The industrial organisation of taxation: Evidence from within the police administration in the Democratic Republic of Congo

Pervasive extortion (bribes) by corrupt state officials is one of the major burdens on private sector investment, trade, and development in fragile and conflict affected states. Bribery is inefficient, because of the uncoordinated fashion in which expropriation tends to occur between competing state officials (Shleifer and Vishny 1993). Bribery is furthermore a major bottleneck on state capacity, diverting fiscal revenues into rents of state officials. A fundamental, however, is that bribes are inherently difficult to document in a systematic manner because they are illicit. As a result, existing work on how bribes interact with the private sector draws on inexistent empirical bases. Lacking the ability to collect this type of data, researchers have rarely seriously considered the economic organisation of bribes and informal taxation (Olken 2007, Sanchez de la Sierra 2014). However, the handful of studies that exist are limited to explaining the behavior of individual state officials that interact directly with the private sector, taken in isolation from the network from where bribes usually emerge.

To fill this gap, the researchers propose to draw on the asset value of relationships that their research team has built with the police administration in DRC to collect systematic data on bribes by hundreds of street policemen, the network of informal payments that result from these bribes within the police administration up the hierarchy, the type of contracts and bidding processes that prevail between high- and low-ranking policemen for the assignment to the most valuable intersections, and traffic data. This work builds on a previous project from Titeca and Malukisa, who achieved unprecedented access to the police hierarchy in different Congolese towns but were only able to fund a limited data collection. In this project, a greater number of police agents are contacted, in order to achieve quantitatively more reliable data. Since it is practically not possible to have researchers continuously observing every monetary interaction of police agents, they will interview police agents three times a day on the collected financial resources. This will be done at different levels of the hierarchy. In addition to this, police agents will be asked to self-report on this. Finally, these data will be triangulated with other (formal) sources of data. For example, the Congolese taxation service DGRAD has data on taxes collected in police offices.

Informal taxes have a significant impact on private sector development. This is particularly the case for informal taxes by the traffic police. As transport of goods and trade are essential features in the functioning of markets, taxation practices of the traffic police agents involve a significant burden – both financially and time-wise, due to the lengthy negotiation – for private actors, contributing to the slow growth of the private sector. At the heart of these processes is an very well organised extortion organisation of the police sector in order to systematically extract rents from the private sector. The degree to which they are organised has important implications for the efficiency costs they generate, since disorganised competing bribe collectors do not internalize the distortions they generate on the private sector. A fundamental point that this study will make to policy makers is that current policy advice that focuses on the incentives of individual state officials taken in isolation (such as raising their wages) will largely be unsuccessful if they do not alter the market structure within the state administration in which they are embedded.

Authors

Raúl Sánchez de la Sierra

University of California Berkeley