Those of us living in developed democracies should feel grateful every tax season. A state that doesn’t rely on popular taxation for its funds can be a very bad place to live. When used appropriately, taxes foster institution-building, transparency, accountability and most importantly perhaps, consent. Taxpayers can and often do demand their democratic governments show how their money is being used. On the other hand, oil revenues allow for a gap to emerge between the state and its populace; because the populace doesn’t fund the government, it has less reason to call for accountability in spending. There is no political need for the consent of constituencies in such places. Oil permits the state to avoid the political costs of voter opposition to taxation, as well as cultivate a population accustomed to low taxes and hostile to politicians who attempt tax hikes that would improve state robustness or democratic conditions. Ultimately, oil states are capital intensive enclaves that require a large investment to get the extraction started and then merely a modicum of rule to ensure uninterrupted flow.

Less than 10% of Nigeria’s annual budget is based on taxes and that is highly problematic. I vaguely recall reading somewhere that the vast majority of commerce of daily goods, something like 90%, is done on the informal market and therefore extremely difficult to tax.  I know that cash is king here, with people using boxes of paper naira to purchase homes and other big-ticket items. This leads to a question of causation: Are taxes impossible to collect because of the informal economy or does the informal economy make taxation impossible?