Working Papers
Fraud Detection Under Limited State Capacity: Experimental Evidence From Senegal, with Bassirou Sarr and Mattea Stein [paper]
Tax administrations in low-income countries face widespread tax evasion and high enforcement costs. They thus need information to detect where tax evasion is most severe, and allocate scarce resources accordingly. This paper shows that leveraging large firms’ trading network to collect information about their suppliers is a cost-efficient way to detect tax evasion and increase future audit returns. We collaborate with the Senegalese tax administration on a vast data collection effort to digitise lists of payments submitted by the largest firms and show that 88.6% of these firms provide incomplete information about their suppliers. This prevents any cross-checking against income declared by the suppliers themselves. We then randomise a low-cost communication campaign across all 3,487 misreporting firms, to discourage future misreporting. The intervention increases the prevalence of suppliers’ identification information by 52%. In aggregate, this allows to uncover $145.5 million in unreported revenue (i.e. 0.5 % of GDP). Most of it accrues to a few tax-registered suppliers, as opposed to informal ones. A simulation exercise shows that exploiting the newly available information to target the largest under-reporting suppliers would increase audit returns by at least 100%
Do Electronic Filing and Payment Increase Tax Compliance? Evidence from Large Taxpayers in Senegal with Awa Diouf and Fabrizio Santoro [paper]
Tax administrations in low-income countries progressively introduced electronic filing and payment of taxes with the aim of reducing both enforcement costs for the administration and compliance costs for taxpayers. This shift also holds the potential to decrease opportunities for collusion or extortion by minimizing in-person interactions with tax officials. However, the available evidence on the impact of such technology remains scarce. Using a fuzzy dynamic double-difference method, we investigate the causal impact of the adoption of e-filing and e-payment by the largest taxpayers in Senegal. Our findings indicate either no, or very limited, impact on the probability to declare or pay taxes (extensive margin). Nevertheless, we observe a significant decrease in the prevalence of missing values in digitized declarations. We also find a positive, and possibly large, impact on amount of tax paid (intensive margin), but essentially concentrated on the largest taxpayers. Later in time, additional evidence finally suggests that by reducing compliance costs, online services enabled previously enrolled taxpayers to continue submitting tax statements even amidst the containment measures implemented in response to the COVID pandemic.
Redistribution without Inclusion? Inequality in South Africa Since the End of Apartheid with Aroop Chatterjee and Amory Gethin [paper][Press: The Economist]
This article sheds new light on the evolution of income inequality and government redistribution in post-apartheid South Africa. We combine survey, tax, and historical budget data to construct a new microdatabase on the distribution of labor and capital incomes, taxes, cash transfers, and public services since 1993. Pretax income inequality has increased, but this rise has been overcompensated by major expansions in government redistribution. After accounting for taxes and transfers, low-income households have benefited from the greatest real income gains. However, South Africa still stands out as one of the most unequal countries in the world. In 2019, the top 1% received almost 20% of posttax income, more than the bottom 50% as a whole. Racial inequalities have declined, but this decline has been entirely driven by the boom of top Black income groups. We highlight the role of taxes and transfers as powerful levers of inclusive growth yet insufficient tools to curb South Africa’s extreme inequalities.
Income Inequality in Côte d’Ivoire: 1985-2014 [paper]
Due to under-reporting and non-response, surveys often fail to accurately measure the income of the wealthiest. Little is known about the size of such biases, especially in low income countries, as it requires to have access to more reliable sources of information. In this paper we confront the 2014-2015 household survey with first-hand income tax files in the case of Côte d’Ivoire, 2014. We first identify, within the survey, a sub-sample corresponding to the one for which we have fiscal data. Comparing the earning distribution of this sub-sample with the one extrapolated from the fiscal data, we are able to measure the magnitude and the distribution of the bias among top earners in the survey. We then use this estimation to adjust the pre-tax and pre-transfer income distribution of the entire survey sample and thus recover corrected nationally representative inequality statistics. Our results show that the 2014-2015 survey significantly underestimates income inequalities. After our correction, the top 1 % share increases from 11.57 % to 17.15 %, the top 10 % share from 40.34 % to 48.28 %, and the Gini coefficient from 0.53 to 0.59. We compare our estimates with more commonly used consumption inequality measures and discuss the potential sources of differences. Making the assumption that the bias is constant over time for a given level of income, we also extend our correction to previous surveys. After correction, top 1 % shares increase by 5-6 percentage points, top 10 % shares by 7-8 percentage points and Gini coefficients increase by 6 points, making Côte d’Ivoire’s inequality levels comparable to that of the US.
Publications
Wealth Inequality in South Africa, 1993–2017, with Aroop Chatterjee and Amory Gethin, The World Bank Economic Review (2021) [paper, working paper]
This article estimates the distribution of personal wealth in South Africa by combining microdata covering the universe of income tax returns, household surveys, and macroeconomic balance sheet statistics. South Africa is characterized by unparalleled levels of wealth concentration. The top 10 percent own 86 percent of aggregate wealth and the top 0.1 percent close to one-third. The top 0.01 percent of the distribution (3,500 individuals) concentrate 15 percent of household net worth, more than the bottom 90 percent as a whole. Such levels of inequality can be accounted for in all forms of assets at the top end, including housing, pension funds, and financial assets. There has been no sign of decreasing inequality since the end of apartheid.
The triumphant elephant’s return? Growth and income inequality in Côte d’Ivoire (1988-2015) with Denis Cogneau and Kenneth Houngbedji, Afrique contemporaine (2017) Vol 263-264, Issue 3-4, p 221 to 225 [paper]
Though Côte d’Ivoire has experienced renewed growth since 2011 and has ambitious plans for development in place, household surveys on standards of living covering the last three decades reveal both a significant improvement in average income and a persistence of inequality. Poverty is therefore higher than in the late 1980s. In addition, access to original income tax data makes it possible to capture the top wages paid in the private sector. Formal jobs in the private and public sectors continue to shield wage earners from poverty and remain over-represented among top incomes. However, the persistent rationing of this type of job has made informal sector the main type of employment among the urban wealthy class and the poor alike.
Work in Progress
Using Third-Party Data to Improve Tax Compliance in a Context of Low Enforcement, with Florence Kondylis, Bassirou Sarr and Mattea Stein – RCT on the field now
Market Concentration, Rent Extraction and Minimum Wage in Senegal, with Bassirou Sarr [project][note]
Taxing High Income Earners in a Low Income Country with Pierre Bachas and Justine Knebelmann [note]
Income Inequality in Senegal, with Denis Cogneau, Bassirou Sarr and Anne-Sophie Robillard