Taxation and the informal sector in the global South: strengthening the social contract without reciprocity?

Abstract

Among both international financial institutions and developing country governments, there is currently a burgeoning interest in including informal sector workers within national and local tax nets. The motivation for taxing the informal economy is largely related to the need for greater 'revenue mobilisation' but there is also a claim that taxation can improve or restore the social contract through greater government accountability and civic engagement. Supported by emerging perspectives within the 'new fiscal sociology' there is a growing consensus that taxation is the social contract and that negotiation and collective action around tax obligations are the key defining relationship between the state and society. Others, and most notably Kate Meagher, however, have warned that these perspectives have a number of 'blind spots' in relation to developing countries, more broadly, and the informal economy, in particular. With 61% of the world's workers, including 70% of those in emerging and developing countries, in informal employment, these blind spots have a particular relevance for the social contract, political participation, governance and accountability in the countries of the global south. Based on a case study of informal street vendors and market workers in Accra, Ghana, this paper reflects on the limits to, and the circumstances under which, governance gains could be achieved in relation to informal sector taxation and the social contract. As such, the analysis investigates where some of the perspectives of the new fiscal sociology sit in tension with the realities experienced by informal workers in the global south. Avenues for a future research agenda and an approach to understanding 'tax justice' from below and the politics of taxation are considered.