The Elasticity of tax compliance: Evidence from randomized tax rates
How does tax compliance vary with the size of the tax burden when opportunities for evasion are high? This paper estimates the elasticity of property tax compliance in a field experiment in Kananga, Democratic Republic of Congo, a setting where the status quo level of compliance is low. In collaboration with the provincial government, we randomly assign four tax rates on the household level as part of a door-to-door city-wide tax collection campaign covering 45,000 properties. Property owners face between 50 and 100% of their true liability. We find that when tax liability decreases by half, tax compliance increases by 88%, bribe payments decrease by 67% and informal taxation (in-kind labor payments) decreases by 25%. Endline data collection to shed light on mechanisms will conclude in January 2019. The findings contribute to knowledge about the determinants of tax compliance in weak states as well as the design of optimal liabilities and enforcement in such settings.