How does taxation bring accountability?

Lucy Martin in her paper, explicitly states that “punishment is never economically rational, but rather a purely expressive action by the citizen.”

Taxation is an effective mechanism to bring accountability within the incumbent government. This is demonstrated by Lucy Martin in a paper titled “ Taxation, Loss Aversion, and Accountability: Theory and Experimental Evidence for Taxation’s Effect on Citizen Behaviour” published in 2014. As per Martin’s study, the individuals exposed to taxation tend to demand higher accountability from the government officials than those who are not. The primary reason for the difference between the two groups is the behavioural effect of taxation.


The study shows that if private income were the only source of earning for the citizens, the untaxed population would consider any public good as an unexpected ‘gain’ while, the taxed population would consider it to be rightfully theirs. As a result, the taxed population would have a higher incentive to be politically engaged and demand accountability from the government. Therefore, taxation has two benefits, one it makes the government officials more accountable and, second it builds and sustains a culture of political engagement among citizens.

Although the paper provides various insights, the two major takeaways from the paper can be segregated to answer the questions: why do citizens punish their government, and more importantly when do they do this?

On why do citizens punish their government?
Martin has defined punishment as “taking part in elections, protests, or informal sanctions of government leaders.” Citizens, as per the study, tend to punish the government officials for misallocating or stealing funds for their own gains. An important reason for the punishment is the loss averse nature of the citizens, which means, they tend to care more about recovering losses than obtaining gains. Therefore, they consider tax to be a cost and seek returns from the government, in the form of government provisions. The experiment done under this study shows that the citizens who had to shed their income in order to contribute towards tax, have a higher tendency to be politically engaged.

The relevant example given in the paper is of Uganda, where the direct taxation of the poor was decreased to win electoral votes. This has led to a disconnect between the government and citizens whereby there is little outrage about poor governance, even though it difficult for the citizens to obtain basic utilities. This is quite opposite to the other example provided from the Lira district of Uganda. The agriculture vendors in Lira have to pay fees to sell produce and other goods in agricultural markets, which is the only remaining source of local tax revenue. Hence, in 2012 when the city stopped collecting the market’s trash, there was a major uproar claiming that the tax money was not spent well.

It is important to note that in both the cases, citizens have all the relevant information regarding the misuse of public resources. However, the citizens are incentivised to do so only when they share the cost incurred in bulding those resources. As mentioned in the paper, “Interventions that provide information to citizens have generally been more successful, but only increase citizens’ ability to hold governments accountable, not their underlying propensity to do so.”

The researcher went on to study the reaction of Ugandan citizen’s consisting majorly of motorcycle taxi drivers, agricultural market vendors, and small shopkeepers, to analyse attitudes towards corruption. The subjects were given the example of two hypothetical government officials with one accused of stealing money from citizen’s taxes and other from the foreign donor.   The result showed that there were lower instances of officials who stole donor funds or central transfers being punished when compared to the one who stole citizen’s taxes.

On when do citizens punish their government?
As mentioned in the paper, citizens punish their government when the benefit exceeds the cost. Benefit refers to the economic utility for a given level of public good, whereas the cost refers to the utility a citizen has lost from corruption. There is a higher chance of government being ‘punished’ if the citizens have a higher propensity for political engagement.

This propensity can vary for two reasons – first based on the individual’s exposure to taxation. The second, based on the individuals’ underlying inclination for civic engagement. The exposure to taxation can alter based on gender, age, and income. The results show that age is the strongest source for heterogeneity amongst groups exposed to taxation and the reasons given are, lack of prior exposure to taxation, lower income levels, low likelyhood of becoming the head of a household, reduced political engagement among several measures, including voting. The inclination for civic engagement, on the other hand, can exist either because individuals care more about corruption, or because they receive a higher expressive benefit from engaging in political action. Keeping both the factors in mind, the maximum propensity to punish can be seen among adult, wage-earning men.

The research paper explains this willingness to punish others’ behaviour based on a study done by Fehr and Schmidt in 1999 titled “A theory of fairness competition and cooperation”. As mentioned in the paper, “Individuals punish to relieve the negative emotions induced by behaviour that violates norms; Fehr and Schmidt (1999) show that these negative emotions are increasing as the size of the deviation from the norm increases.”

Lucy Martin in her paper, explicitly states that “punishment is never economically rational, but rather a purely expressive action by the citizen.” Thereby, taxation is an effective way of keeping this “expressive action” alive and maintaining a sound and ethical governance structure within democracies.

Photo: Photosteve101