The Effect of Political Alignment on Revenue Bargaining and Performance in Mozambican Municipalities

Within the Second Generation Fiscal Federalism literature the question of how transfer systems may disincentive revenue mobilisation by local governments has received remarkable attention. Still, within countries there is a high amount of unexplained variance in revenue performance between municipalities facing the same legislative framework. In this paper, we propose a fiscal contractualism approach to understand this variance and analyse, using the case of Mozambique, whether and how political alignment affects municipal revenue performance as well as the predisposition of local governments to bargain with citizens. Based on a new and rich public finance database including 16 Mozambican municipalities, we develop a novel measure of municipal revenue performance. Furthermore, we analyse over 100 interviews with representatives of public administration, political institutions and civil society to understand the causal mechanisms linking political alignment with tax performance. We also analyse whether beyond a different fiscal behaviour, we can identify non-aligned municipalities to have a particular strategy of in approaching and bargaining with their citizens in order to build a local social contract. The results support the intuition that governments not aligned with the central government perform stronger in terms of revenue collection. Further, they also apply different strategies to increase tax performance and approach citizens. However, difficulties to engage in bargaining with the weak Mozambican civil society at the municipal level calls into question whether the different strategies do have a significant effect. The focus on Mozambique is particularly relevant because most of the studies in this field focus on OECD countries. From a revenue bargaining perspective, focusing on developing countries is however particularly interesting, because in developing countries, where state capacity tends to be weaker, bargaining and convincing taxpayers to voluntarily accept taxation appears to be a more promising avenue to increase revenue collection than forcing them into compliance.