Taxation, civic culture and state capacity


Published 08.01.20

Why do some countries have high rates of taxation and high compliance, while some failed states have neither?

Why do people pay their taxes? In this VoxDev talk, Tim Besley presents a model that helps explain why we have both Nordic countries with high rates of taxation and high compliance and failed states that have neither, and how states that are in between can evolve in either direction. He discusses the concept of a ‘reciprocal contract’ under which citizens choose to pay their taxes and the state provides public goods. Norms of reciprocity and a stronger civic culture can be encouraged through using political institutions to build trust that government will spend more on public goods and less on projects that are seen as only benefitting the elite. This is challenging in countries where government spending is financed by donors rather than through taxation.