Trust in institutions and perceptions of the tax system among informally employed people 6 TRUST IN INSTITUTIONS AND PERCEPTIONS OF THE TAX SYSTEM AMONG INFORMALLY EMPLOYED PEOPLE Armin von Schiller 6.1 INTRODUCTION Getting to grips with citizen–state relations is an important part of any attempt to understand how states function. Any expansion of health and social protection systems requires social and political support as well as funding. It is thus crucial to understand what broad sectors of society expect from government in order to support this expansion. It is just as important to discuss the scope for economically efficient and socially fair funding reform. Many observers perceive financing as the main constraint on extending and deepening social protection systems in low- and middle-income countries(for example, Barrientos 2008). Variability is high among such countries, and reliable and comparable data is lacking. It is safe to say nevertheless that most of the relevant systems are underfinanced and poorly developed. In most cases, the bulk of the funding is generated domestically, predominantly through taxes and social insurance contributions, but in some areas the role of external donors is crucial(Niño-Zarazúa et al. 2012). been particularly vulnerable to the impact of the pandemic precisely because of their position outside formal regulatory structures. As a consequence of the nature of their relations with the state, informal workers have often not benefited from programmes and measures launched to fight the im­pact of the virus because they were invisible to the channels employed to channel that support and relief measures(Gal­lien and van der Boogard 2021; Strupat, Chapter V). The vision of more comprehensive health and social protection systems that benefit also the informally employed is widely shared. Agreeing and implementing the necessary reforms to make this vision a reality represents a challenge that requires acknowledging and potentially reshaping citizens’ vertical relations with the state and also the horizontal relationships between citizens. In a scenario characterized by more com­prehensive health and social protection systems the state will need to play a role. As a result, any strategy to expand the health and social protection systems requires thinking carefully about how the relationship between the informally employed and state institutions is perceived and defined. The question of how the informally employed perceive the state and tax systems is crucial in this context. Depending on the definition, informal workers make up over 60 per cent of global employment and more than 85 per cent in sub-Sa­haran Africa and South Asia(ILO 2018). 1 One very common narrative suggests that the informal economy is the main obstacle to domestic revenue mobilization in Africa. This narrative has been questioned by many who indicate that, for instance, the contribution of the informally employed is heavily underestimated(for example, Meagher 2016). Moore(2020) even goes as far as portraying this narrative as »diversionary«, wrongly distracting attention from the real sources of uncollected revenues, which he identifies as rather low tax contributions by the wealthy and the predominance of ineffective tax exemptions(Moore 2020). The account of the contributions made by informal workers might be more positive if we took into consideration the fact that commonly they do not benefit from many state ser­vices. This dynamic has been even more clearly shown in the context of the Covid-19 pandemic. Informal workers have Moreover, funding constraints will remain significant. Low­and middle-income countries need to increase their domestic revenues in order to afford the expansion of their health and social protection systems. 2 Social insurance contributions are an alternative way of financing this expansion and will need to play a role as well. However, social insurance has its limits, especially to expand coverage to low-income groups who might simply be too poor to pay for their own social protection. The poorest of the poor can be reached only through tax-financed approaches(Bastagli 2013; Bonnet, Chapter IV). In addition, convincing(or forcing) the wealthier to pay more and to redistribute is politically complex and administratively demanding(Berens and von Schiller 2017). As a result, the challenge to develop more comprehensive health and social protection systems is not just technical in nature, but political and social. Finding the scope for a reform in this direction requires changes in the predominant fiscal contracts in these countries, understood as an implicit agreement in a society defining how much its members can expect to benefit from state action and how much they are 1 See definition used in our survey in Chapter 9. 2 See for instance the connected discussion on implementing the SDGs (Gaspar et al. 2019): sustaining increases in tax-to-GDP ratios over time is considered essential for achieving them. 49