Informal Fiscal Systems in Developing Countries

Shan Aman-Rana (), Clement Minaudier and Sandip Sukhtankar

No 31793, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Governments in developing countries have low fiscal capacity yet face pressures to provide public goods and services, leading them to rely on various unusual fiscal arrangements. We document one such - hitherto unexplored - arrangement: informal fiscal systems that rely on local bureaucrats to fund the delivery of public goods and services. Using survey data and government accounts from Pakistan, we show that public officials are expected to cover funding gaps in public services and they do so, at least partially, through extracted bribes. We propose a model of bureaucratic agency to explore when governments benefit from sustaining such systems and investigate welfare implications. Informal fiscal systems are more likely to arise when monitoring corruption is difficult relative to monitoring the provision of public services, and politically-important groups of citizens do not bear the full cost of corruption. The existence of such systems can distort the effective incidence of the tax burden, reduce the incentives of government to fight corruption, and legitimize bribe-taking.

JEL-codes: D73 H20 H40 H70 O17 O23 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-pub
Note: DEV PE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w31793.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:31793

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w31793
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().