On asymmetric information and tax morale in developing countries
Salim Nuhu Ahmed and
John M. Musah
No 12, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)
Our paper investigates the implications of asymmetric non-tax revenue information for tax morale using micro data from thirty-six African countries. We utilize a model in which agents form their perceptions about the sufficiency of government non-tax revenue for development financing under asymmetric information conditions. We then construct a composite index of information access that generates predictions about these perceptions and tax morale at the household level. Two important predictions emerge: (i) in the presence of asymmetric information, households overestimate the ability of non-tax revenues alone to finance development, which (ii) has significant negative effects on household-level tax morale. Our findings—which are robust across specifications and controls of cross-country fixed differences in tax morale—provide evidence that improvement in government information supply regarding the use of non-tax revenues, beyond annual budget readings and households tax obligations, could significantly enhance tax morale and compliance.
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