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American Economic Journal: Applied Economics: Vol. 3 No. 4 (October 2011)

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Informal Taxation

Article Citation

Olken, Benjamin A., and Monica Singhal. 2011. "Informal Taxation." American Economic Journal: Applied Economics, 3(4): 1-28.

DOI: 10.1257/app.3.4.1

Abstract

Informal payments are a frequently overlooked source of local public finance in developing countries. We use microdata from ten countries to establish stylized facts on the magnitude, form, and distributional implications of this "informal taxation." Informal taxation is widespread, particularly in rural areas, with substantial in-kind labor payments. The wealthy pay more, but pay less in percentage terms, and informal taxes are more regressive than formal taxes. Failing to include informal taxation underestimates household tax burdens and revenue decentralization in developing countries. We discuss various explanations for and implications of these observed stylized facts. (JEL H24, H27, O12, O17, O23)

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Authors

Olken, Benjamin A. (MIT)
Singhal, Monica (Harvard U)

JEL Classifications

H24: Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
H27: Taxation, Subsidies, and Revenues: Other Sources of Revenue
O12: Microeconomic Analyses of Economic Development
O17: Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O23: Fiscal and Monetary Policy in Development

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