Speaker
Description
This paper explores and quantifies the inefficiencies induced by delays in tax refund payouts in developing countries. We construct a novel dataset on Value Added Tax (VAT) refunds in Zambia and document extreme delays of more than 700 days on average implying that refund payments take 2300 % longer than they should. Drawing on the universe of firms' tax filings we show that these delays have significant real effects. Firms that receive refunds increase their sales by 13 %. Exploiting random variation induced by a reform of refund administration, we further show that firms whose refund payments amounting to a third of their monthly sales double their investments in the two years following the payment. As refund claims build up, profits decline but do not recover immediately upon refund payout. Our findings highlight how a malfunctioning of the tax system can impede firm growth and investment. It further questions the one-fits-all recommendation of adopting VAT in developing countries with limited state capacity.
| Keyword | Technology and Innovation |
|---|
