Working Paper 122
Economic development is linked with increased state capacity including the ability to mobilise domestic tax resources. For many developing countries, high levels of informality are a major constraint in this regard.
Yet, economic incentives like changing the tax rate or increasing the filling and audit rate can be ineffective in a highly informal economic structure. In this paper, we explore possible roles for behavioural interventions such as sharing information about peers’ tax behaviour to engineer higher tax compliance.
Based on an artefactual field experiment among own account workers in Nigeria, we find that information interventions can play an important role in ensuring tax compliance. Specifically, targeting information around what people can directly observe can be a way to improve tax compliance.
Providing information on punishment or good practices that appeal to feelings of morality yields higher tax compliance.