Co-financing community-driven development through informal taxation: Evidence from south-central Somalia

Community contributions are often required as part of community-driven development programs, with contributions encouraged through matching grants. However, little remains known about the impact of matching grants or the implications of requiring community contributions—also known as informal taxation. We explore this research gap through a randomized control trial of a matching grant program in Gedo region in south-central Somalia. We find that matching grants can increase informal taxation and serve as an effective means of delivering public goods. Moreover, we find that the program strengthened local government legitimacy, despite the local government playing no direct role in the program. These findings deepen our understanding of how matching grants may contribute to community-driven development in a context of weak institutional capacity, while pointing to potential complementarities between state and non-state actors in governance and service provision, formal and informal institutions, and formal and informal taxation.