COVID-19-Induced Cash Flow Constraints and the Burden of Taxation: A Study with the Kenya Revenue Authority

Economies in sub-Saharan Africa are likely to be hard hit by the COVID-19 crisis. In turn, tax authorities in the region face a dual risk. On the one hand, suspending all tax enforcement can weaken tax compliance norms as well as government resources in the longer run, which are urgently needed to fund government investment. On the other hand, tax enforcement could lead to additional strains on the economy and severely affect businesses; both private and public sector enterprises potentially resulting in redundancies, income losses and closures among others. Governments in the region are in fact adopting measures to alleviate the burden of taxation for businesses and firms. In this project, Lorenzo Casaburi and Dina D. Pomeranz will leverage a longstanding research partnership with the Kenya Revenue Authority developed over the last five years to: 1) study how formal economic activity and tax collection are evolving during the crisis; 2) evaluate the impact of tax policies that the Government of Kenya has put forward to support the private sector during the pandemic; and 3) explore potential low-cost experimental interventions that the Kenya Revenue Authority could launch to sustain tax compliance in the long run.

The project will involve three types of analysis: descriptive, quasi-experimental, and experimental. For each of these, administrative data from the Kenya Revenue Authority will be utilised. First, the researchers will examine how formal economic activity and tax collection have evolved during the COVID-19 pandemic. They will also analyse the impact of tax policies adopted by the Government of Kenya on tax collection and firm-level outcomes. Finally, they will explore the potential to test two experimental interventions, where a subset of firms will be randomly assigned to file tax returns but not required to pay until a later date, and another subset of firms will receive motivational messages to encourage them to pay taxes.

Many governments have implemented tax policy changes in response to the crisis. The findings from the descriptive and quasi-experimental analysis of  this project will shed light on the impact of these changes on tax compliance. The findings will be relevant for other tax authorities around the region outside the Kenya Revenue Authority. The empirical evidence from the experimental interventions - on motivational messages and deferred VAT payments - will inform the effectiveness of such measures in counteracting the possible economic and tax compliance challenges in the wake of this pandemic. More generally, the study has the potential to generate tools that enable policymakers and tax authorities to understand the evolving economic impact of pandemics and examine whether policy responses implemented in low-income countries are effective.


Lorenzo Casaburi

University of Zurich

Dina D. Pomeranz

Harvard University