Becoming Legible to the State: Impact on Tax Compliance in Liberia

• In Event: Formalizing the Relationship between Citizen and State: Experiments from Africa

Abstract

In many developing countries, limited state capacity to identify the tax base results in low rates of tax compliance. This paper examines citizens’ response to information on newly enhanced capacity of the state to identify them and detect their non-compliance. The setting is property taxes in Monrovia, Liberia, an environment with extremely low compliance. Using a new property database, the revenue authority contacted a randomly selected group of property owners with evidence that their non-compliance had been detected. A second group was informed of the penalties of non-compliance and a third group was given information on both detection and penalties. A control group was given only generic communication with information on neither detection or penalties. We find that receiving both the detection and penalty information made property owners three times as likely to register their property, and four times as likely to pay the tax, compared to the control group. Neither the information on detection or penalties on its own had a significant impact. Despite these stark differences, overall, only 10 percent of property owners registered their properties, suggesting that other factors beyond information on detection and penalties play an important role in the tax compliance decision.

Author

• Oyebola Okunogbe, World Bank Research Group