24 January 2010

On building effective states

The Charter Cities blog has a bit of an extended advert for Crown Agents discussion on experience in outsourcing customs administration.
"Outsourcing customs management to Crown Agents succeeded in dramatically increasing customs revenue. In Angola, revenue jumped more than 50% in the first year of operation (2001), doubled in two, and tripled by 2004, a time during which oil prices remained low and Angola lowered tariffs to meet GATT commitments. Mozambique saw a similar increase. In Bulgaria, revenues jumped 19% the quarter in which the Crown Agents-led teams began operation.
...
Countries can take on otherwise intractable institutional challenges when they invite the help of outsiders. In the case studies described here, countries leveraged external institutions to tackle corruption in the collection of customs. In so doing, the governments enhanced revenue streams and gave themselves additional capacity with which to address chronic underfunding of public investment or other obstacles to sustained economic development.
Great! Just make sure that you have the capacity to write a decent contract so you don't get ripped off, and then make sure that your new improved revenues don't create conflict over control of the State; as Acemoglu says in a new paper;
"Because the availability of more efficient means of taxation increases the potential benefits of controlling state power, it also intensifies costly political conflict aimed at capturing the control of the state. This indirect effect counteracts the benefits from more efficient taxation and may dominate the direct benefits."

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