Public Service Provision and the Virtuous Circle: Evidence from Malawi

• In Event: Securing State Reform in Fragile States

Abstract

Can a shock to public service provision improve citizens’ tax compliance? A common model of state capacity development through taxation works as follows: tax revenue generates funding for states to provide public goods and services to their citizens, and citizens comply with paying taxes when states provide sufficient levels of public goods and services, conditional on other citizens also paying their taxes. This virtuous circle creates an optimal equilibrium that allows the state to govern. Yet, as the models suggests, there is also a vicious version of the circle, where citizens do not pay taxes; states do not generate revenue and cannot provide public goods and services; and citizens continue to not pay taxes. Under this suboptimal equilibrium, states cannot deliver on their governing and service provision mandates. We study whether a shock to public service provision in a major city in Malawi induced citizens to pay taxes, shifting the relationship between the city and its citizens from a vicious circle to the virtuous circle. We use administrative data to study property tax payments after the provision of new waste collection services, and we use a public goods game to measure citizens’ willingness to pay for other government services after receiving the new waste collection services.

Authors

• Nuole Chen

• Boniface Madalitso Dulani

• Matthew S. Winters, University of Illinois at Urbana-Champaign