Media Briefings

E-GOVERNMENT IS GOOD FOR BUSINESS IN DEVELOPING COUNTRIES

  • Published Date: April 2017

New electronic systems need institutional support – but they can cut red tape and bribery

Electronic government systems (e-government) cut the cost to businesses of filing a tax return and help businesses grow, increase the likelihood that firms will tender for public contracts and make it less likely they will pay a bribe. These are among the findings of a cross-country study by Anna Kochanova, Zahid Hasnain and Bradley Larson, to be presented at the Royal Economic Society's annual conference at the University of Bristol in April 2017.

Using data from the Global e-Government Systems Database, the authors investigate the impact of two supposed benefits of e-government:

• e-filing: being able to file tax returns electronically decreases the time to prepare and pay taxes by 12% on average if there is a payment option; e-filing also decreases the likelihood of being visited by tax inspectors by about 5%, and decreases the perception that tax bureaucracy is an obstacle to growth.

• e-procurement: this increases the propensity of firms to apply for public tenders, and decreases the likelihood that firms are expected or requested to pay bribes to secure a government contract.

The authors warn that these benefits vary according to the strength of a country’s institutions and the level of service offered: ‘Structural and institutional reforms must therefore accompany investments in e-government, especially in lower-income countries, if benefits are to be realised.’

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The payment and collection of taxes and public procurement are often associated with significant difficulties in developing countries, which result in misallocation of resources, undermining investments and economic development.

Over the last two decades, many countries have heavily invested in various types of electronic government (e-government) systems to improve the delivery of services to citizens, tax collection and public procurement. The World Bank, for example, encourages developing countries to perform such investments and in many cases helps them to implement e-government systems. But the returns on these investments have not been carefully explored yet.

This study conducts a cross-country empirical analysis to assess some of the returns on investments in e-government systems. The authors use data on e-government adoption dates from the Global e-Government Systems Database, and focus on two specific aspects of e-government: electronic filing and payment of taxes (e-filing) and electronic public procurement (e-procurement).

They show that e-government can substantially improve government capacity, but the estimated effects often vary by countries’ economic and institutional context and the functionality of e-government systems they adopt.

In particular, the authors find that the implementation of e-filing systems significantly reduces tax compliance costs of businesses, improving the business climate and making tax collection more efficient. For example, the adoption of e-filing systems with advanced e-payment functionality decreases the time to prepare and pay taxes by 12% on average, while the adoption of simpler on-line tax filing systems does not have any effect.

The implementation of e-filing systems also decreases the likelihood of being visited by tax inspectors by about 5% and the number of such visits by 6 to 11%. Moreover, the adoption of e-filing systems decreases the perception of tax administration being an obstacle to firm operation and growth.

The authors also show that the adoption of e-procurement systems improves public procurement competitiveness. In particular, it increases the propensity of firms to apply for public tenders, and decreases the likelihood that firms are expected or requested to pay bribes to secure a government contract.

This happens, however, mostly in countries that are more technologically and economically developed, and have better institutions. Structural and institutional reforms must therefore accompany investments in e-government, especially in lower-income countries, if benefits are to be realised.

ENDS


Does e-government improve government capacity? Evidence from tax compliance costs and public procurement competitiveness

Contacts:
Anna Kochanova: kochanova@coll.mpg.de
Zahid Hasnain: zhasnain@worldbank.org
Bradley Larson: blarson@worldbank.org