(iPoster) Unlocking Tax Compliance: The Role of Enforcement and Religious Appeals

• In Event: Poster Sessions: Constitutional Law and Jurisprudence; Policy Challenges and Innovations; & Institutional Constraints and Government Performance in Multilevel Systems
  In Poster Session: Poster Session: Policy Challenges and Innovations

Abstract

Through the digitization of tax systems, recent tax reforms promised substantial revenue gains for local governments across low-income settings. Yet, despite important benefits, these reforms have mostly failed to curb widespread tax evasion, thus failing short of their newly created revenue potential.

We conduct a field experiment within a property tax reform in Sierra Leone to test two hypotheses on converting digital tax tools into compliance. First, rather than marginally boosting general perceptions of enforcement among taxpayers, governments must implement targeted tax enforcement itself. Second, enforcement can be complemented by leveraging local social structures that shape taxpayers’ behavior. We test these through two interventions. The first is an enforcement program involving enforcement notices, court hearings chaired by traditional chiefs, and penalties implemented by the local government. The second is a public campaign where religious authorities motivated taxpayers to comply with the tax through direct door-to-door visits using normative appeals and references to religious scripture.

We exploit variation in geographic treatment saturation to evaluate spillovers across geographic networks, through a re-centered instrumental variable approach. We then build religious networks in the city combining our survey and administrative data with random forest classification algorithms and evaluate similar spillovers across religious networks.

We find that enforcement action increases the compliance rate by 53.4 p.p. This is 16 times the average effect in the main literature on compliance. The visits by religious leaders increased compliance by 4.9 p.p. Both interventions cause spillovers from treated property owners towards their neighbors, but do not cause spillovers across religious peers. Finally, survey data on over 6,000 property owners suggests substantive improvements in taxpayers perceived credibility of enforcement and peer compliance, willingness to comply with the tax, and perceived legitimacy of local government.

Authors

• Pablo Moises Guzman Lizardo, Stanford Graduate School of Business

• Niccolò Francesco Meriggi

• Wilson Prichard, University of Toronto