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on Public Economics |
| By: | Ngugi, Rose; Tarp, Finn; Kedir, Abbi |
| Abstract: | Designing and implementing tax systems that are both efficient and effective are essential for revenue generation, economic growth, and equity as well as fairness across income groups in Kenya. The existing highly complex and outdated tax structures and the lack of effective digitization undermines compliance and limit revenue collection. This, in turn, severely constrains the amount and quality of public services the Government of Kenya (GOK) can finance in support of economic transformation and development, on the one hand, and the well-being of its citizens, on the other. It has also led to a public debt level that is at high risk of distress, and harsh liquidity constraints due to the reliance on short-term borrowing instruments. The overarching goals of the tax reform process in Kenya are to maximize revenues without distorting markets, and to ensure that the design of tax policy and tax instruments do not raise incentives to avoid and/or evade taxes. Simplification and unification of tax structures aimed at reducing government expenditures and the burden placed on taxpayers is central to achieving these goals. Therefore, this summary note (and the underlying policy notes) explores whether and how a re-design of taxes can help support change towards a combination of lower tax rates and higher revenue, and points to the associated needed range of adjustment in each of the tax instruments. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:b99cad2c-92f3-4a7e-9b01-1bbbdfb49f8c |
| By: | Kanina, Jane; Mugure, Josephine; Nato, Jacob; Urzainqui, David Garces; Fisker, Peter |
| Abstract: | This paper leverages administrative tax data from Kenya to make several contributions to our understanding of personal income taxation in developing countries. First, we exploit recent tax reforms to credibly estimate the elasticity of income to changes in marginal tax rates from a taxpayer panel with state-of-the-art methods, a novelty in the context of Sub-Saharan Africa. We find a value of 0.3 for our sample of individuals in the upper half but not at the top of the income distribution, which conceals large disparities between inelastic public workers and a rather elastic private sector. Second, we combine administrative tax data with household survey data to address the shortcomings of each of these data sources in measuring income inequality and assess the success of income taxes and potential modifications to them in reducing post-tax income inequality. We also triangulate these data sources to quantify the compliance gap due to compliance at 23% of potential revenue, mainly attributable to self-employed workers. Finally, we rely on these tools to investigate the possibilities Kenyan policymakers have and the trade-offs they face when aiming to collect further revenue in an efficient and progressive manner. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:0e0a5942-36ed-4bc3-8bf2-ff6c4950fb06 |
| By: | Sekumbo, Karia; Ringo, Noela; Manda, Constatine |
| Abstract: | The mobile money industry has conferred numerous benefits to consumers from all segments of income distribution. Given the rapid ascent of the industry, policymakers have grappled with its effective taxation. A key reason underlying this is a poor understanding of the distributional effects. This policy brief investigates a controversial tax that was instituted on mobile money withdrawals in Tanzania in 2021. Almost immediately after its introduction, transaction volumes across mobile money platforms plummeted. Tanzanian policymakers revised the tax multiple times before eventually removing it altogether. Given this U-turn, we investigate how the tax affects different consumer groups. Our findings revealed that salaried workers in urban areas as being more likely to reduce consumption of mobile money services. These results suggest that less wealthy respondents in rural areas with fewer substitutes were forced to contend with this tax while wealthier urban respondents substituted into different financial services. To relieve the rural poor of the onerous burden of this tax, we suggest revising the burden on wealthier segments to ensure that the incidence of taxation leaves them indifferent to contending with the tax as opposed to substituting into different financial services. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:f320982d-cd74-4343-b276-864a33b25103 |
| By: | Traore, Mohamed Lamine; Coulibaly, Seydou; Arvanitis, Yannis |
| Abstract: | Tax evasion and avoidance generate distortions in tax systems and cause significant revenue losses for African economies. International cooperation is one of the most effective methods of combating tax evasion and tax avoidance. As such, many countries are participating in global initiatives toward the exchange of information between national administrations for tax purposes. This paper provides the first empirical evidence on the revenue effects of tax-related exchange of information for African countries. The regressions are carried out on a sample of 54 African countries on data from 1990–2020. The findings indicate that the exchange of information for tax purposes between national tax jurisdictions has a positive and statistically significant impact on tax revenue. The estimation results show that exchange of information could increase tax revenue collection by a magnitude ranging from 5 to 19 percent. These findings reiterate the importance of international cooperation for combating tax evasion and stimulating tax collection in Africa. |
| Date: | 2023–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10299 |
| By: | Cruces, Guillermo (University of Nottingham); Tortarolo, Dario (World Bank); Vazquez-Bare, Gonzalo (UC Santa Barbara) |
| Abstract: | This paper develops a framework to analyze partial population experiments, a generalization of the cluster experimental design where clusters are assigned to different treatment intensities. The framework allows for heterogeneity in cluster sizes and outcome distributions. The paper studies the large-sample behavior of OLS estimators and cluster-robust variance estimators and shows that (i) ignoring cluster heterogeneity may result in severely underpowered experiments and (ii) the clusterrobust variance estimator may be upward-biased when clusters are heterogeneous. The paper derives formulas for power, minimum detectable effects, and optimal cluster assignment probabilities. All the results apply to cluster experiments, a particular case of the framework. The paper sets up a potential outcomes framework to interpret the OLS estimands as causal effects. It implements the methods in a large-scale experiment to estimate the direct and spillover effects of a communication campaign on property tax compliance. The analysis reveals an increase in tax compliance among individuals directly targeted with the mailing, as well as compliance spillovers on untreated individuals in clusters with a high proportion of treated taxpayers. |
| Keywords: | cluster experiments, randomized controlled trials, spillovers, partial population experiments, two-stage designs, property tax, tax compliance |
| JEL: | C01 C93 H71 H71 H26 H26 H21 H21 O23 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17692 |
| By: | Bachas, Pierre Jean; Brockmeyer, Anne; Dom, Roel; Semelet, Camille Marine |
| Abstract: | This paper provides novel evidence on the relationship between firm size and effective corporate tax rates, using full-population administrative tax data from 13 countries. In all countries, small firms face lower effective corporate tax rates than mid-sized firms due to reduced statutory tax rates and a higher propensity to register losses. In most countries, effective corporate tax rates fall for the largest firms due to the take-up of tax incentives. As a result, a third of the top 1 percent of firms face effective corporate tax rates below the global minimum tax of 15 percent. The minimum tax could raise corporate tax revenue by 27 percent in the median sample country. |
| Date: | 2023–02–23 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10312 |
| By: | Kiriga, Benson; Nato, Jacob; Remcho, Nathan; Eldrup, Magnus |
| Abstract: | This paper provides a high-level analysis of Kenyas tax system, examining structures, performance, and potential reforms to enhance domestic revenue mobilization for economic development. Synthesizing data from national agencies, we identify the central challenges facing the tax systems in Kenya including compliance levels, a significant informal sector, and economic shocks. Our analysis underscores the need for data-driven policymaking, emphasizing Kenyas Medium-Term Revenue Strategy (MTRS) 2024-2027, aimed at reversing declining tax-to-Gross Domestic Product (GDP) ratios through a comprehensive modernization of the public revenue system. Our study further highlights major revenue streams such as income taxes and value added tax to show how a few taxes make up a large portion of domestic revenues and the urgency for optimization within these taxes. The stagnant or declining performance of many tax structures in Kenya reveal a need for comprehensive reviews and updates that enhance progressivity, encourage compliance, and raise revenues relative to GDP. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:8051fe3a-63ff-4af7-962c-c592c90ac33b |
| By: | Kiringai, Jane; Mutuku, Cyrus; Muchiri, Benjamin; Basescu, Simon; Remcho, Nathan |
| Abstract: | Value-Added Tax (VAT) is a cornerstone of Kenyas Medium-Term Revenue Strategy (MTRS) and the Government of Kenyas (GoK) domestic revenue goals. It plays a pivotal role, not only in raising domestic revenues, but also in developing a broader economic landscape that stimulates growth and diversification (The National Treasury and Economic Planning, 2023). However, despite a growing Gross Domestic Product (GDP) and broadening of the VAT base, the performance of the tax has not reached its potential. This paper provides a comprehensive analysis of the VAT architecture, identifies the VAT gap, and provides detailed policy recommendations to close the existing VAT gap. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:476b7049-7ea2-4fcd-b667-dcf18dd80eb3 |
| By: | World Bank Group |
| Keywords: | Macroeconomics and Economic Growth-Taxation & Subsidies Environment-Adaptation to Climate Change Environment-Natural Resources Management Environment-Green Issues |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:42615 |
| By: | Angelini, Viola (University of Groningen); Costa-Font, Joan (London School of Economics); Ozcan, Berkay (London School of Economics) |
| Abstract: | We study whether receiving a monetary gift from parents increases the intensity of parent-child social contact. We use unique longitudinal data that follows adult children and their older parents for more than a decade (between 2004 and 2015) across various European countries. We first document that bequests, being more visible and subject to legal restrictions on their division, tend to be equalized among children, whereas gifts are less conspicuous and often unevenly distributed. Leveraging the exogenous variation induced by fiscal incentives resulting from inheritance tax legislation reforms, we use an instrumental variable (IV) and an endogenous treatment strategy to investigate the effect of gift-giving on parent-child social contact. Our findings suggest that financial transfers from parents to children lead to an increase in the intensity of parent-child interactions. We estimate that the receipt of a gift gives rise to a 12% increase in social contact. |
| Keywords: | gift giving, inter-vivos transfers, upstream social contact, inheritance tax-reforms, inheritance tax, gifts, bequests Europe |
| JEL: | J14 H29 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17706 |
| By: | Timo Kuosmanen; Xun Zhou |
| Abstract: | Secondary materials present promising opportunities for firms to repurpose emissions into marketable goods, aligning with circular economy principles. This paper examines conditions under which introducing a market for secondary materials can completely replace Pigouvian emissions taxes. These conditions prove highly restrictive: positive Pigouvian emissions taxes remain necessary unless secondary materials prices immediately reach unrealistically high levels. We propose that the socially optimal budget-neutral policy is to subsidize secondary materials prices while taxing uncontrolled emissions. Further, we extend the analysis to a two-firm framework where a data center supplies residual heat to a district heating firm acting as a monopsony buyer. This extension explicitly models the demand for residual heat and explores how subsidies and emissions taxes align firm incentives with the social optimum in the absence of competitive markets. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.14636 |