Trust in Fiscal Institutions in Africa: Do Perceived Living Conditions Matter?

Abstract

It is now well established that institutional trust is crucial for mobilizing tax revenues. However, this trust is often eroded by economic and social policies that fail to enhance population well-being. This article analyzes how perceptions of living conditions influence trust in tax administration, using data from the Afrobarometer survey (round 8) across 34 African countries. The methodology involves a three-stage approach: descriptive analysis to explore correlations between perceived living conditions and trust in fiscal institutions; multivariate techniques, including Principal Component Analysis and Hierarchical Ascendant Classification, to group countries based on these variables; and ordered probit modeling to assess causality, incorporating control variables such as individual characteristics and addressing endogeneity through an extended ordered probit model. The main findings reveal that poor living conditions negatively impact trust in tax administration, whereas positive perceptions of living conditions enhance trust. This relationship holds across various homogeneous groups, underscoring its robustness. This underscores the need for economic policies that prioritize improving living conditions to build trust in tax administration. Recommended policies include promoting investment and innovation to create jobs and boost incomes; investing in public infrastructure (e.g., roads, schools, and hospitals) to enhance service access and combating corruption to increase transparency and fairness in public administration. These measures could strengthen trust in institutions and improve tax compliance.