February 19, 2016
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Posted by NCID

Munir Squires from the London School of Economics presented his paper “Kinship Taxation as a Constraint to Microenterprise Growth: Experimental Evidence from Kenya” at the University of Navarra as part of the Navarra Center for International Development's Seminar Series.

“In poor countries a lot of the labor force works in very small firms. What is puzzling about this is that these firms have actually quite high returns”, said Munir in the beginning of the presentation. Furthermore, some studies, as he explained, show that these returns are rarely reinvested in the firms towards growth.

Squires identified two main constraints to microenterprise growth: credit constrain and kinship taxation. The first constraint focuses on how microcredit loans have low returns and the latter, kinship taxation, states that the pressure from relatives and friends to share income stifles reinvestment.

“My research question is: To what extent does kinship taxation constrain growth of microenterprises?” said the researcher.

His study combines evidence from a lab experiment with data collected on a sample of Kenyan entrepreneurs from 17 villages across Garissa County. In order to answer the central question, participants were offered to receive one amount of money publicly, or a smaller amount in order to receive it privately. Of the 1805 participants, 423 the 23% chose to pay to hide. The study also showed that women get a little less pressure from kinship tax and that having more siblings resulted a higher kinship taxation rate.

According to Squires, his research has three main contributions to the field and the related literature: The study addresses and defines what is kinship taxation, secondly it quantifies the economic cost and distortion stemming from kinship taxation, and lastly he contextualized this with the issue credit constraints on small firms in developing countries.

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