Taxation as a Social Contract: Public goods and collective action in Sub-Saharan Africa

Abstract

Increasing tax revenue is an important aspect of development policy as it is associated with sustainable economic development. This requires tax compliance, and to increase tax compliance it is vital to understand its determinants. According to the fiscal contract theory, people assent to pay taxes because they value what they gain from it. Because paying taxes implies giving up a part of your personal income for the benefit of your co-citizens, taxation becomes a classical collective action dilemma. Thus, not only the relationship with the state, but also the relationship between the citizens should be an important determinant of tax compliance. The main argument put forward in this paper is that a society that aims to increase tax compliance should be a socially cohesive society,and not only focusing on the state’s role, but also on stimulating good relations between the citizens. Using data from the Afrobarometer survey round 5 (2011-2013), this paper performs a logistic regression analysis across 28 countries in Sub-Saharan Africa. The main finding is that the traditional approach to the fiscal contract matters the most. However, social cohesion does provide some explanatory power in the sense that social solidarity also increases tax compliance. There is also reason to believe that there are huge country differences