The cost of bureaucratic fragmentation: Business tax evasion and revenue mobilization in a low-income country

Stephan Dietrich, Yannick Markhof and Rose Camille Vincent
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Stephan Dietrich: Maastricht Graduate School of Governance, RS: GSBE MGSoG, RS: UNU-MERIT Theme 2
Yannick Markhof: Maastricht Graduate School of Governance, RS: GSBE MGSoG

No 7, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: We provide novel evidence on bureaucratic fragmentation and weak tax administrations as central enablers of low revenue mobilization in low-income countries. In collaboration with the municipal and national tax authorities in Kampala, Uganda, we cross-link previously siloed tax records for 155,000 firms and conduct a large-scale experiment with 60,000 firms. We document pervasive and selective tax evasion: only 14% of verifiably active firms comply with both government tiers. Cross-record linkage almost triples detectable non-compliance while offering increased enforcement efficiency. This coordination dividend is left untapped. Firms exploit the resulting loopholes through partial informality, re-registering under new identities, and strategic late payments. In a cross-authority field experiment, deterrence nudges, including messages signaling inter-authority coordination, fail to offer a light-touch alternative to addressing fragmentation directly. Our findings establish bureaucratic fragmentation as a distinct and costly source of passive waste in tax administration that existing approaches to revenue mobilization rarely address.

Keywords: Taxation; Tax evasion; Tax administration; Low-income countries; Nudges (search for similar items in EconPapers)
JEL-codes: C93 H20 H26 H71 O12 (search for similar items in EconPapers)
Date: 2026-05-28
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2026007

DOI: 10.53330/QOHL2233

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