The Carrot and the Stick: Evidence on Voluntary Tax Compliance from a Pilot Field Experiment in Rwanda

Abstract

Large-scale field experiments on tax compliance have been a thriving field of research in many regions of the world. However, Africa is still lagging behind, as administrative data from anonymised returns is available only in a handful of countries. To the best of our knowledge, there is as yet no published evidence of a tax field experiment from Africa. This paper reports the results of a pilot experiment in Rwanda that served as a stepping stone for a larger experimental study on tax compliance. In this pilot, we test the process of messaging taxpayers to encourage them to comply voluntarily, by providing information on sanctions. The results indicate that communication strategies that aim to inform taxpayers may be effective in increasing tax compliance. However, these results are only indicative. They will be complemented by further evidence from the larger field experiment, where we test different types of messages and delivery methods. Nonetheless, this paper provides some initial insight into the use of tax experiments in Africa, both in terms of initial evidence and lessons learned for future efforts in this field.

One Size Does Not Fit All: A Field Experiment on the Drivers of Tax Compliance and Delivery Methods in Rwanda

“…35 This is relevant to our 30 For more details on this and other challenges we encountered in the implementation of the experiment, see the report on the pilot to this study (Mascagni et al 2016b) and the summary of taxpayer feedback (Mukama et al 2017).…”

“…5 For this reason, many field TE that use letters in these countries require the assistance of tax officials, who often deliver them personally to taxpayers (Mascagni et al 2016b;Ortega and Scartascini 2016). Although we adopt the same solution in this study, we recognise that it has at least three drawbacks.…”

“…For example, in 2015-16 it audited less than 300 taxpayers (Mascagni et al 2016b To explore this hypothesis (and others) in more detail, we test it separately for relevant subgroups (see Section 1.6). We are especially interested to explore differences in taxpayers' reactions to various contents across the size distribution.…”

“…However, like in many other low-income countries, the taxpayer registry in Rwanda is often incomplete and out-dated, presenting an obvious challenge in reaching taxpayers based on the information contained there. Since this issue was identified as a key challenge in the pilot study for this experiment (Mascagni et al 2016b), 23 we could take it into account at the research design stage. Our pragmatic solution to this challenge was to restrict the sample in 19 In the remainder of this paper, we will use the short 'SMS' instead of 'SMS sent twice', even if all SMS were indeed sent twice during the filing period.…”

From the Lab to the Field: A Review of Tax Experiments

“…As such, this experiment was preceded by a pilot. Results and lessons learned from the pilot are available as a separate paper (Mascagni et al ., ).…”