Sanjeev Gupta, Michael Keen, Alpa Shah, and Geneviève Verdier
In Kenya, people can pay their taxes on their mobile phones. In India, they receive subsidies and welfare payments directly into their bank accounts, which are linked to unique biometric identifiers. In several advanced and emerging market economies, tax authorities collect information on sales and wages in real time, which gives them immediate insight into the state of the economy. Public finance, like so much else, is undergoing a digital revolution.
Public finance is the art of raising and spending money to deliver services and benefits, redistributing income, and smoothing the ups and downs of the business cycle. How effectively governments do these things depends crucially on their ability to collect, process, and act on a vast array of information: how much companies and workers earn, how many people are unemployed, who qualifies for government benefits.
Digitalization is starting to reshape this informational core of the way tax and spending policies are designed and carried out. It offers tools not only to improve the effectiveness of existing policies but also to introduce entirely new ones. But there’s a dark side: digitalization has intensified concerns about privacy, confidentiality, and cybersecurity while adding to the larger debate over inequality and redistribution.