The Political Economy of Local Tax Collection in Mozambique

Project description

Increased revenue mobilization is a central element of the Post-2015-Agenda (for instance SDG Goal 17.1; see also Addis Ababa Action Agenda). Developing countries in particular are called upon to make greater efforts in this area. This demand is far from being new, but while historically the attention of the development discourse was focused on the expenditure side, now it is gradually shifting to the revenue side.

The most recent contributions to the scientific and policy debate on taxation and development mainly concentrate on the central government level. This focus neglects the well-established literature on fiscal decentralization as well as the extensive experience that development cooperation has gathered in this field over the last decades. However, we know that in many countries there is a considerable, yet unexploited, revenue potential at the subnational level. In addition, it is foreseeable that dynamics such as urbanization will further increase the tax potential at this level in the near future. Furthermore, convincing arguments suggest that local tax collection not only leads to higher and more stable revenues, but also that it can significantly improve and strengthen accountability relationships between taxpayers and the state.

The central research question guiding the work of the LAG is the following: which factors determine the degree to which local governments exploit their tax potential? Limited administrative capacities and perverse incentives generated by poorly designed transfer systems are the two main factors that academic analyses tend to focus on. Although these aspects will be taken into account, the project aims at also examining the relative explanatory power of social and political factors. Possible independent variables of interest are among others: the degree of social cohesion in the municipality, political competition at the local level and the alignment of the party in government at the local level with the party in government at national level.

Main partner of the LAG is the  Instituto de Estudos Sociais e Económicos (IESE). Additional partner in designing and implementing the research are the Associação Nacional dos Municípios de Moçambique (ANAMM) and the project “Good financial governance in local government” implemented by the GIZ.

The LAG project in closely connected to research activities in ongoing research projects at DIE, especially to the BMZ-funded project “Strengthening domestic revenue in developing countries: fighting illicit financial flows and fiscal decentralization” and the GIZ-funded project “Impact of governance programs in Africa”.