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Information Technology and Fiscal Capacity in a Developing Country: Evidence from Ethiopia

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posted on 2024-09-06, 07:01 authored by Merima Ali, Abdulaziz Shifa, Abebe Shimeles, Firew Woldeyes
Governments in developing countries are typically constrained by a limited fiscal capacity to finance the provision of essential public goods – a constraint that has been cited as one of the fundamental challenges to economic development. Several developing countries have recently implemented electronic tax systems (ETS) to improve monitoring tax compliance using modern information technology (such as electronic sales registry machines (ESRMs)). Despite the widespread adoption of ETS throughout the developing world, there is a dearth of systematic evidence on its impact. In this paper, we document the impact of ETS using quasi-experimental evidence from Ethiopia – a low-income country in Sub-Saharan Africa which expanded use of ESRMs in recent years. We use administrative data covering the entire set of those registered for Value Added Tax (VAT) in Ethiopia. We find that ETS resulted in a large and significant increase in VAT payments (of about 20 log points). We also find evidence that the effect is driven primarily by firms that are more likely to evade taxes prior to ETS adoption, suggesting that ETS has minimised tax evasion.

taxation; fiscal capacity; information technology; developing economy.

Funding

DfID, NORAD.

History

Publisher

Institute of Development Studies

Citation

Ali, M. et al., (2015) Information Technology and Fiscal Capacity in a Developing Country: Evidence from Ethiopia. ICTD Working Paper 31. Brighton: IDS.

Series

ICTD Working Paper 31

IDS Item Types

IDS Working Paper

Copyright holder

© Institute of Development Studies

Country

Ethiopia

Language

en

Identifier ISBN

978-1-78118-215-4

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    International Centre for Tax and Development

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