Marketing Taxation? Evidence on Enforcement and Bargaining in Malawian Markets

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

Abstract

In many low-income countries, including in sub-Saharan Africa, low tax revenues impede governments’ ability to deliver critical public goods and services to citizens. This in turn can feed into a vicious cycle of low tax compliance, where lack of services lowers tax morale and increases tax evasion, making services even more difficult to provide. However, there is limited experimental evidence on how best to improve tax compliance in developing countries, especially whether it is more effective to improve enforcement and tax collector incentives, or to seek quasi-voluntary compliance from taxpayers. This paper presents the results of a field experiment conducted in 128 markets in Malawi. We use a 2x2 factorial design to compare the effectiveness of improving enforcement vs. improving quasi-voluntary compliance. Each treatment arm consisted of a bundle of related interventions. The bottom-up intervention bundle, focused on improving quasi-voluntary compliance, included facilitating communication between market vendors and government; constructing new public goods in markets; and increasing transparency regarding revenue levels and spending. The enforcement bundle aimed to improve the local governments’ ability to collect, track, and manage market revenue collection. It included rolling out a mobile-based market fee payment system to make tracking fees easier, initiating monthly vendor counts in order to generate revenue targets, and using these targets to create an incentive scheme for tax collectors in order to improve effort and reduce corruption. We expect that the two treatments will be most effective in conjunction with one another.

Authors

• Lucy E. S. Martin, University of North Carolina, Chapel Hill

• Brigitte Seim, University of North Carolina-Chapel Hill