Notes: Adjusted for inflation using the World Bank World Development Indicators Consumer Price Index with 2010 as the base year. Data on tax revenue is from the Lagos State Government Digest of Statistics 2006, 2010, 2013. The period between the red vertical lines indicates when the federal government withheld transfers from Lagos local governments.

In Lagos, the specific actions taken by the tax administration focused on deploying technology by introducing electronic payments and tax withholding, by creating an autonomous tax agency separate from the civil service, and by hiring and incentivizing skilled professionals. There was political support for enforcing tax laws, like imposing fines and sealing delinquent businesses. In addition, there was significant taxpayer education and outreach, and publicity campaigns to foster tax morale by linking the visible public infrastructure investments to the expansion in tax payments. Overall, this case suggests that success in increasing tax collection requires a combination of factors, including a well-motivated government and an ability to deploy diverse tools, particularly those relating to technology and personnel.

Another key factor that may influence a government’s decision of how much to enforce taxes is the availability of technology tools that reduce the political and economic costs of taxation by making tax collection more automated and less salient. For example, using employers to withhold personal income taxes removes the need to require citizens to remit payments, and consumption taxes like the value-added tax may be less salient to citizens. Such tools or instruments may lead to less political resistance—but they only work well if the government has access to appropriate technology tools for implementing them. As an example from the United States context, Cabral and Hoxby (2012) show that property taxes are less salient to property owners who use the technology-aided practice of bundling their taxes with their monthly mortgage payment through a tax escrow account, compared to other homeowners with mortgages who make one or two large direct tax payments a year to the government. Areas with higher rates of escrow use also have higher property tax rates, suggesting that the lower salience and automation of collection allows those jurisdictions to collect more revenues.

One contemporary example of how the availability of technology can influence the tax choices of governments in low- and middle-income countries is the emergence of taxes on mobile money transactions in a number of African countries. Digital payments via mobile phones have seen substantial growth in the region, serving as a major driver of financial inclusion (Suri and Jack 2016). For governments, a major justification for taxes on mobile money transactions is to expand the tax net over large informal sectors that are traditionally outside the current reach of tax authorities. A mobile money tax is relatively easy to monitor and can be collected by telecommunication companies and service providers, without the need for a tax authority to make costly investments in identification, detection, and collection capacity. Critics have called it a “lazy tax” (Karombo 2022). Tellingly, the salience of the tax has led to stiff public opposition, with some countries having to reduce the tax rate (for example, Ghana, Tanzania, Uganda) and others to completely abandon it (like Malawi).

Lastly, the decision of whether or not to pursue investments in tax capacity may depend on the current levels of tax collection. In settings with low levels of tax collection, initial investments in tax capacity – such as building a tax database or establishing technology for tax monitoring – 19