Does Taxing Mobile Money Harm the Poor: Evidence From the 10 Per Cent Excise Fee Introduction in Kenya

Abstract

Mobile money has been a key innovation in Africa that has increased the financial resilience of vulnerable households by providing an easy way to send and receive remittances. While recent literature has focused on the link between mobile money and its function as a social protection mechanism for the vulnerable population, less is known about the extent to which the costs of using the service affect the transaction behaviour of these people. By exploiting anatural experiment in the form of an excise fee that was imposed on mobile-money transactions in Kenya, this paper estimates the differential effect of a price hike in mobile-money transaction fees on transaction behaviour of households with a daily income below 1.25 USD and households above this threshold. The study finds that households with an income below 1.25 USD reduced their monthly mobile-money transactions volume by 25 per cent compared to households above this threshold. Additionally, the paper finds suggestive evidence that the tax also led to a relative reduction in mobile-money remittances received by households below an income of 1.25 USD. The loss in received remittances was not substituted by an increase in remittances sent by cash or in-kind.