Informal taxes and transfers in Sub-Saharan Africa

Informal taxes and transfers in sub-Saharan Africa: a review and analysis of incidence in Rwanda

This project profiles and analyses informal taxes and transfer payments made by households in Rwanda, and considers their incidence, scale and distributional effects on household welfare levels and income distribution alongside formal, government-based taxes and transfers.

The aim of this project is to help policymakers in the optimal design of fiscal policy by demonstrating how analysis of fiscal incidence can be expanded to include informal taxes and transfers.

A framework for analysing informal taxes and transfers

The study covers two aspects of fiscal incidence analysis of informal taxes and transfers:

1. The first part defines informal taxes and transfers and how these can be incorporated into fiscal incidence analysis in developing countries as put forward by the Commitment to Equity; and
2. Using Rwandan household survey data, our analysis estimates the scale and redistributive effect of informal taxes and transfers, alongside official social protection and taxation policies.

High prevalence of informal taxes and transfers

The scale of informal transfers is found to be very large – over 95% of households give and receive them. The scale of some informal taxes is also large. Overall, the combined effects of informal taxes and transfers are regressive, compared with a flat or slightly progressive effect of formal fiscal taxes and transfers.

You can read and download the full report here.