All CDDRL Publications Working Paper

State of the Fiscal Contract in Lagos' Informal Settlements

Governments often have contentious relationships with residents of urban informal settlements. Motivated by the desire for rents and dreams of becoming the next luxury destination, city governments worldwide have forcefully evicted and demolished informal communities in this pursuit. In such instances it would seem that the state has broken the social contract with its most vulnerable citizens. How do citizens respond? We might expect them to reciprocate in kind, by withholding taxes owed to the government. Using a survey of citizens living in informal settlements across Lagos State in Nigeria, we explore what predicts citizens’ willingness to comply with government taxation. In this unlikely context for voluntary compliance, we observe that a third of respondents pay taxes and a majority are willing to pay absent enforcement. We find minimal support for standard theories of tax payment — trust in or reciprocity towards the government, or identification with the nation. Instead, we find that willingness to pay taxes is correlated with donating to the community, group membership, and believing that community members respect taxpayers. Our data suggest that local institutions and social relations may be important factors associated with citizens’ willingness to comply with tax policy.