Measuring the Effect of Technological Improvements and Compliance Nudges on Property Taxes

Project summary

Evidence from a field experiment in Senegal

Issue:

Rapid urbanization and the growth of real estate developments in low-income countries has increased the potential of property tax as a source of untapped domestic resource mobilization. Unfortunately, in most developing countries, property tax revenue remains only a small percentage of domestic revenue. This gap relates in part to inefficient management of property ownership registries and the lack of credible threat of enforcement.

Questions:

• How can the introduction of new property tax management software (including a fiscal cadaster to identify parcels and collect information on the tax base, as well as backoffice operations) affect the work and effort of tax inspectors?
• Can compliance-focused messages issued to taxpayers, explaining the presence of the modernized system, the possibility of fines and penalties for non-payment, and the use of revenues for public goods and services affect property tax compliance?
• Which combination of these approaches cost-effectively yield sustained improvements to compliance and revenue collection?

Abstract:

Property taxes are levied for local governments and often represent an important component in their budgets. As such, they play a crucial role in the face of increasing needs for public services in rapidly growing cities. In the context of developing countries, with cadaster shortcomings, weak administrative information and IT systems and poor enforcement tools, most local governments experience substantial shortfalls in property tax revenue. In collaboration with Senegal’s Directorate General of Taxes and Domains (Direction Générale des Impôts et des Domaines), this project aims at improving property tax collections by intervening on two of these specific deficiencies: 1) by introducing a software solution to modernize the property tax administration information system and 2) by distributing compliance messages to taxpayers, thereby testing both the deterrence and the reciprocity channel. This project will yield insights that RCTs on taxation are yet to address. It will outline potential complementarities between technological improvements of administrative efficiency and monitoring as well as compliance measures directed at taxpayers. We also aim at highlighting the links between citizens’ perception of governance and voluntary tax compliance.