Be Smart About South Africa

A Community in Somalia Shows How the Informal Sector can Fund Service Delivery

The citizens of volatile regions often play an outsize role in directly financing essential public goods and services. Little is known, however, about how informal revenue generation works in practice and the implications it may have for both development and state building. To better understand informal public finance in fragile contexts, we conducted two pieces of research in Gedo in southern Somalia, where the state taxation system is extremely weak. We found that most households step in to fund public services through community-based informal taxes. Our evidence also suggests that external actors can build on this informal financing to improve public goods provision, without necessarily undermining the state’s authority. Working directly with citizens and community leaders can be an effective way of delivering services in difficult contexts. It can also help to strengthen and build government capacity at the local level.


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