Transformative change: Addressing inequalities through taxes

Exploring the role for progressive taxation vis-à-vis progressive spending and the contribution of fiscal systems to the Sustainable Development Goals in developing countries

Taxation and inequalities are strongly connected. Developing countries are facing important policy challenges using Domestic Resource Mobilisation (DRM) as a tool to achieve the Sustainable Development Goals (SDGs), in particular SDG1, ending extreme poverty and SDG10, reducing inequality. Many developing countries have reduced import tariffs and corporate income taxes. They increasingly rely on consumption taxes, such as value-added tax, which are likely to disproportionately affect the poor – particularly poor women. What factors, including compliance norms, contribute to making fiscal systems more or less efficient? What is the role of civil society to shape a more progressive tax system?

Key points

  • Inequalities in sub-Saharan Africa are most marked between urban and rural areas with young people and women suffering most.

  • One way to boost rural economies is to invest in small-scale enterprises, particularly those owned by women.

  • In North Africa, inequalities between regions and between regional cities and the capitals need to be addressed.

  • There are also inequalities within cities; authorities in Nairobi have taken innovative measures to integrate the urban poor into the local economy.

Synopsis

Growth in Sub-Saharan Africa has been spectacular in the last 20 years, with GDP in double figures. However, this growth has been uneven, with 34 % of the rural population, particularly women and youth, most affected by poverty, lacking basic facilities like water or electricity, while the urban population enjoys Western-style living. However, this urban/rural divide is not inevitable as many rural areas are rich in agriculture, growing tropical fruits and staples such as coffee or chocolate. One way to encourage young people to stay and to lift women out of poverty is to generate new forms of employment. This will also help integrate these zones into the wider economy. Governments are now investing in the local population, helping them to set up as small entrepreneurs, in turn encouraging larger industries to invest. Speakers noted that rural areas are always last in line for facilities like hospitals or schools, forcing the population to migrate to towns. Instead, opening rural hospitals and further education colleges will serve the local population and generate employment. North African countries such as Morocco currently enjoy GDP growth of up to 4 %, but again this is spread unevenly, with remote regions lacking the investment enjoyed nearer the capital, Rabat. The lack of facilities and of decent infrastructure such as roads is driving young people to the big cities, draining these remote areas of future wealth-producing generations. A Moroccan town mayor suggested three approaches: Common ownership of land to open up more land to small farmers; fairer taxation for the regions, so those in less developed regions pay less than in big cities; and employment packages for state employees such as medical staff or teachers to encourage them to move to outlying regions. As well as inequality between regions, there are huge differences in some big cities. In the Kenyan capital Nairobi, a small elite of 15 % enjoy good facilities and services, while the remainder live in slums, eking out a living with few services and little chance of formal employment. Initially the authorities stigmatised the 85 % as criminals and a threat to urban order. Recently they have adopted a more enlightened approach, “harnessing the hassle”. They have introduced a City Urban Watch to improve security; created Street Parliaments to contribute to urban planning and legalised the informal economy.

Insight

In many Sub-Saharan African countries, local chiefs oversee land ownership and have the power to decide who is can lease arable land. This approach needs to be modernised to encourage women’s agricultural enterprises.

Organised by

Speakers

Moderator
Olivia Lally
Senior Policy and Advocacy Officer
European Network on Debt and Development
Jon Jellema
Economist and Deputy Director, Commitment to Equity Institute
Global Development Network
Anne-Sophie Robilliard
Research Fellow
Institut de Recherche pour le Développement (IRD)
Nuzhat Jabin
Manager – Democratic Governance
ActionAid Bangladesh
Joseph Okecho Olwenyi
Coordinator-Financing for Development
Oxfam Uganda