Taxation, Political Accountability, and Foreign Aid: Lessons from Somaliland

Abstract

For years, studies of state formation in early and medieval Europe have argued that the modern, representative state emerged as the result of negotiations between autocratic governments in need of tax revenues and citizens who were only willing to consent to taxation in exchange for greater government accountability. This paper presents evidence that similar dynamics shaped the formation of Somaliland’s democratic government. In particular, it shows that government dependency on local tax revenues -- which resulted from its ineligibility for foreign assistance -- provided those outside the government with the leverage needed to force the development of inclusive, representative and accountable political institutions.

Keywords: Taxation, Democracy, Governance, Africa, Somalia, Somaliland, Foreign Aid, Political Economy

JEL Classification: F35, H11, H20, H70