Fiscal capacity in “post”-conflict states: Evidence from trade on Congo river

Ola Olsson, Maria Eriksson Baaz and Peter Martinsson

Journal of Development Economics, 2020, vol. 146, issue C

Abstract: In many post-conflict states with a weak fiscal capacity, illicit domestic levies on trade remain a serious obstacle to economic development. In this paper, we explore the interplay between traders and authorities on Congo River - a key transport corridor in one of the world’s poorest and most conflict-ridden countries; DR Congo. We outline a general theoretical framework featuring transport operators who need to pass multiple taxing stations and negotiate over taxes with several authorities on their way to a central market place. We then examine empirically the organization, extent, and factors explaining the level of taxes charged by various authorities across stations, by collecting primary data from boat operators. Most of the de facto taxes charged on Congo River have no explicit support in laws or government regulations and have been characterized as a “fend for yourself”-system of funding. Our study shows that traders have to pass more than 10 stations downstream where about 20 different authorities charge taxes. In line with hold-up theory, we find that the average level of taxation tends to increase downstream closer to Kinshasa, but authorities that were explicitly prohibited from taxing in a recent decree instead extract more payments upstream. Our results illustrate a highly dysfunctional taxing regime that nonetheless is strikingly similar to anecdotal evidence of the situation on the Rhine before 1800. In the long run, a removal of domestic river taxation on Congo River should have the potential to raise trade substantially.

Keywords: Taxation; Congo; Trade; Corruption; River transport (search for similar items in EconPapers)
JEL-codes: D60 D73 D80 H20 K42 O55 R48 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:146:y:2020:i:c:s030438782030081x

DOI: 10.1016/j.jdeveco.2020.102506

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