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- Convenors:
-
Adrienne Lees
(International Centre for Tax and Development)
Max Gallien (IDS)
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- Chair:
-
Giulia Mascagni
(IDS)
- Discussants:
-
Oliver Morrissey
(University of Nottingham)
Lucie Gadenne
Andualem Mengistu (Ethiopian Development Research Institute)
Mashekwa Maboshe (University of Cape Town)
- Formats:
- Papers
- Stream:
- Business, finance and digital technologies
- Sessions:
- Thursday 1 July, -
Time zone: Europe/London
Short Abstract:
This panel will explore the dynamics of the fiscal relationship between states and taxpayers in the wake of COVID-19. We seek to understand the implications of the pandemic on revenue collection, relative tax burdens, and the reach of tax reliefs, with a focus on tax equity and the informal sector.
Long Abstract:
The COVID-19 pandemic has had a profound effect on fiscal relationships, both from the perspective of state revenue agencies and from the perspective of taxpayers and firms. While many of these dynamics are very recent, their impacts are likely to outlast the pandemic that has triggered them, with important consequences for state revenue but also equity and some of the most vulnerable livelihoods. From a state perspective, the pandemic has had a substantive negative impact on tax revenue, driven by the global economic slow-down, restrictions on movement, and the expansion of targeted tax reliefs. And yet, the pandemic and its aftermath present fiscal needs that are greater than ever, with tools like informal taxes or zakat being increasingly looked to. At the same time, businesses and households, particularly in vulnerable communities and within the informal sector struggle to manage and negotiate their fiscal obligations and relationships in the context of the crisis. This panel will look to explore these dynamics, while commenting on the methodological and political challenges ahead. We expect the focus to be on African economies.
Accepted papers:
Session 1 Thursday 1 July, 2021, -Paper short abstract:
The pandemic presents great financing needs, which must be supported by tax revenue. How does citizens’ compliance attitudes and perceptions shift during the crisis? We document an increase in taxpayers’ perceptions of tax fairness, and a shift from unconditional to conditional compliance.
Paper long abstract:
The pandemic has important implications on tax revenue. At the same time, it presents financing needs that are greater than ever, which in turn require a continued effort on tax mobilisation. For those efforts to succeed, citizens’ collaboration in complying with tax laws is essential. However, their perceptions and willingness to pay taxes could potentially shift in opposite directions: they might be more willing, as they realise the importance of tax revenue in crisis response, or they might be less compliant, because taxes are an additional burden at an already difficult time. Exploiting a unique dataset that captures information on perceptions and attitudes to compliance before and after covid-19, this study evaluates how the pandemic shifted perceptions around equity and trust in tax systems, as well as attitudes to conditional and unconditional tax compliance. We find large and significant improvements in taxpayers’ perceptions about the fairness of the tax system, and a significant shift from unconditional compliance to a conditional version that links more closely tax with public service delivery. Our survey data also allows us to evaluate access to tax relief during the pandemic, and how that might affect perceptions about the tax system. Despite tax relief being available to everyone, only relatively larger and more sophisticated firms access it in practice. We also explore public support for additional taxes on the rich, on property, large companies, or everyone. Our results have important implications on policy during and after the pandemic.
Paper short abstract:
We analyze the distributional effects of COVID-19 in five African countries, using detailed tax-benefit microsimulation models. Our preliminary results point to modest growth in inequality and large increases in poverty, with a limited role of automatic stabilizers in mitigating these effects.
Paper long abstract:
The COVID-19 pandemic presents a virtually unprecedented challenge to many developing countries, including most African nations. With their minimal social protection schemes and weak healthcare systems, these countries are particularly exposed to the virus. While implementing effective policy responses is challenging due to the constrained fiscal space faced by most African governments, appropriate emergency income support measures and tax waivers are critical in limiting the economic hardships resulting from COVID.
We analyze the distributional effects of the pandemic in Ghana, Mozambique, Tanzania, Uganda and Zambia, using novel tax-benefit microsimulation models. Our research offers insights into the economic impact of the crisis in 2020 and the effectiveness of COVID-related tax and benefit policies in alleviating the adverse effects on people’s livelihoods. Our main contribution comes from developing nuanced impact estimates of increases in poverty and inequality that result from the pandemic, along with detailed decomposition of the sources of these effects.
While the research is in progress, our preliminary results lend support to modest growth in consumption-based inequality and relatively large increases in consumption-based poverty across the five countries studied, while also pointing to notable heterogeneity in impacts across countries. Mozambique, in particular, was severely affected by the pandemic, with substantial increases in poverty and inequality and large reductions of incomes in the informal sector. Across all countries, automatic stabilizers only had a limited role in mitigating losses of disposable income. Our forthcoming work will unpack the contribution of emergency income support measures and tax waivers in alleviating these effects.
Paper short abstract:
In many Muslim-majority states, zakat makes up a significant part of social spending, and has again been highlighted in funding Covid relief. Based on original survey data of over 5,000 respondents in Egypt, Pakistan, and Morocco, this project explores zakat's position between charity and tax.
Paper long abstract:
In order to soften the economic fallout of the COVID-19 pandemic, states have introduced formal tax reliefs in various forms. At the same time, they are encouraging charitable contributions in order to finance relief efforts. In Muslim-majority states, zakat payments make up a significant part of the fiscal politics of social spending – the annual global zakat pool is estimated between 200 billion and 1 trillion USD. In the context of the COVID-19 pandemic, some states have been encouraging citizens to increase charitable contributions, and tied zakat distribution to pandemic relief. This brings into focus long-standing questions about the position of zakat between charity, formal, and informal taxation. Based on original survey data of over 5,000 respondents in Egypt, Pakistan, and Morocco, the project examines how different forms of state involvement in zakat collection have shaped public attitudes towards taxation, charity and the state during a pandemic.