Inter-American Development Bank
facebook
twitter
youtube
linkedin
instagram
Abierto al públicoBeyond BordersCaribbean Development TrendsCiudades SosteniblesEnergía para el FuturoEnfoque EducaciónFactor TrabajoGente SaludableGestión fiscalGobernarteIdeas MatterIdeas que CuentanIdeaçãoImpactoIndustrias CreativasLa Maleta AbiertaMoviliblogMás Allá de las FronterasNegocios SosteniblesPrimeros PasosPuntos sobre la iSeguridad CiudadanaSostenibilidadVolvamos a la fuente¿Y si hablamos de igualdad?Home
Citizen Security and Justice Creative Industries Development Effectiveness Early Childhood Development Education Energy Envirnment. Climate Change and Safeguards Fiscal policy and management Gender and Diversity Health Labor and pensions Open Knowledge Public management Science, Technology and Innovation  Trade and Regional Integration Urban Development and Housing Water and Sanitation
  • Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Ideas Matter

  • HOME
  • CATEGORIES
    • Behavioral Economics
    • Environment and Climate Change
    • Macroeconomics and Finance
    • Microeconomics and Competitiveness
    • Politics and Institutions
    • Social Issues
  • Authors
  • Spanish

Raising Tax Revenues on a Tight Budget: A Field Experiment in the Pampas

July 30, 2015 by John Dunn Smith Leave a Comment


Policymakers may have big plans like extending a highway or starting a new social assistance program. Then again, they may have more modest plans such as meeting payrolls or maintaining existing infrastructure and levels of service. Realizing any of those plans requires a dependable stream of revenue, usually including taxes on individuals’ income and property. In an ideal world all would pay their taxes in full and on time.

The world as we know it, though, falls far short of ideal. As shown by the experience of much of the developing world, and the current Greek crisis, a large share of revenues go uncollected due to low tax morale—a culture of widespread underpayment or even non-payment of taxes. This reduces governments’ ability to provide services and meet obligations, and it can even weaken countries’ negotiating position with creditors.

Since no government has the capacity to collect all taxes and punish all tax evaders, a second best option is to improve tax morale using available resources.  But how?

Relatively little research on this question has been undertaken so far in Latin America and the Caribbean, but Carlos Scartascini of the IDB Research Department and Lucio Castro of CIPPEC have found one possible answer. With the cooperation of authorities in the Municipality of Junín, a midsized and largely urbanized district in the north of Argentina’s Buenos Aires Province, these researchers conducted an experiment involving one 2011 bimonthly bill for a property-based tax that pays for services such as street lighting, trash collection and street cleaning. The control group, consisting of most of the municipality’s taxpayers, received a standard tax bill, while three treatment groups received tax bills with messages intended to increase compliance.

The first message, emphasizing deterrence, provided an example of the cost of noncompliance by showing the cost of a hypothetical unpaid debt of AR$ 1,000 after a year, including interest and penalties. The message also warned that the municipality would take administrative and legal steps in case of noncompliance. An image of a gavel was included to reinforce the message.

A second message, emphasizing reciprocity, featured information on how the Municipality used its revenues, particularly the number of streetlights and the number of water and sewerage connections installed in the previous six months. The message was accompanied by an image of a “men at work” sign.

FOTO BLOG JOHN

A third message focusing on peer effects  discussed levels of compliance, asking whether the taxpayer was aware that only three out of 10 taxpayers did not pay their tax liabilities. It then added a sentence directly questioning the taxpayer: “What about you?” This message was illustrated with an image of seven larger figures, representing taxpayers who have paid over time, and three smaller ones, representing those who have never paid.

Only one of these messages made an overall difference in taxpayer behavior. Among the group that received the deterrence message, tax compliance increased by more than 4 percentage points. This change is particularly notable considering that some individuals may not have seen the message, possibly ignoring their bills altogether. The fairness and equity messages, on the other hand, made no significant difference on average.

Within those larger trends, though, not all taxpayers reacted to the messages in the same way. Most notably, taxpayers with multiple and/or larger properties are less likely to comply than their counterparts with smaller holdings. There is no definite explanation for this pattern, but it obviously poses a challenge to local officials in terms of both uncollected revenue and the example set for other taxpayers. This represents an especially important consideration in countries of the developing world, where trust in government and other institutions is chronically low.

A single short-term study can provide only a limited amount of information. The researchers could not, for instance, learn whether the short-term spike in compliance translated into long-term changes in behavior. Other unanswered questions include whether a measure of this type could successfully be scaled up to the provincial or national level, or what messages might prove most effective in other places and for other types of tax. Further research will be needed to obtain additional data that can be analyzed to design and implement policy measures.

Still, a long journey is made up of single steps, and this represents a necessary step in finding out how to collect the taxes in Latin America and the Caribbean that allow governments to provide important services and provide a setting in which countries can realize their development potential.

 


Filed Under: #EvalYear, Behavioral Economics, Microeconomics and Competitiveness Tagged With: #BehavioralEconomics

John Dunn Smith

Dunn Smith es editor asistente del Departamento de Investigación del BID

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Follow Us

Subscribe

Search

Related posts

  • Behavioral Economics for Better Public Policies
  • The Do’s and Don’ts of “Nudging”
  • Rewards Help Tax Payments Become "Contagious"
  • When It Comes to Taxes, Gender Matters
  • How Behavioral Economics Boosted Tax Compliance in the Dominican Republic

About this blog

The blog of the IDB's Research Department shares ideas that matter on public policy and development in Latin America and the Caribbean.

Footer

Banco Interamericano de Desarrollo
facebook
twitter
youtube
youtube
youtube

    Blog posts written by Bank employees:

    Copyright © Inter-American Development Bank ("IDB"). This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives. (CC-IGO 3.0 BY-NC-ND) license and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC- IGO license. Note that link provided above includes additional terms and conditions of the license.


    For blogs written by external parties:

    For questions concerning copyright for authors that are not IADB employees please complete the contact form for this blog.

    The opinions expressed in this blog are those of the authors and do not necessarily reflect the views of the IDB, its Board of Directors, or the countries they represent.

    Attribution: in addition to giving attribution to the respective author and copyright owner, as appropriate, we would appreciate if you could include a link that remits back the IDB Blogs website.



    Privacy Policy

    Copyright © 2025 · Magazine Pro on Genesis Framework · WordPress · Log in

    Banco Interamericano de Desarrollo

    Aviso Legal

    Las opiniones expresadas en estos blogs son las de los autores y no necesariamente reflejan las opiniones del Banco Interamericano de Desarrollo, sus directivas, la Asamblea de Gobernadores o sus países miembros.

    facebook
    twitter
    youtube
    This site uses cookies to optimize functionality and give you the best possible experience. If you continue to navigate this website beyond this page, cookies will be placed on your browser.
    To learn more about cookies, click here
    X
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
    Non-necessary
    Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
    SAVE & ACCEPT