Working Paper

Local Authorities and Tax Collection: Experimental Evidence from Tanzania

Property tax is a potential revenue source in developing countries but contributes little to total tax revenue. Evidence indicates that property tax contributes on average less than 1% of GDP in developing countries and below 0.5% of GDP for African countries. This situation is no different in Tanzania than in other developing countries. Although many studies have examined the use of text messages reminders to influence tax compliance, we employed an RCT strategy to study the additional effect of involvement of local authorities to increase compliance with payment of property taxes. Participants were randomly allocated to three treatment arms and a control group using a big-stick randomization method which led to a final sample of 668 local government leaders and 21,328 taxpayers. The first treatment arm involved text messages reminders with a threat of fines, and the second arm combined the first-arm treatment with an additional threat to involve local leaders in the tax-collection process. The third arm combined the first-arm treatment with an appeal from local leaders for help in increasing tax compliance. Results indicate that, in all treatment arms, regression coefficients show positive impact and are significant at 1%. Furthermore, when the coefficient of the first treatment are compared to the third treatment, the coefficient of the third treatment arm revealed a 2.2 percentage-point increase in payment for all taxpayers. These results suggest that the involvement of local government leaders triggered an additional effect in compliance relative to the standard text messages reminder alone.