Kinship taxation as a constraint on microenterprise growth

Developing country entrepreneurs face family pressure to share income. This pressure, a kinship tax, can distort capital allocations. I combine evidence from a lab experiment—which allows me to estimate an individual-level sufficient statistic for the distortion—with data I collected on a sample of Kenyan entrepreneurs, to quantify the importance of the tax. My data reveal high kinship tax rates for a third of entrepreneurs in my sample. My quantitative analysis makes use of a simple structural model of input allocation fitted to my data, and implies that removing distortions from kinship taxation would increase total factor productivity, and increase the share of inputs used in the largest firms. These effects are substantially larger than those coming from credit market distortions, which I estimate using a cash transfer RCT. My analysis also implies strong complementarities between kinship taxation and credit constraints.