In order to provide public goods, such as healthcare and education, governments need to generate sustainable revenue through taxation.
“Understanding why people are or aren’t paying taxes is really important information if our goal is for governments to have money to provide public services and invest in infrastructure,” says Nicole Wilson, a PhD candidate in political science at MIT and a graduate research fellow with MIT GOV/LAB.
Wilson studies tax payment and tax morale — people’s willingness to pay taxes — in Lagos, the largest city in Nigeria. In 2013, the State Ministry of Economic Planning and Budget estimated that over 70% of Lagos’ population lived in informal settlements, which Wilson says are generally thought of as unplanned communities that lack service delivery from governments.
In a paper published last October in the journal Studies in Comparative International Development, Wilson and Leah Rosenzweig (MIT PhD) surveyed residents in these communities to better understand what motivates them to pay and be willing to pay taxes. Rosenzweig is the director and lead researcher at the Development Innovation Lab at the University of Chicago and a research affiliate at MIT GOV/LAB, which funded the survey.
Wilson and Rosenzweig found that over a quarter of residents of informal settlements self-reported paying taxes, underscoring the fact that governments should provide services to these communities. They also found that whether people paid taxes and their willingness to pay taxes were tied to their social relationships.
Governments neglect to provide basic services in informal settlements
The researchers surveyed 502 residents living in 42 informal settlements in 2018. Respondents said the biggest challenges facing their communities were lack of access to water, roads, and electricity. Local leaders estimated on average that 42% of households in the surveyed communities weren’t connected to the electric grid and 33% of communities didn’t have access to a public health facility, public school, or water.
“A common thing we heard in interviews is ‘the government comes in, they ask for our votes, we vote for them, but then they don’t do anything for us,’” Wilson says. “These areas are just really neglected by government.”
Despite lack of services, some residents still pay taxes
In part because of this mistreatment by the government, academics have thought that people living in informal settlements might not be paying taxes. But 26% of the researchers’ survey respondents self-reported paying some kind of tax. Finding that high of a percentage is surprising “given that the baseline assumption is probably that it would be zero, given how we think about informal settlements typically,” Wilson says.
Some respondents also expressed that they would be willing to pay taxes even if the government did not enforce payment. “If there were higher levels of even basic service provision, there might be this new untapped resource [for government revenue],” Wilson says.
The finding that some people pay taxes also “spurs this question of why, and who are the people that are paying,” she adds. “It’s kind of puzzling that somebody who is so neglected by the government would pay.”
Community ties more strongly predict tax payment and morale than people’s relationship to government does
In order to determine what factors were linked to people’s tax payment and morale, the researchers collected demographic information, looked at the distance people lived from public service facilities, and asked questions about people’s relationships to the government and their communities. They found that people’s social relationships were the strongest predictors.
One question asked respondents to rate how much respect they thought their community members had for taxpayers. Those who thought community members had high levels of respect for taxpayers had both high rates of self-reported tax payment and high levels of tax morale.
The researchers also found that people who were active members of community groups were more likely to report paying taxes and had higher tax morale. Wilson says future research could look into why this is the case. “Is it group leaders that are playing some sort of enforcement role?” she says. “Or are groups the spaces in which these norms about whether tax paying is respectable are communicated?”
Important factors influencing tax attitudes in Global North contexts may differ from those in Global South contexts
People’s relationship with the government, on the other hand, didn’t seem to be an important factor for tax payment or morale. Previous studies have found that people’s feelings about the state — such as their trust in government, national pride, and satisfaction with public service delivery — influence people’s tax morale.
But studies on taxation have mainly been conducted in Global North contexts. Factors such as generally lower state capacity and a stronger reliance on community in Global South contexts mean the same ideas about tax payment and morale might not apply, Wilson says.
The researchers did find that a few important factors in Global North settings, including enforcement and trust in government, were relevant for informal settlements in Lagos. In 19 of the 42 communities surveyed, none of the respondents reported paying any taxes, suggesting that people weren’t paying due to a lack of enforcement in these places. And respondents’ trust in government was positively correlated with tax morale. Wilson says this indicates that there might be some people who “even though they haven’t received anything good are willing to trust that something good might happen in the future.”
But for the most part, people’s relationships with the state in informal settlements didn’t seem strongly tied to tax payment and morale. There wasn’t a relationship between trust in government and tax payment, for example. And the distance people lived from public services — a proxy for public service provision — wasn’t correlated with tax payment or morale.
Wilson says governments are less motivated to collect taxes from poorer communities since people living in them don’t owe very much. But since so many people live in them and there’s a demonstrated willingness to pay, they could still be a source of revenue for governments.
“But if the government really isn’t serving people with revenues, then maybe we should not be encouraging tax payment, especially among people who are already vulnerable,” she adds.
Image: Community in an informal settlement along the lagoon waterfront in Lagos, Nigeria (Nicole Wilson).