In this paper, we provide evidence on how the provision of social infrastructure such as reliable electricity can be leveraged to increase taxation in developing countries, particularly sub-Saharan Africa (SSA). First, using comprehensive data from the latest round of the Afrobarometer survey, we estimate, via the instrumental variable approach, the effect of access and reliability of electricity on tax compliance attitudes of citizens in 36 SSA countries.
Evidence from the paper shows a significant positive effect of electrification on tax compliance attitudes with potentially strong externalities. Also, we find that reliability of supply is crucial in explaining the impact of electricity access on attitudes toward taxes. Second, we provide suggestive evidence on national identity as one channel driving this impact. Access to social amenities such as electricity induces a sense of national identity among citizens, thereby incentivizing them to contribute, through taxes, toward the functioning of the state.
Third, using data from the most recent World Bank Enterprise Surveys and under conservative assumptions, we estimate that countries in the region could in total generate additional tax revenues of more than $9.5 billion (4.3% of total tax revenue) per annum solely by resolving issues related to electricity shortages. Put together; we conclude that the financial returns associated with public investments toward improving access and reliability of electricity are substantial and could be harnessed to augment the financing gap in the sector.