The Origins of Tax Compliance and Accountable Governance: A Randomized Field Experiment in the DR Congo

En Español

Background

Low rates of participation in the formal state sector are an impediment to good governance and economic development in many countries in Africa and elsewhere in the developing world. Governments struggle to levy taxes and administer public goods and programs among informal economic actors about whom knowledge is scarce. This evaluation will advance knowledge about how low-capacity states in developing countries can increase the tax base. Although Kananga is the 4th largest city in the D.R. Congo, very few urban plots have official legal title. In the context of Kananga, this low rate of formalization reflects the fact that the current procedure for obtaining legal title is difficult and costly. As a result, official legal title remains rare.

Intervention Date: July 2017 – August 2018

Research Design

We propose three interventions to improve formal participation and tax compliance: (1) providing citizens subsidized access to formal property titles; (2) collecting property taxes through local bureaucrats compared to centralized collectors deployed by the provincial ministry; and (3) offering property tax discounts of varying levels to households.

The first intervention studies how citizens value formal property titling and whether this impacts tax compliance. The second intervention evaluates whether tax collection is more cost-effective when conducted by actors with local knowledge, compared to centralized collection, which may be more costly but easier to monitor. The third intervention will elicit some of the first estimates the elasticity of tax compliance with respect to the tax rate, a measure of how many citizens comply with tax payment depending on the amount of liability.

The unit of randomization for the taxation treatments is the polygon. There are 361 polygons in the map of Kananga, which will be randomly assigned to the direct tax collection arm, in which tax ministry collectors will be charged with property tax collection; the indirect tax collection arm, in which local avenue chiefs will be charged with this task; or the control arm, in which citizens are expected to visit a local bank to pay the taxes due on their property. In contrast to these three treatment arms, which vary on the polygon level, the subsidized access to formal land titling and tax rate coupons will be cross-randomized at the household level.

Hypotheses

• H1: Our treatment subsidizing access to formal land titles will (on average) increase the rate of receiving formal land titles. This hypothesis is based on the fact that the treatment intervention—which reduces barriers to access to formal titles by providing enumerator-completed property assessments, help filling out forms, and subsidies to complete the titling process—will alleviate constraints that prevent take-up of formal titles in the status quo.
• H2: Individual induced by the treatment to acquire formal land titles will increase (on average) their rate of property tax payment as they will place greater value on the public services provided by formal property recognition and be willing to contribute more in taxes.
• H3: We expect both taxation interventions to increase property tax payment compared to the status quo method of collection. Visits by central government officials should motivate taxpayers to be more likely to pay given that the visits will change the perceived probability of detection for non-compliance and reduce logistical barriers to completing payment, including removing the transportation and time costs associated with visiting local banks to complete payment.
• H4: We hypothesize that the local form of tax collection administered by chefs d’avenue will increase tax payment more than the collection administered by collectors deployed by the provincial tax ministry.
• H5: The land-titling program intervention and the tax intervention will boost political participation. We expect this because individuals might update about the quality of the government due to the program and thus seek other fruits of engagement with the government.: Individual induced by the treatment to acquire formal land titles will increase (on average) their rate of property tax payment as they will place greater value on the public services provided by formal property recognition and be willing to contribute more in taxes.

Findings