Day 2: Research Session – State Capabilities

Chaired by Henrik Kleven (LSE), the state capabilities session opened with a presentation by Mushfiq Mobarak (Yale University) on boosting tax revenue collection in Bangladesh. The motivation for this research project stems from the fact that tax revenues collected as a share of GDP tend to be lower in developing countries than in rich countries. In this project, the authors implemented a randomised intervention to see whether peer recognition could be an effective way to motivate firms to pay taxes in Bangladesh. The results of this paper indicate that social incentives did indeed have a significant effect on total tax payments, through both increasing the propensity to pay and the amount paid by firms.

The second presentation was by Karthik Muralidharan (UC San Diego) who presented findings from the paper, “Building State Capacity: Evidence from Biometric Smartcards in India”. The authors of this paper worked with the government of Andhra Pradesh state in India to randomise a large-scale rollout of biometrically authenticated electronic payments for two flagship social welfare programmes in India. There were significant positive impacts of this intervention: payment processes got faster, more predictable, and were less prone to corruption. In addition, the project was highly cost-effective, and had strong support from the poverty programme beneficiaries. Muralidharan highlighted the potential for introducing similar systems in other countries, but emphasised that having political will is essential for effective implementation.

The final presentation of the session was by Claudio Ferraz (PUC-Rio and BREAD). He posed the question: in the absence of policies that exogenously provide information, can voters learn about the quality of politicians by observing policy choices? The paper presented aimed to answer this question by studying the case of Brazil, where a large number of coastal municipalities received an unexpected oil revenue shock in 1997. In particular, Ferraz uses the case of the 1997 oil shock to study whether voters rewarded incumbent politicians for increased government spending due to oil revenues, or whether the performance of the politician also played a role. His results showed that the unexpected revenue windfall helped incumbent politicians get re-elected in the short-run; however after voters learned about the windfall, success in re-election depended on the quality of politicians’ performance.

By Miska Daredia, Country Economist, IGC Ethiopia