Between coercion and contract: competing narratives on taxation and governance

Abstract

Introduction This chapter is motivated by some important facts, some stimulating theory and an urgent policy concern. The facts are that, relative to the historical experience of the Organisation for Economic Cooperation and Development (OECD) countries, the governments of many contemporary developing countries are more independent of their domestic taxpayers for revenue. On average – and with wide variations – they depend a great deal on alternative sources of income that were not available to governments when the OECD countries were comparably poor: rents from natural resource wealth and strategic rents (in practice, mainly foreign aid). The theory suggests that there is a causal connection from (a) this dependence on rents , rather than taxes, to (b) the fact that public authority in much of the South is often relatively illegitimate, ineffective and unaccountable (‘bad government’). More simply, the proposition is that the dependence of governments on broad taxation for revenue is good for the quality of governance. If the theory were right, then we should like to change the ways in which many Southern governments are financed. The volumes of development aid, the modalities of the aid relationship and the control of rents from natural resource wealth all become important concerns from a ‘good government’ perspective.