Informal Taxation

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Informal Taxation

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Title: Informal Taxation
Author: Olken, Benjamin A.; Singhal, Monica

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Citation: Olken, Benjamin A., and Monica Singhal. "Informal Taxation." American Economic Journal: Applied Economics 3.4 (October 2011): 1-28.
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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 wide-
spread, 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.
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