Kinship Taxation and Firm Growth: Experimental Evidence from Tanzania

Squires, Munir

doi:10.1257/rct.5031

Cited by 18 publications

(32 citation statements)

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“…This result is consistent with existing findings, from both developed and developing countries, interpreting hiding as a strategy to reduce giving e.g. redistributing a smaller fraction of resources ([18–19, 22–23, 39–40]). Second, we find evidence that the size of investments are smaller when the redistributive pressure is larger and that individuals use hiding (at a cost) to fend off requests from other members of the network.…”

Section: Introductionsupporting

confidence: 92%

Altruism and the pressure to share: Lab evidence from Tanzania

et al. 2019

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We propose a novel laboratory experiment to document the pressure to share income within social networks in Africa. We find that the redistributive pressure exerted via the possibility of receiving a claim increases altruism, while the possibility of hiding from such claim reduces it. Our results indicate that sharing norms are crucial drivers of giving to other members of the network. We also find that pressure to share has a detrimental effect on the undertaking of profitable but risky investments.

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Section: Introductionsupporting

confidence: 92%

Altruism and the pressure to share: Lab evidence from Tanzania

et al. 2019

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“…Similarly, Henry (1996Henry ( , 2003, who has studied successful formal local African firms, shows that key to these firms' success is the fact that they have found ways to limit the burden of the forced mutual help constraint. 3 Finally, combining evidence from a lab experiment with data from a sample of Kenyan entrepreneurs, Squires (2016), who quantifies the importance of the tax, finds high distortions for a third of entrepreneurs. He structurally estimates that removing distortions from kinship taxation would increase total factor productivity by a quarter, and increase the share of inputs used in the largest firms substantially.…”

Section: Forced Mutual Help Kinship Taxation and Entrepreneurship Inmentioning

confidence: 99%

Does Social Pressure Hinder Entrepreneurship in Africa? The Forced Mutual Help Hypothesis

2019

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In the absence of a public safety net, wealthy Africans have the social obligation to share their resources with their needy relatives in the form of cash transfers and inefficient family hiring. We develop a model of entrepreneurial choice that accounts for this social redistributive constraint. We derive predictions regarding employment choices, productivity, and profitability of firms run by entrepreneurs of African versus non‐African origin. Everything else equal, local firms are overstaffed and less productive than firms owned by non‐locals, which discourages local entrepreneurship. Using data from the manufacturing sector, we illustrate the theory by structurally estimating the proportion of missing African entrepreneurs. Our estimates, which are suggestive due to the data limitation, vary between 8% and 12.6% of the formal sector workforce. Implications for the role of social protection are discussed.

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“…Such a social tax has been demonstrated both within lab experiments and outside of them (Baland et al 2011;Boltz et al 2019). Kinship taxes may also reduce business productivity (Squires 2018). Kinship networks also reduce investment in alternative risk mitigation methods (Di Falco and Bulte 2013) and migration (Morten 2016).…”

Section: Credit and Insurancementioning

confidence: 99%