Protection money, tax compliance and colonial legacy inAfrica

MERIMA ALI(CMI, Norway)

ODD-HELGE FJELDSTAD(CMI, Norway)

BOQIAN JIANG(Syracuse University, USA)

ABDULAZIZ SHIFA(Syracuse University, USA)

Arusha, 8 December 2014

(Foo and Bar) Arusha, 8 December 2014 1 / 26

Fiscal capacity

A broad consensus:

Fiscal capacity is important for development (Bird, 1980; Tanzi andZee, 2000).Fiscal capacity one aspect of state power (Herbest 2000; Acemoglu,2005; Besley and Persson, 2011).

Origin of state capacity?

Inter-state wars.Population density and size.Ethnic fragmentation.

Our question: Is there a systematic difference between Francophoneand Anglophone countries?

(Foo and Bar) Arusha, 8 December 2014 2 / 26

Fiscal capacity

A broad consensus:

Fiscal capacity is important for development (Bird, 1980; Tanzi andZee, 2000).Fiscal capacity one aspect of state power (Herbest 2000; Acemoglu,2005; Besley and Persson, 2011).

Origin of state capacity?

Inter-state wars.Population density and size.Ethnic fragmentation.

Our question: Is there a systematic difference between Francophoneand Anglophone countries?

(Foo and Bar) Arusha, 8 December 2014 2 / 26

Colonial legacy: Indirect vs direct rule

Britain fostered “competition between ethnic groups... practiced adivide and rule strategy....purposely maintained opposing traditionalstructures of control in order to keep the different ethnic populationswithin a colony from forming a coalition to challenge Britishhegemony.... Thus the British structured ethnic conflict into theirsystem” (Blanton et al 2001).

France pushed “for a centralized state, which incorporated individualsfrom different regions and ethnic groups into a single social system,all under the control of an administrative state modeled after andcontrolled by the French state” (Blanton et al 2001).

(Foo and Bar) Arusha, 8 December 2014 3 / 26

Outcome variable

We compare differences in three outcome variables b/n Francophoneand Anglophone countries:

1 The relative importance of ethnic versus national identity.2 Citizens attitude towards tax obligation.3 Protection against extortion (by non-state actors, e.g. gangs).

RESULT: In all of the above measures, the outcomes are consistentwith the hypothesis of “direct” and “indirect” rule.

(Foo and Bar) Arusha, 8 December 2014 4 / 26

Outcome variable

We compare differences in three outcome variables b/n Francophoneand Anglophone countries:

1 The relative importance of ethnic versus national identity.2 Citizens attitude towards tax obligation.3 Protection against extortion (by non-state actors, e.g. gangs).

RESULT: In all of the above measures, the outcomes are consistentwith the hypothesis of “direct” and “indirect” rule.

(Foo and Bar) Arusha, 8 December 2014 4 / 26

Outline

1 Introduction

2 Data

3 Descriptive Figure

4 Regression results: OLS

5 Regression results: IV

6 Conclusion

(Foo and Bar) Arusha, 8 December 2014 5 / 26

Figure: Francohpone (yellow) and Anglophone (red) countries in the sample.

(Foo and Bar) Arusha, 8 December 2014 6 / 26

Surevey question on ethnic vs national identity:

Let us suppose that you had to choose between being a Kenyan andbeing a ———–[R’s ETHNIC GROUP]. Which of the followingstatements best expresses your feelings?

1 I feel only Kenyan.2 I feel more Kenyan than ————— [insert R’s ethnic group].3 I feel equally Kenyan and ————— [insert R’s ethnic group].4 I feel only ———– [insert R’s ethnic group].

(Foo and Bar) Arusha, 8 December 2014 7 / 26

Survey question on attitudes towards tax obligation:

Please tell me whether you think that not paying the taxes peopleowe on their income is:

1 not wrong at all.2 wrong but understandable.3 or wrong and punishable.

(Foo and Bar) Arusha, 8 December 2014 8 / 26

Surevey question on extortion by non-state actors:

In the last year, how often have powerful people or groups other thangovernment, such as criminals or gangs, made people in yourcommunity or neighbourhood pay them money in return forprotecting them, their property or their businesses?

1 Never.2 Only once.3 A few times.4 Often.

(Foo and Bar) Arusha, 8 December 2014 9 / 26

Ethnic vs. national identity

BENBFACIVGINMDG

MLI

NERSENTGO

BENBFA

CIVGINMDGMLINERSENTGO

BEN

BFA

CIV

GIN

MDG

MLI

NER

SENTGO

BENBFACIVGIN

MDG

MLI

NER

SENTGO

BEN

BFACIV

GIN

MDG

MLI

NER

SENTGO

BWA

GHAKENLSO

MWI

NAMNGASLETZAUGAZMBZWE BWA

GHAKENLSOMWINAM

NGA

SLETZA

UGAZMBZWE

BWA

GHA

KENLSO

MWINAM

NGA

SLE

TZA

UGA

ZMB

ZWE

BWA

GHAKEN

LSOMWI

NAMNGA

SLE

TZAUGAZMB

ZWEBWA

GHA

KEN

LSO

MWINAM

NGA

SLE

TZA

UGA

ZMB

ZWE

0.2

.4.6

.8

Only ethnic More ethnic Equal More national Only national

Francophone Anglophone

(Foo and Bar) Arusha, 8 December 2014 10 / 26

Attitude toward tax compliance

BEN

BFA

CIV

GINMDG

MLI

NER

SEN

TGO

BENBFA

CIV

GIN

MDG

MLI

NER

SEN

TGO

BEN

BFA

CIVGIN

MDG

MLINER

SEN

TGO

BWAGHA

KEN

LSO

MWI

NAMNGASLESWZ

TZAUGA

ZMBZWE

BWAGHA

KEN

LSO

MWINAM

NGA

SLESWZTZA

UGAZMBZWE

BWA

GHA

KEN

LSO

MWI

NAM

NGA

SLE

SWZ

TZA

UGA

ZMB

ZWE

0.2

.4.6

.8

Acceptable Understandable Not Acceptable

Francophone Anglophone

(Foo and Bar) Arusha, 8 December 2014 11 / 26

Protection money: I

BENBFA

CIV

GIN

MDGMLINER

SEN

TGO BWAGHA

KEN

LSO

MWI

NAM

NGA

SLE

SWZ

TZA

UGA

ZMB

ZWE

.7.8

.91

Francophone Anglophone

People never paying protection money

(Foo and Bar) Arusha, 8 December 2014 12 / 26

Protection money: II

BENBFA

CIV

GIN

MDGMLINERSENTGO BEN

BFA

CIV

GIN

MDGMLINER

SEN

TGO

BEN

BFA

CIV

GINMDGMLINER

SENTGO

BWAGHA

KEN

LSOMWI

NAM

NGA

SLE

SWZ

TZA

UGA

ZMB

ZWE

BWAGHA

KEN

LSO

MWI

NAM

NGA

SLE

SWZ

TZA

UGA

ZMB

ZWE

BWAGHA

KEN

LSO

MWI

NAM

NGA

SLESWZ

TZAUGAZMBZWE

0.0

5.1

.15

Only one A few times Often

Francophone Anglophone

(Foo and Bar) Arusha, 8 December 2014 13 / 26

Table: Regression results: Dependent variables rank level of national identity, taxcompliance and frequency of payment to non-state actors

Protection money Tax Compliance National Identity

(1) (2) (3) (4) (5) (6)

Anglophone 0.129∗∗∗

0.147∗∗∗

-0.100∗∗∗

-0.188∗∗∗

-0.240∗∗∗

-0.278∗∗∗

(0.007) (0.009) (0.010) (0.012) (0.019) (0.021)

Former German colony -0.035∗∗∗

-0.053∗∗∗

0.401∗∗∗

(0.011) (0.017) (0.029)

Log GDP per capita -0.033∗∗∗

0.106∗∗∗

-0.005(0.005) (0.006) (0.013)

Age -0.001∗∗∗

0.002∗∗∗

0.003∗∗∗

(0.000) (0.000) (0.000)

Male 0.009 0.017∗∗∗

0.040∗∗∗

(0.006) (0.006) (0.011)

Employment 0.008 -0.037∗∗∗

-0.026(0.008) (0.009) (0.016)

Urban 0.016 0.058∗∗∗

0.028(0.011) (0.011) (0.021)

Education -0.002 0.024∗∗∗

0.021∗∗∗

(0.002) (0.002) (0.004)

Wealth 0.099∗∗∗

0.027 0.012(0.017) (0.018) (0.034)

F 299.923 37.900 91.781 87.054 161.997 45.419R-squared 0.011 0.016 0.004 0.034 0.009 0.025Observations 35738 32167 35406 32021 35343 31672

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Ordered logit

Protection money Tax Compliance National Identity

(1) (2) (3) (4) (5) (6)

Anglophone 1.154∗∗∗

1.232∗∗∗

-0.268∗∗∗

-0.515∗∗∗

-0.427∗∗∗

-0.490∗∗∗

(0.068) (0.077) (0.030) (0.034) (0.032) (0.036)

Former German colony -0.063 -0.132∗∗∗

0.711∗∗∗

(0.070) (0.049) (0.053)

Log GDP per capita -0.189∗∗∗

0.292∗∗∗

-0.012(0.028) (0.018) (0.021)

Age -0.008∗∗∗

0.006∗∗∗

0.004∗∗∗

(0.001) (0.001) (0.001)

Male 0.067∗∗

0.057∗∗∗

0.064∗∗∗

(0.033) (0.019) (0.018)

Employment 0.093∗∗

-0.098∗∗∗

-0.045∗

(0.045) (0.027) (0.026)

Urban 0.057 0.166∗∗∗

0.038(0.059) (0.032) (0.035)

Education -0.019 0.065∗∗∗

0.031∗∗∗

(0.013) (0.007) (0.007)

Wealth 0.627∗∗∗

0.050 0.018(0.102) (0.053) (0.056)

Observations 35738 32167 35406 32021 35343 31672

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Dummy dependent variable OLS regression

Protection money Tax Compliance National Identity

(1) (2) (3) (4) (5) (6)

Anglophone 0.082∗∗∗

0.090∗∗∗

-0.060∗∗∗

-0.116∗∗∗

-0.141∗∗∗

-0.145∗∗∗

(0.004) (0.005) (0.008) (0.009) (0.008) (0.009)

Former German colony -0.005 -0.012 0.164∗∗∗

(0.007) (0.012) (0.012)

Log GDP per capita -0.019∗∗∗

0.068∗∗∗

-0.013∗∗

(0.003) (0.005) (0.006)

Age -0.001∗∗∗

0.002∗∗∗

0.001∗∗∗

(0.000) (0.000) (0.000)

Male 0.006∗

0.017∗∗∗

0.015∗∗∗

(0.003) (0.005) (0.005)

Employment 0.010∗∗

-0.018∗∗∗

-0.014∗∗

(0.004) (0.007) (0.007)

Urban 0.005 0.038∗∗∗

0.008(0.005) (0.008) (0.009)

Education -0.002 0.013∗∗∗

0.007∗∗∗

(0.001) (0.002) (0.002)

Wealth 0.054∗∗∗

-0.005 0.015(0.009) (0.014) (0.015)

F 456.943 54.192 60.591 63.305 308.272 54.239R-squared 0.015 0.020 0.003 0.024 0.017 0.030Observations 35738 32167 35406 32021 35343 31672

(Foo and Bar) Arusha, 8 December 2014 16 / 26

Dummy dependent variable Probit regression

Protection money Tax Compliance National Identity

(1) (2) (3) (4) (5) (6)

Anglophone 0.569∗∗∗

0.611∗∗∗

-0.151∗∗∗

-0.294∗∗∗

-0.357∗∗∗

-0.367∗∗∗

(0.031) (0.036) (0.019) (0.022) (0.021) (0.023)

Former German colony -0.017 -0.029 0.418∗∗∗

(0.037) (0.032) (0.032)

Log GDP per capita -0.102∗∗∗

0.173∗∗∗

-0.034∗∗

(0.015) (0.012) (0.015)

Age -0.004∗∗∗

0.004∗∗∗

0.003∗∗∗

(0.001) (0.001) (0.001)

Male 0.036∗∗

0.043∗∗∗

0.038∗∗∗

(0.017) (0.012) (0.012)

Employment 0.052∗∗

-0.047∗∗∗

-0.035∗∗

(0.023) (0.017) (0.018)

Urban 0.030 0.098∗∗∗

0.021(0.030) (0.021) (0.024)

Education -0.008 0.033∗∗∗

0.018∗∗∗

(0.007) (0.005) (0.005)

Wealth 0.324∗∗∗

-0.012 0.037(0.051) (0.035) (0.038)

Observations 35738 32167 35406 32021 35343 31672

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Country-level OLS

Protection Money Tax Compliance National Identity

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Anglophone 0.079∗∗∗

0.096∗∗∗

0.098∗∗∗

-0.056 -0.094∗∗

-0.103∗∗

-0.164∗∗

-0.106∗

-0.122∗

(0.024) (0.026) (0.020) (0.044) (0.044) (0.040) (0.063) (0.058) (0.058)

Log GDP per capita -0.024 -0.016 0.069∗∗

0.065∗∗

-0.097∗∗

-0.102∗∗

(0.017) (0.014) (0.029) (0.027) (0.041) (0.041)

Landlocked country -0.025 -0.008 -0.013 -0.015 -0.116∗

-0.127∗∗

(0.024) (0.019) (0.040) (0.039) (0.056) (0.057)

Ethnic fractionalization -0.001 -0.180∗

-0.291(0.051) (0.102) (0.181)

Pre-colonial state centralization -0.032∗∗∗

-0.040∗∗

-0.017(0.009) (0.018) (0.027)

F 10.900 4.778 7.711 1.667 2.615 3.200 6.755 5.918 4.195R-squared 0.353 0.443 0.707 0.077 0.304 0.500 0.262 0.511 0.583Observations 22 22 22 22 22 22 21 21 21

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Relative Distance IV: Colonial expansion in Africa

Resource: Late Colonialism in Africa, Wilma A. Dunaway

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Distance IV First Stage Regression

Relative distance Log relative distance

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Relative distance to British than to French -0.160∗∗∗

-0.163∗∗∗

-0.153∗∗∗

-0.157∗∗∗

-0.155∗∗∗

(0.048) (0.052) (0.049) (0.050) (0.052)

Log relative distance to British than to French -0.395∗∗∗

-0.403∗∗∗

-0.382∗∗∗

-0.392∗∗∗

-0.391∗∗∗

(0.052) (0.055) (0.055) (0.055) (0.057)

Landlocked country -0.049 -0.034 -0.065 -0.091 -0.074 -0.061 -0.102 -0.106(0.192) (0.182) (0.193) (0.203) (0.119) (0.116) (0.118) (0.126)

Log GDP per capita 0.214∗

0.200 0.179 0.117 0.096 0.092(0.118) (0.123) (0.131) (0.078) (0.079) (0.084)

Pre-colonial state centralization 0.049 0.034 0.066 0.063(0.085) (0.092) (0.053) (0.058)

Ethnic fractionalization -0.267 -0.053(0.508) (0.323)

Constant 0.786∗∗∗

0.811∗∗∗

-0.771 -0.605 -0.282 0.407∗∗∗

0.434∗∗∗

-0.417 -0.192 -0.130(0.106) (0.146) (0.880) (0.941) (1.141) (0.061) (0.076) (0.573) (0.592) (0.717)

F 10.991 5.271 5.043 3.728 2.911 56.735 27.690 20.412 16.171 12.202R-squared 0.355 0.357 0.457 0.467 0.476 0.739 0.745 0.773 0.792 0.792Observations 22 22 22 22 22 22 22 22 22 22

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Relative distance IV correlation check

Relative distance Log relative distance

(1) (2) (3) (4) (5) (6)

Landlocked country -0.984 -1.191 -1.072 -0.422 -0.549 -0.420(0.778) (0.837) (0.882) (0.466) (0.498) (0.514)

Pre-colonial state centralization 0.201 0.280 0.089 0.176(0.378) (0.413) (0.225) (0.241)

Ethnic factionalization 1.181 1.285(2.204) (1.286)

Constant 1.565∗∗∗

1.880∗∗

1.106 -0.340 -0.165 -1.007(0.487) (0.658) (1.593) (0.292) (0.391) (0.929)

F 1.598 1.031 0.757 0.818 0.616 0.744R-squared 0.071 0.098 0.112 0.037 0.061 0.110Observations 23 22 22 23 22 22

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Country-level 2SLS

Protection Money Tax Compliance National Identity

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Anglophone 0.086∗∗∗

0.104∗∗∗

0.091∗∗∗

-0.065 -0.090∗

-0.115∗∗∗

-0.168∗∗

-0.101∗

-0.127∗∗

(0.027) (0.027) (0.020) (0.048) (0.046) (0.039) (0.070) (0.061) (0.057)

Log GDP per capita -0.026∗

-0.015 0.068∗∗

0.068∗∗∗

-0.098∗∗∗

-0.101∗∗∗

(0.016) (0.012) (0.027) (0.024) (0.038) (0.035)

Landlocked country -0.026 -0.007 -0.014 -0.014 -0.116∗∗

-0.127∗∗∗

(0.022) (0.017) (0.037) (0.033) (0.051) (0.048)

Ethnic fractionalization -0.003 -0.185∗∗

-0.294∗

(0.044) (0.087) (0.154)

Pre-colonial state centralization -0.032∗∗∗

-0.040∗∗∗

-0.017(0.008) (0.015) (0.022)

Shea Partial R2 0.739 0.729 0.746 0.739 0.729 0.746 0.743 0.736 0.751R-squared 0.350 0.440 0.705 0.075 0.303 0.497 0.262 0.511 0.583Observations 22 22 22 22 22 22 21 21 21

(Foo and Bar) Arusha, 8 December 2014 22 / 26

IV Predicted value: Protection Money

SEN

MDG

GINMLI

CIV

BEN

TGO

BFANER

GHA

MWI

SWZ

TZAZWE

NAMZMBBWA

UGA

KEN

NGA

SLE

LSO

0.1

.2.3

−.5 0 .5 1 1.5Fitted values

(Foo and Bar) Arusha, 8 December 2014 23 / 26

IV Predicted value: Tax Compliance

SEN

MDG

GIN

MLI

CIV

BEN

TGOBFA

NERGHA

MWI

SWZ

TZA

ZWE

NAM

ZMB

BWA

UGA

KEN

NGA

SLE

LSO

.3.4

.5.6

.7

−.5 0 .5 1 1.5Fitted values

(Foo and Bar) Arusha, 8 December 2014 24 / 26

IV Predicted value: National Identity

SEN

MDGGIN

MLICIV

BENTGO

BFA

NER

GHAMWI

TZA

ZWE

NAM

ZMB

BWAUGA

KEN

NGA

SLE

LSO

0.2

.4.6

.8

−.5 0 .5 1 1.5Fitted values

(Foo and Bar) Arusha, 8 December 2014 25 / 26

Conclusion

Both citizens’ attitude toward tax obligation and national identityappear to be weaker in Anglophone countries.

IV results reaffirm this pattern.

Caution: the exact mechanism is not identified.

(Foo and Bar) Arusha, 8 December 2014 26 / 26