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Working Paper 290 - Building Fiscal Capacity The role of ICT
Limited fiscal capacity poses a significant challenge in developing countries. To mitigate this challenge, the adoption of electronic tax systems has been at the forefront of tax reforms by many developing countries; however, there is little systematic empirical evidence on the impact of such reforms. We attempt to narrow this gap by documenting evidence from Ethiopia where there has been a recent surge in the use of electronic sales registry machines (ESRMs). Using administrative data covering all business taxpayers, we find that ESRM use resulted in significant increases in reported sales and tax payments. Moreover, we find a positive effect on employment and no effect on net entry, suggesting that increased tax payments by registered taxpayers occurred without erosion of the tax base.