Explaining informal taxation revenue generation: Evidence from south-central Somalia (with Fabrizio Santoro)

Individuals in low-income countries contribute substantially to the financing of local public goods through informal taxation, with significant implications for equity, redistribution, and service delivery. In conflict-affected contexts, the importance of non-state service delivery and welfare provision is well recognized, though the role and implications of citizens in contributing to the funding of these public goods though informal taxation is often overlooked. Through a detailed exploration of informal taxation in south-central Somalia, we contribute novel evidence of the magnitude and regressivity of informal taxation and explore the relationship between informal taxation, the state, and ongoing statebuilding processes in the country. We rely on original data from surveys with over 2300 households and 117 community leaders, as well as deep contextual knowledge derived from qualitative research in the region. Our study finds that informal taxation in south-central Somalia is prevalent and deeply embedded within clan-based and Islamic institutions, representing a significant and regressive share of annual household income. We further show that informal taxation serves to fill gaps left by weak state capacity, that sub-national governments may actually benefit from informal taxation, and that informal taxing authorities are more effective tax collectors than the state. While existing hypotheses about the prevalence of informal taxation focus on the material and capacity gaps left by weak states, we deepen the understanding of informal taxation by showing that it can bolster perceptions of and legitimacy of the state. This has important implications for understanding statebuilding processes from below, suggesting that governments may have little incentive to extend their taxing authority or to assert control over informal taxes in some contexts. These findings have important implications for our understanding of public goods provision and statehood in conflict-affected contexts.