How the Communication of Deferred Enforcement Affects Compliance

• In Event: Bureaucracies

Abstract

The canonical deterrence paradigm states that compliance increases with pecuniary motivations affected by audit probability and sanctions. However, maintaining the deterrence level during severe economic crises in policy areas such as basic services (i.e., electricity and water) may be politically unfeasible in low- and middle-income countries (not to mention other normative considerations). Even in contexts of high state capacity, non-compliance with basic service fees is highly counter-cyclical. While lowering enforcement in the short run may secure broad access to services among those most severely hit by the crises, the future level of formal consumption may decrease. Lowering enforcement means that many users transit from a “client” status to a grey zone in which they accumulate large debts with the utility company. Ultimately, as the amount of debts increases many might feel forced to opting-out of the fiscal contract and to becoming long term informal users, involving theft and illegal forms of basic service access. This political economy logic suggests that economic crises induce a severe threat of growing informality in developing countries. We analyze whether the explicit institutional communication of non-enforcement during economic crises, signaling effort in maintaining the formal status of indebted service users, may counter this development and contribute to increase compliance.

The current global context of measures implemented to fight Covid-19 is forcing households across the Global South to stop paying for basic goods, such as electricity. Consequently, many households risk losing formal access to electricity. This has implications for reliable service access for individuals, while high levels of informal consumption also threaten sustainability of electricity systems as such. Through a randomized control trial we evaluate a recently introduced debt-installment policy by the public electricity company UTE in Uruguay on reducing electricity informality. In collaboration with the Uruguayan Government and the public electricity company, we have sent information treatments in the form of letters to non-poor households who accumulated debt during 2020. We test the effect of a policy reminder designed to raise awareness of the policy, combined with horizontal and vertical reciprocity treatments, on the likelihood that households remain formal consumers. We analyze the effect of different treatment arms using administrative data on individual payment behavior and original survey data, thus analyzing behavioral and attitudinal changes.

Our work has important implications for the politics of informality in developing countries. We explore how policies which promote the exact opposite logic of the deterrence paradigm may actually help to induce compliance.

Authors

• Santiago López-Cariboni, Universidad de la República

• Sarah Andrea Berens, University of Innsbruck

• Irene Menendez, IE University

• Armin von Schiller, Deutsches Institut für Entwicklungspolitik (DIE) - Hertie School of Governance