Journal of Economic Behavior and Organization Volume 189

The widespread introduction of ICTs and digitised data management systems is one of the most important developments amongst African tax administrations in recent years. However, very little evidence is available on their effectiveness to increase compliance and on how taxpayers respond to these changes.

This paper starts filling this gap by reporting three sets of results from Ethiopia. First, we evaluate the impact of a technological innovation, the adoption of electronic sales registration machines, on taxpayers’ self reports. We find a positive impact on tax revenue, which increases by at least 12% for income taxes and 48% for VAT.

However, taxpayers respond by simultaneously adjusting both reported sales and costs, thus yielding net revenue gains that are proportionally lower than the increase in sales. Second, we use a letter experiment to show that the main mechanism through which the machines increase tax revenue is compliance, rather than any change in real business activity. Third, we document how the revenue administration does not make use of available data to its full potential, as many discrepancies remain undetected.

However, machine adoption improves the accuracy of those taxpayer records, reducing discrepancies.


Giulia Mascagni

Giulia Mascagni is a Research Fellow at the Institute of Development Studies and Research Director of the ICTD. Her main area of work is taxation, but she also has research interest in public finance, evaluation of public policy, and aid effectiveness. She is an economist by training, holding a PhD in Economics from the University of Sussex. Her main geographical interest lies in African countries, with a particular focus on Ethiopia and Rwanda.

Andualem T. Mengistu

Andualem Mengistu is a Technical Advisor at the IMF Fiscal Affairs Department and Director at the Macroeconomic Division at the Ethiopian Development Research Institute.

Firew B. Woldeyes

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