This paper profiles and analyses informal taxes and transfer payments made by households in Rwanda, and considers their incidence, scale and distributional effects on household welfare levels and income distribution alongside formal, government-based taxes and transfers.
The work is divided into two main parts.
- The first part considers definitions of informal taxes and transfers and how these can be incorporated into fiscal incidence analysis in developing countries as put forward by the Commitment to Equity.
- The second part uses Rwandan household survey data to estimate the effect of informal taxes and transfers alongside official social protection and taxation policies. The scale of informal transfers is found to be very large – over 95% of households give and receive them. The scale of some informal taxes is also large. Overall, the combined effects of informal taxes and transfers are regressive, compared with a flat or slightly progressive effect of formal fiscal taxes and transfers.