Kinship taxation as an impediment to growth: Experimental evidence from Kenyan microenterprises

Abstract

This paper documents strong pressure to share income faced by entrepreneurs in a developing country setting. This ‘kinship tax’ can distort productive decisions, including investment. A lab experiment with 361 Kenyan entrepreneurs reveals that a third of them face distortionary pressure to share income. This kinship tax is higher for men, and increasing in entrepreneurial ability. Using a pre-existing randomized cash transfer experiment, I find that only male entrepreneurs who do not face distortionary kinship taxation invest these transfers. Imposing some parametric assumptions, I estimate that kinship taxation decreases aggregate productivity among firms in this sample by one quarter.