This literature review notes that the evidence base on tax and livelihoods in low-income rural areas – particularly those affected by fragility and conflict – is extremely thin. However, the evidence it reviews suggests that, in many developing country contexts, a variety of forms of taxation take place at once. These involve multiple actors, operate at formal and informal levels, and are accorded varying degrees of legitimacy by the population on which they are levied. The paper suggests a broad definition of taxation, which captures both its formal and informal dimensions: all payments – whether cash or in kind, including labour time – that are made as a result of the exercise of political power, social sanction or armed force (as opposed to market exchange).
Empirical research from eastern DRC, Uganda, Nepal, Afghanistan and elsewhere shows that taxation broadly conceptualised can undermine the economic activity of small traders, substantially reduce household incomes, and entrench the vulnerable position of low-income groups relative to higher-income groups. Returns on tax may not be seen or enjoyed by the payer – something which may, in turn, have important ramifications for governance relationships and processes of state-building. Further research is needed to explore these problems.
A focus on taxation could encourage consideration of what people in fragile and conflict-affected situations have to spend to access services, travel to and from towns, and run businesses. A better understanding of how taxation works at the local level – and an examination of whether extractive state activities could be better linked to service provision – may also contribute to debates around governance and state-building in fragile and conflict-affected situations. The effects of predatory state behaviour may be just as, if not more, significant in shaping state-society relations than the effects of supportive behaviour and actions. Similarly, the inability or unwillingness of states to regulate extractive behaviour by other actors may be perceived and understood as a visible failure of authority.
