The Impact of Technology in Strengthening State Capacity to Collect Taxes in Ethiopia

State capacity to mobilize fiscal resources is accredited as being important to development. Creation of fiscal capacity entails investment in state structure to properly monitor and administer tax collection. Recent literature has given more emphasis on the political motives of the state as an important determinant of investment in fiscal capacity (Besley and Persson, 2012). The incentive of political elites to invest in fiscal capacity will decline if the cost is very high and they expect fewer returns in the future (Acemoglu, 2005). However, technological innovation could provide a platform where the cost of investment in fiscal capacity can be reduced substantially and fiscal resources can be mobilized efficiently.This study investigates empirically the impact of technology in building an effective and accountable tax system in Ethiopia by looking at the impact of the introduction of electronic sales registration machinery (ESRM) on revenue collection in businesses in Ethiopia. The study uses quasi-experimental impact evaluation techniques using administrative data from the Ethiopian Revenue and Customs Authority.