Working Paper: NBER ID: w31793
Authors: Shan Amanrana; Clement Minaudier; Sandip Sukhtankar
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.
Keywords: Informal fiscal systems; Corruption; Public goods; Bureaucratic agency; Developing countries
JEL Codes: D73; H20; H40; H70; O17; O23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monitoring corruption difficulty (D73) | informal fiscal systems (J46) |
| monitoring public services difficulty (H40) | bureaucratic funding through bribes (D73) |
| informal fiscal systems (J46) | effective incidence of tax burden (H22) |
| informal fiscal systems (J46) | government incentives to combat corruption (H57) |
| informal fiscal systems (J46) | bribe-taking legitimacy (D73) |
| politically important groups cost of corruption (D73) | informal fiscal systems (J46) |
| career concerns and social pressure (J29) | bureaucratic funding through bribes (D73) |