Taxation, Institutions and Participation (TIP): The Dynamics of Capital Flows from Angola, Tanzania and Zambia

The Taxation, Institutions and Participation (TIP) project has investigated the effects of tax havens on the domestic revenue system, institutions and citizen participation in African countries, with a particular focus on Angola, Tanzania and Zambia. To improve the living standards of their citizens, African countries need a revenue base to fund public services and good institutions to keep governments accountable in their use of public funds. In public debates, it is commonly argued that tax havens undermine these purposes. However, the ways in which tax havens affect taxation, political institutions and citizen participation are seriously underresearched in a developing country context. In particular, there is little firm evidence on how the use of tax havens affects tax compliance, how it influences lobbying activities towards the domestic tax system, and how tax havens shape elite and citizen incentives to frustrate or promote institutional change. The TIP-project has contributed to generate a better understanding of these questions. It has long been conventional wisdom that lobbying is the accepted way to influence policy decisions in rich countries and corruption the preferred one in poor countries. However, findings from the project show that lobbyism may be much more important than previously assumed in both the academic and policy-oriented literature. Based on in-depth case studies of how the new petroleum legislation and the VAT act in Tanzania were shaped, we find that corruption seemingly is 'substituted' with lobbyism. This does not mean that bribery does not happen, or that it cannot be a complementary strategy to lobbyism. However, it is too simplistic to expect that businesses will prefer to bribe rather than to lobby if both strategies can achieve the same goal. The enhanced role of the "Big Four" international accounting and consultancy firms in developing countries, is a reflection of the importance of lobbying and the substantial resources spent on influencing policymakers and legislators. It is often assumed that information leaks like the Swiss Leaks and the Panama Papers will lead to increased citizen political mobilisation around tax haven issues. However, findings from the TIP-project suggest that this is context dependent. In an experiment in Tanzania, an imperfect democracy, our results show that giving people information about the Swiss leaks leads to demobilisation of voters. On the other hand, for well-functioning democracies, results from the project suggest a positive association between elite use of tax havens and voter turnout. The results hence suggest that the effect of information depends on the degree of faith citizens have in the political institutions of a country. How should corporations be taxed? Much of the literature examines corporate taxation from the perspectives of the government or businesses, based on optimal tax theory. In the TIP-project we have examined the tax preferences of ordinary citizens. Based on evidence from a series of discrete choice experiments in Tanzania, we find that citizens prefer higher taxes on more internationally mobile companies, which is at odds with well-known results from optimal tax theory. Further, citizens favour lower taxes on companies that have more local employees, and higher taxes on foreign owned companies compared to domestic ones. We also find significant gender differences. Men appear more efficiency oriented in their tax preferences. Both men and women are primarily in favour of companies that offer employment to their own gender, and male respondents focus relatively more on job growth than on job security. These results have important implications for debates on the legitimacy of tax policies.

Through extensive fieldwork with mapping of the tax systems, close collaboration with local research partners and stakeholders we have assisted and advised Norad and Norwegian Embassies and the revenue authorities in Tanzania and Zambia. Our research has provided a better understanding of the vital links between international taxation and domestic resource mobilisation, governance and state-building among donors and African governments. Communication with stakeholders on all levels has been a priority. The cooperation with key actors is essential in turning research into actual policies, though it is difficult in the short run to identify direct links between research outcomes and policy changes. Doing high quality research and providing sound policy recommendations depend on a firm understanding of the situation on the ground and the experiences not only of top-level bureaucrats and politicians, but also of ordinary citizens who feel and live with the consequences of paying taxes.

The Taxation, Institutions and Participation (TIP) project investigates the effects of tax havens on the domestic revenue system, institutions and citizen participation in African countries, with a particular focus on Angola, Tanzania and Zambia. The proj ect aims to generate new, contextualized evidence on the political economy of domestic revenue mobilisation, institutional development and state legitimacy in countries exposed to large scale capital flows. Key questions are: How is the taxpaying behavior of domestic taxpayers affected by the elites and transnational companies use of tax havens? How do large scale (illicit) capital flows affect domestic tax policies and practices, and what role do international accounting firms play in this process? How d o tax havens affect institutions in developing countries, government accountability, citizen participation and their views of the state? By making these questions the overarching research concern, the project will produce new, contextualised and policy-re levant insights. In this way, the project will provide an evidence base for policies at country levels to complement current international initiatives.