Taxes, Poverty, Incentives and Market Outcomes in Africa

Paper Session

Saturday, Jan. 7, 2017 8:00 AM – 10:00 AM

Hyatt Regency Chicago, Wright
Hosted By: National Economic Association & African Finance and Economics Association
  • Chair: Bichaka Fayissa, African Finance and Economic Association

Competition and Prosociality: A Field Experiment in Ghana

Angelino Viceisza
,
Spelman College
Kerstin Grosch
,
University of Goettingen
Marcela Ibanez
,
University of Goettingen

Abstract

Competitive payment mechanisms are commonly used to promote higher productivity in the workplace. Yet, these types of incentives could reduce workers' willingness to cooperate in subsequent tasks. In this paper, we explore this question by conducting a lab-in-the-field experiment with workers from a low-productivity agrobusiness in rural Ghana. To investigate how prosociality towards a co-worker evolves, we use a between-subjects design where participants complete a real-effort task under a competitive, threshold, or random payment. We measure prosocialty before and after this task through (1) a public goods and (2) a social-value orientation game. We find the effect of competition on changes in prosociality to be context-specific. Competition reduces prosociality when the dispersion of payments is high, an effect that is driven by high earners who win the competition. However, when there is less at stake, competition can increase cooperation. This effect seems to be driven by those who lose the competition. Interestingly, the competitive payment scheme has no significant effect on average effort/output levels. We combine our experimental and survey data with firm-administrative data in order to explore how experiences in and outside of the lab might interact and derive some potential implications for workplace policy.

Financial Reform, Inclusion and Mobile Money in Nigeria

Lisa D. Cook
,
Michigan State University
Yanyan Yang
,
Claremont Graduate University

Abstract

This paper examines the effect of financial literacy on the usage of financial products in Nigeria. In contrast to the previous studies on financial literacy and development using country-level data, by applying comprehensive household survey data over three years, we investigate the determinants of financial development in Nigeria at an individual level. We find that the marginal effects of financial literacy and some demographic characteristics such as employment status and education change significantly pre- and post-banking crisis. Another interesting discovery is that coefficients of financial literacy vary across regions.

The Resilience of the Poor: A Markov Chain Analysis of Heterogeneity in Subjective Poverty

Elizabeth Asiedu
,
University of Kansas
Theophile T. Azomahou
,
Maastricht University, UNU-MERIT, University of Clermont Auvergne and CERDI
Eleni A. Yitbarek
,
Maastricht University and UNU-MERIT

Abstract

This paper studies the dynamics of subjective poverty in urban Ethiopia. Poverty is measured as three points ordinal scales: rich, borderline and poor. We use a multinomial logit Markov chain with alternative specifications of unobserved heterogeneity as a random effect, which depends on: households and poverty departure state, household and transition poverty profile, and household heterogeneity only. We identify transitory and permanent effects, and frame-of-reference bias. We find that (i) human capital is a strong determinant of upward poverty, with intensity effect: the higher the level of schooling, the lower the probability of transiting to poor state; (ii) larger households enjoy greater economies of scale but the demographic structure of households matters; (iii) social capital has a positive effect on the downward mobility of poverty; (iv) own consumption raises self-welfare rating; (v) the initial level of poverty is an important determinant of future poverty.

Tax-Man’s Dilemma: Coercion or Persuasion? Evidence from Randomized Field Experiment in Ethiopia

Abebe Shimeles Abebe
,
African Development Bank
Daniel Zerfu Gurara
,
International Monetary Fund
Firew Bekele Woldeyes
,
Ethiopian Development Research Institute

Abstract

We analyze data from a randomized controlled trial of two innovative anti-tax evasion schemes in Ethiopia that signal threats of audit and complimentary messages that encourage tax morale. Our results indicate that the threat of audit reduces tax evasion significantly, and its effect is higher in businesses commonly suspected of high tax evasion rates. We also find that appealing to the tax morale promotes compliance, but slightly less than that of audit threat. The possibility that appeal to tax morale could reduce tax evasion is interesting, but it may also be picking up perception of high risk of being “identified” by the tax authority induced by the experiment. Our results are robust to different estimation strategies and less sensitive to potential confounding factors.
Discussant(s)
Anat Bracha
,
Federal Reserve Bank of Boston
Ejindu Ume
,
Miami University
Stephen Armah
,
Aseshi University
Miesha Williams
,
Morehouse College
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue
  • O1 - Economic Development