Working Paper #2026-007
The cost of bureaucratic fragmentation: Business tax evasion and revenue mobilization in a low-income country
We provide novel evidence on bureaucratic fragmentation and weak tax administrations as central enablers of low revenue mobilization in low-income countries. In collaboration with the municipal and national tax authorities in Kampala, Uganda, we cross-link previously siloed tax records for 155,000 firms and conduct a large-scale experiment with 60,000 firms. We document pervasive and selective tax evasion: only 14% of verifiably active firms comply with both government tiers. Cross-record linkage almost triples detectable non-compliance while offering increased enforcement efficiency. This coordination dividend is left untapped. Firms exploit the resulting loopholes through partial informality, re-registering under new identities, and strategic late payments. In a cross-authority field experiment, deterrence nudges, including messages signaling inter-authority coordination, fail to offer a lighttouch alternative to addressing fragmentation directly. Our findings establish bureaucratic fragmentation as a distinct and costly source of passive waste in tax administration that existing approaches to revenue mobilization rarely address.
- Keywords
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- Taxation
- Tax evasion
- Tax administration
- Low-income countries
- Nudges
- JEL codes
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- H26
- H20
- H71
- C93
- O12
Cite this as
APA 7th ed.Dietrich, S., Markhof, Y. V., & Vincent, R. C. (2026). The cost of bureaucratic fragmentation: Business tax evasion and revenue mobilization in a low-income country (UNU-MERIT Working Paper No. 2026-007). UNU-MERIT. https://doi.org/10.53330/QOHL2233