Taxation, Loss Aversion, and Accountability: Theory and Experimental Evidence for Taxation’s Effect on Citizen Behavior by Lucy Martin (2014).
While corruption is a key challenge for state development, we still know little about what factors affect citizens’ toleration of non-accountable behavior by government offcials. This paper argues that taxation is a significant predictor of citizens’ demands, introducing and formalizing a micro-level theory of how taxation affects citizens’ preferences over accountability. By taking away earned income, taxation pushes loss-averse citizens below their reference point, increasing the utility citizens lose from corruption and making them more likely to enact costly sanctions against non-accountable ocials. Novel laboratory experiments, conducted in Uganda, find that taxation increases citizens’ willingness to punish leaders by 12% overall, and by 30% among the group who has the most experience paying taxes in Uganda. Additional experiments confirm that this e↵ect is driven by the loss aversion mechanism, and a conjoint survey experiment demonstrates support for taxation’s effect on citizen behavior among politically-active Ugandans.
