# **1. Introduction**

Economic development requires a government that can successfully implement policies, protect property rights, and deliver public goods and services. A necessary prerequisite is the ability to raise and spend fiscal resources effectively. But many governments, particularly in low- and middle-income countries, lack these capacities (Besley and Persson, 2010). High tax compliance costs due to cumbersome regulations and harassment by tax officials deter investment, encourage tax evasion, and undermine economic growth (Hindriks et al., 1999; Djankov et al., 2006; Coolidge, 2012; Alm et al. 2015; Jerbashian and Kochanova, 2016a). The public procurement of goods and services is often rife with collusive practices and corruption, resulting in the misallocation or waste of resources and poor quality infrastructure (Auriol, 2016; Center for Global Development, 2014).

This paper investigates whether the use of information and communications technology (ICT) by government, or “e-government,” can strengthen governments’ capacity to raise and spend resources effectively. Most countries have invested heavily in ICT over the past two decades to improve revenue mobilization, budget preparation, and budget execution, and to deliver a variety of services to citizens.<sup>1</sup> However, very little is known about the impact of these investments on government efficiency. We aim to fill this gap by empirically examining the effects of two aspects of e-government: the electronic filing and payment of taxes (e-filing) on tax compliance costs and corruption; and electronic procurement (eprocurement) on the competitiveness of public procurement and corruption. We employ novel crosscountry data on e-government implementation, as well as country- and firm-level data on the business environment.

E-filing should, in theory, reduce tax compliance costs. Taxpayers have more flexibility about when to file taxes, are less prone to errors while filing standardized forms, and, ideally, do not need to spend time with tax officials in face-to-face interactions, which also reduces opportunities for corruption. Similarly, implementation of e-procurement should reduce costs to firms of participating in government tenders, attract more bidders, and decrease corruption associated with collusive behavior. However, the investments in e-government might not bring the expected results if countries lack the skills, capacity, and institutions to fully exploit the advantages of ICT (Yilmaz and Coolidge, 2013; World Bank, 2016). We test this conjecture using the interaction between e-government implementation and a country’s level of development, which we proxy by the GDP per capita, number of Internet users per capita, gross secondary school enrollment, and measures of the rule of law, government effectiveness, and business freedom.

> 1 Almost all countries have some form of automated financial management system in place. According to the World Bank’s _Global e-Government Systems Database_ , which is used in this paper and described in detail in Section 2, 94 percent of countries have automated e-customs systems and 84 percent have automated tax management systems.

> Governments also tend to use more ICT than the private sector. Van Reenen et al. (2010) report that public sector establishments in 2005–2008 used on average 1.32 computers per employee as compared to 0.64 in the manufacturing and 1.18 in the services sector.

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