Effects of Fiscal Contracts on the Accountability Relationship between State and Society

It is the expectation of the fiscal contract theory that as a state increases its tax effort, the citizens will react and demand something in return. One of the goods for exchange in these so-called revenue bargains on the state’s part is accountability. However, can the fiscal contract also lead to accountability even if the state is not expanding its tax effort? Does the fiscal contract have an influence on occurrence and the development of accountability processes over the state’s management, use, and misuse of public expenditures?

To answer these questions, I draw on the social accountability literature as well as careful theorisation of the effects of the fiscal contract. I suggest that the fiscal contract can have the following two effects on accountability processes: first, in the case where the citizens experience that the state does not live up to their expectations, the idea of a fiscal contract is a motivational factor in demanding accountability; second, the extent to which the state relies fiscally on the citizens will affect the outcome of the accountability processes.

The theoretical framework will be applied to the case of Senegal. First, given Senegal’s strong electoral accountability institutions, free and public political space, and long-time stability, I expect to be able to identify and select a range of cases of accountability processes. Second, as Senegal’s tax to GDP ratio is above the sub-Saharan Africa average, it poses a most-likely case for exploring if and how the fiscal contract affect the state-society accountability relationship. I will study the case during fieldwork in the summer and fall of 2017.

This project will provide some evidence of if, how, and under what circumstances the fiscal contract has an effect on state-society accountability relationships.

Dissertation has been drafted and will be submitted in August 2019. 

Extended project description

This PhD project is positioned within the literature on taxation, governance and fiscal contracts. Based on the conviction that the fiscal contract concept can be instrumental for answering if, how and under what conditions taxation plays a role in state-society accountability relations in low-income, developing countries, the project strives to advance the theoretical basis of the literature by improving the conceptualisation of this key concept. The theorisation effort is grounded in a case study of social accountability over the collection and use of tax revenue in Senegal. The case study relies on data from three stays of fieldwork between July 2017 and March 2018, more than 60 interviews, an original survey of 120 informal economic actors, reports and media data.

Theoretically, the project probes into the link between taxation and accountability. Building on state-building narratives of Medieval, Western Europe, it is expected that taxing and being taxed provides an incentive for the state and the population to engage in bargaining over revenue (Bräutigam, 2008; Levi, 1988; Tilly, 1992). In state-society interactions over taxation, the focus is on the societal side where the population is expected to engage politically and to demand accountability when dissatisfied with the state’s collection and use of tax revenues. The stylised narrative and expectation is that over time bargaining over the exchange of revenue for public goods and political influence will develop a fiscal contract between state and society. In the literature, the concept is often applied even if it remains unclear what a fiscal (sometimes also social) contract concept denotes. This PhD project redeems the conceptual issues by paying proper attention to the conceptualisation of the fiscal contract. Based on a review of the literature, two lines of understandings of the fiscal contract are identified and, subsequently, developed into two separate concepts, the exchange-based fiscal contract and the norm-based fiscal social contract. The exchange-based fiscal contract is defined as a reciprocal exchange-based fiscal relationship between the state and a group of taxpayers. The norm-based fiscal social contract is defined as the norm-based fiscal relationship between state and societal actors. The two fiscal contracts differ in two concrete ways. First, the scope of the exchange-based fiscal contract is limited to actual taxpayers, whereas the norm-based fiscal social contract is closer to the notion of a social contract including the whole society, i.e. all citizens, taxpayers and non-taxpayers alike. Second, the exchange-based fiscal contract is present as long as a reciprocal exchange occurs and does not connote, as often in the literature, an inherent drive towards improved governance and accountability. Conversely, the norm-based fiscal social contract is always present and is shaped by the norms guiding fiscal redistribution. They can be studied independently, though. Meanwhile, the fiscal contracts are likely to interact with each other. In the thesis, the defining attributes and the contextual scopes of these two concepts as well as the relationship between the two are dealt with elaborately.

By conceptualising and distinguishing between an exchange-based fiscal contract and a norm-based fiscal social contract, it allows for giving explanatory power to societal norms related to fiscal redistribution when studying the role of taxation in low-income, developing countries. The relevance and significance of a norm-based approach is supported in a case study of social accountability over the collection and use of tax revenue in Senegal.

Within the case universe of low-income, developing countries in sub-Saharan Africa, Senegal is a typical case when looking at the size of the informal economic sector, human development and corruption. However, theoretically, it is a likely case for observing cases of social accountability over the collection and use of tax revenue. Social accountability is defined as political engagement by societal actors with the state with the purpose of demanding accountability. This expectation is based on the findings in the literature on taxation and accountability. Here, conditions such as the broad political environment, institutional channels of engagement and capacity for collective action are important for whether societal actors can be expected to make accountability demands. Often referred to as the African exception, Senegalese stable electoral democracy and relatively strong civil society makes for a strong case (Cruise O’Brien, 1996; Freedom House, 2018; Leichtman, 2016). Focussing on taxation, conditions such as fiscal awareness and capacity for taxpayer-specific collective action are important. These are difficult to approximate a priori, but there are indications such as Senegal’s tax per GDP which is above the average of sub-Saharan Africa while, according to Afrobarometer, a majority of the population supports the notion of taxation (Afrobarometer, 2018). Moreover, the Senegalese households provide a relatively large share of total tax revenues (Forum Civil and Oxfam, 2015) and while several NGOs have expanded their focus on taxation within the last decade, tax policies has been a part of business associations’ working agendas for decades (Thioub, Diop, & Boone, 1998) which could indicate fiscal awareness and well as capacity for collective actions by taxpayers. The argument for selecting Senegal was the objective to identify and select cases of social accountability to delve into the process of social accountability, examining the role of taxation in societal actions and state responses.

During fieldwork and data collection, however, this expectation was not met. Among a long list of potential cases of social accountability over both embezzlement of public finance, relatively few cases of social accountability over the use of tax revenue were identified. Furthermore, among selected positive cases of social accountability over both embezzlement and dissatisfaction with public goods or services, virtually none of these saw societal actors applying a tax-centred fiscal narrative. Thus, instead of scrutinising processes of social accountability, a purpose of the thesis became to explain this theoretically puzzling finding, revisiting the theoretical foundation of this expectation. This is where the improved conceptualisation and distinction between the two kinds of fiscal contracts come in. I argue that the expectation that Senegal is a likely case is in line with the observation that there seems to be a relatively broad, exchange-based fiscal contract in Senegal. On the one hand, this is based on, among other things, the relative wide reach of VAT, the effort to tax the informal sector in cooperation with strong business associations and the generally high tax to GDP-ratio. On the other hand, the state does provide a minimal of public goods and services including universal health care and schooling, stability and security with low crime rates as well as political influence both through regular elections and institutionalised representation of civil society including both social and economic actors. Both taxation and the quality of public goods could be better, but this just serves to underline that there is reciprocity of the fiscal contract, although at a low-equilibrium. The broad-based fiscal contract is by no means strong, though, given for example the inequity of taxation illustrated by the observation that rich people are, at least perceived to be, able to use their personal connections to avoid taxation which “ordinary persons” are not (Afrobarometer, 2018).

Meanwhile, the explanation for the limited social accountability over the use of tax revenues as well as the absence of a tax-centred fiscal narrative in accountability demands should be found in the prevailing norm-based fiscal social contract in Senegal. Arguably, the fiscal social contract in Senegal is not tax-centred; the norms of fiscal redistribution are not built around a broad-based quid quo pro of taxation for basic public goods. Rather the fiscal redistribution is built around networks which can take a more or less clientilistic character. The networks links the political elite, the government and, perhaps most importantly, the President with the ruling class including the religious groups such as the Mourids, the economic elites and groups such as the unions (Beck, 2008). The networks manifest themselves in the inter-linkages and overlaps between the political elite and the ruling class. Due to the pervasiveness of the networks and the appertaining clientilistic accountability relations, the cases of grand corruption by the ruling class, for example, confirm rather than disrupt public perceptions and expectations about who gives and whom gets in the Senegalese society. In a case of corruption by the director of the Centre for Student Services (COUD) at the university in Dakar, students know that they will not get accountability, because of the relation between the COUD-director and the President, Macky Sall. Therefore, such corruption cases rarely motivate accountability demands. Moreover, when accountability demands are raised, they are not formulated with reference to a tax-centred fiscal narrative, where the taxpayers demand something in return for their taxes. For example, when the only radiotherapy machine in Senegal broke down, a social media campaign initiated by well-educated, middle-class people did not apply a tax-centred fiscal narrative but instead they stressed that Senegal, as a foremost country in West Africa, should have a working radiotherapy machine.

Lastly, these findings give grounds for discussing and questioning a key argument in the fiscal contract theory; that the population will engage politically when experiencing an increase in the state’s tax effort. This argument relies on an assumption that there is a societal demand for a “tax-driven” relationship with the state. As becomes clear when studying state-society relations as well as intra-society relations in Senegal, there are at least three conditions undermining such a demand. First, as demonstrated in a case study of the artisanal fishing sector, the presence of informal redistribution undermines the demand for state-driven fiscal redistribution. Taxes, broadly understood, are something one must pay rather than a part of an exchange while problems such as education and health financing, employment problems and other social needs are often accommodated by societal actors according to the prevailing social institutions and socio-economic structures. This corroborates recent research on taxation and collective action in Africa’s informal sectors (Bodea & Lebas, 2014; Meagher, 2018). Second, as in the university corruption case, the lack of expectation of accountability subverts demands for accountability. This translates into a lack of expectation that the state-society accountability relationship can change and, thus, a lack of societal demand for a different, i.e. tax-centred, kind of state-society relationship. Lastly, it is important to emphasise that Senegal has relatively well-functioning accountabilities, especially regular elections and strong clientilistic networks. Arguably, these accountabilities are effective for large parts of the population and, thus, there is little demand for utilising the leverage that taxation is, at least theorised, to give societal actors when demanding accountability from state