money and the anticipation of increased government discretion over spending policy. I design an online survey experiment with 874 citizens in Ghana to test these implications. The experiment randomly varies different proposals of how to use increased tax revenue from a recent government fiscal capacity programme and measures citizens’ intentions to engage politically. The results indicate that earmarking does not produce greater bottom-up accountability pressures than general fund taxation.

Keywords: Finance; Politics and Power (search for similar items in EconPapers)
Date: 2024
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