UNU-MERIT Working Papers Series
The cost of bureaucratic fragmentation: Business tax evasion and revenue mobilization in a low-income country
Stephan Dietrich, Yannick Valentin Markhof & Rose Camille Vincent #2026-007We 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: Taxation, Tax evasion, Tax administration, Low-income countries, Nudges
JEL Classification: H26, H20, H71, C93, O12
DOI: https://doi.org/10.53330/QOHL2233
Download the working paper (PDF)
