How Does Knowledge of Public Good Provision Affect Tax Compliance?

Policy Context

The experiment is planned to take place in Nairobi, Kenya. The country’s tax system collects individual taxes at the national level by withholding the taxes from income. However, at the local/county government level, property taxes are not withheld from income and, thus, taxpayers must actively choose to pay all or some of their tax obligation. Often, they do not; property tax compliance is low (45% in Nairobi). Despite this, property tax revenue constitutes a significant portion of these local governments’ revenue. Local governments in Kenya play a large role in service delivery, so the reciprocal cycle of compliance and provision depends on property tax compliance.

Our project will study the role of perceived governance quality in motivating tax compliance and improving tax morale. Kenya represents a relatively inclusive institutional environment to study this effect. A follow-up project could study how this effect differs in a significantly different institutional setting.

Study Design

We are conducting a randomized experiment in which treatment groups will receive an SMS nudge that provides information about a recent and specific public good expenditure by the government along with a reminder to pay their taxes. Receiving concrete information about public provision is our proxy for increasing perceived governance quality. To further observe heterogeneity in this effect, we will have one treatment group that receives information about a local public good and one that receives information about a national public good. This distinction is meant to compare the effects of visibility (national public good) and proximity (local public good).

To collect the data, we will administer a survey in which subjects will answer questions pertaining to faith in government, quality of government, trust in government, etc. For the compliance data, we are pursuing cooperation with local governments in Kenya. Failing this, we will collect self-reported data via the survey and include manipulation checks to strengthen the reliability of the results.

Results and Policy Lessons

Results are forthcoming.