Tolling on the River: Trade and Informal Taxation on the Congo

42 Pages Posted: 23 Nov 2016

See all articles by Ola Olsson

Ola Olsson

University of Gothenburg

Maria Eriksson Baaz

University of Gothenburg

Peter Martinsson

University of Gothenburg - Department of Economics and Statistics

Date Written: November 21, 2016

Abstract

It is by now generally agreed that government corruption is a serious impediment to economic growth. An intensive use of informal tolls and bribes on roads and waterways still prevail in several developing countries, hampering trade and economic development. On the basis of a general model of a trader travelling downstream past multiple stations and taxing authorities, we study the extent and magnitude of informal taxation on traders in Democratic Republic of Congo. River Congo is arguably one of the most important transportation routes in Africa in one of the world’s poorest countries. We show that informal tax payments per individual journey still make up about 14 percent of the variable costs and 9 times the monthly salary of a public official. Price discrimination in taxing is present in the sense that the value of the cargo is the main determinant of informal taxes paid whereas personal or other characteristics do not seem to have a strong impact. In line with hold-up theory, the average level of informal taxation tends to increase downstream closer to Kinshasa, but authorities that were explicitly banned from taxing instead extract more payments upstream.

Keywords: Corruption, Informal Taxation, Congo

JEL Classification: D02, F10, H25

Suggested Citation

Olsson, Ola and Eriksson Baaz, Maria and Martinsson, Peter, Tolling on the River: Trade and Informal Taxation on the Congo (November 21, 2016). Available at SSRN: https://ssrn.com/abstract=2873648 or http://dx.doi.org/10.2139/ssrn.2873648

Ola Olsson (Contact Author)

University of Gothenburg ( email )

Vasagatan 1
Goteborg, 405 30
Sweden

HOME PAGE: http://https://sites.google.com/site/econolaols/home

Maria Eriksson Baaz

University of Gothenburg ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Peter Martinsson

University of Gothenburg - Department of Economics and Statistics ( email )

Box 640
Vasagatan 1, E-building, floor 5 & 6
Göteborg, 40530
Sweden

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