Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: It is by now generally agreed that government corruption is a serious impediment to economic growth. An intensive use of informal tolls and bribes on roads and waterways still prevail in several developing countries, hampering trade and economic development. On the basis of a general model of a trader travelling downstream past multiple stations and taxing authorities, we study the extent and magnitude of informal taxation on traders in Democratic Republic of Congo. River Congo is arguably one of the most important transportation routes in Africa in one of the world’s poorest countries. We show that informal tax payments per individual journey still make up about 14 percent of the variable costs and 9 times the monthly salary of a public official. Price discrimination in taxing is present in the sense that the value of the cargo is the main determinant of informal taxes paid whereas personal or other characteristics do not seem to have a strong impact. In line with hold-up theory, the average level of informal taxation tends to increase downstream closer to Kinshasa, but authorities that were explicitly banned from taxing instead extract more payments upstream.

Keywords: Informal taxes; Congo; trade; corruption; river transport

JEL-codes: D60; D73; D80; H20; K42; O55; R48

43 pages, November 2016

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