The promise of microfinance and women's empowerment: what does the evidence say?

The microfinance revolution has transformed access to financial services for low-income populations worldwide. As a result, it has become one of the most talked-about innovations in global development in recent decades. However, its expansion has not been without controversy. While many hailed it as a way to end world poverty and promote female empowerment, others condemned it as a disaster for the poor. Female empowerment has often been seen as one of the key promises of the industry. In part, this is based on the fact that more than 80% of its poorest clients, i.e., those who live on less than $1.25/day, are women. This paper discusses what we have learned so far about the potential and limits of microfinance and how insights from research and practice can help inform the industry's current products, policies and future developments

Wirtschaftswissenschaft im Dienste der Armen : Ökonomen propagieren neue Evaluationsmethoden in der Entwicklungshilfe

Die Entwicklungshilfe steht gegenwärtig häufig in der Kritik. Eine junge Forschungsrichtung in der Ökonomie sucht mit wissenschaftlich sehr präzisen Methoden zu zeigen, welche Hilfsprojekte wirklich wirksam sind. Die Resultate sind bisweilen überraschend

Nobelpreis für Angus Deaton : ein findiger Vermesser der Ökonomie

Der Wirtschaftsforscher Angus Deaton hat die Entwicklungsökonomie geprägt. Dank seinen bahnbrechenden Beiträgen konnte dokumentiert werden, wie sich über die Zeit der Wohlstand in der Welt erhöht hat

Raising money for the state: Lessons on reducing tax evasion from Chile and Ecuador

No state can exist in the long term without effective taxation. To be able to execute its various roles, the state needs to acquire the capacity to enforce compliance with tax obligations. Taxation is particularly challenging in developing countries, since it is difficult for the governments to gain information about what taxable transactions occur in more informal economies. This does not only lead to large losses in government revenue, it can also create negative distortions in the economy. The pressing need to tackle tax evasion has led to growing interest in ‘third-party reporting’ – the verification of taxpayer reports against other sources. This policy brief explores the potential of such an approach to improve tax collection – as well as its limitations. Evidence from Chile shows how the value-added tax (VAT) can facilitate tax enforcement by generating paper trails on transactions between firms. But third-party information is not a miracle cure against evasion. Its effectiveness can be severely reduced if the government's enforcement capacity is low or if taxpayers can make offsetting adjustments on other margins for which third-party information is not available, as a study from Ecuador shows

Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile

Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that the inability to save contributes to this indebtedness. Access to free savings accounts substantially decreases participants' propensity to use short-term credit. In addition, participants who experience an economic shock have less need to reduce consumption, and subjective well-being improves significantly. Precautionary savings and credit therefore act as substitutes in providing self-insurance, and participants prefer saving more when given the choice. Take-up patterns suggest that requests by others for participants to share their resources are a key obstacle to saving

Randomized tax enforcement massages : a policy tool for improving audit strategies

Reducing tax evasion is a key challenge for governments around the world, particularly in developing countries. This paper presents a methodology to generate information to optimize audit strategies. Randomly selected taxpayers receive a deterrence message. Comparing their subsequent tax payments to a control group allows estimating what types of taxpayers are more likely to respond to an increase in perceived audit probability. This information can be used to target audits toward taxpayers that respond particularly strongly, and to construct risk indicators to predict taxpayers’ responses. We show results from an application in Chile and describe lessons learned during the implementation

Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device

We test the effectiveness of self-help peer groups as a commitment device for precautionary savings, through two randomized field experiments among 2,687 Chilean micro-entrepreneurs. The first experiment finds that self-help peer groups are a powerful tool to increase savings (the number of deposits grows 3.7-fold and the average savings balance almost doubles). In contrast, a more classical measure, a substantially increased interest rate, has no effect for most participants. A second experiment tests an alternative delivery mechanism and shows that effects of similar size can be achieved by holding people accountable through feedback text messages, without meetings or peer pressure

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

Reducing tax evasion is a key priority for many governments, particularly in developing countries. A growing literature has argued that the ability to verify taxpayer self-reports against reports from third parties is critical for modern tax enforcement and the growth of state capacity. However, there may be limits to the effectiveness of third-party information if taxpayers can make offsetting adjustments on less verifiable margins. We present a simple framework to demonstrate the conditions under which this will occur and provide strong empirical evidence for such behavior by exploiting a natural experiment in Ecuador. We find that when firms are notified by the tax authority about detected revenue discrepancies on previously filed corporate income tax returns, they increase reported revenues, matching the third-party estimate when provided. Firms also increase reported costs by 96 cents for every dollar of revenue adjustment, resulting in minor increases in total tax collection

No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax

Tax evasion generates billions of dollars of losses in government revenue and creates large distortions, especially in developing countries. A growing, mostly theoretical literature argues that information flows are central to understanding effective taxation. This paper analyzes the role of information for tax enforcement in the case of the Value Added Tax (VAT) through two randomized field experiments with over 400 thousand Chilean firms. Claims that the VAT facilitates tax enforcement by generating a paper trail on transactions between firms have led to widespread VAT adoption worldwide, but there is surprisingly little evidence. I find that the paper trail acts as a substitute to a firm's own audit risk. A message announcing increased tax enforcement has a much smaller effect on reporting of transactions that are already covered by a paper trail. A second experiment shows that the paper trail leads to spillovers that create important multiplier effects in tax enforcement. The impact of a random audit announcement is transmitted up the VAT chain, increasing compliance by firms' suppliers. These findings confirm that when evasion is taken into account, significant differences emerge between taxes that are equivalent in standard models but generate different information on taxable transactions