3ie Funded Evaluation, DPW1.1005 . A link to the completed study will appear here when available.
This study seeks to examine how to strengthen the link between the provision of local services and local property tax collection in urban Pakistan.
The social compact between citizen and state – whereby a citizen pays taxes and receives (public) goods and services – is a critical link in the development process. The fragile and weak social compact between citizen and state is a major policy issue in Pakistan. Tax revenues are low as citizens see little value in paying into the state. Low revenues in turn result in failing urban services, leading to a broader collapse in trust in the state’s ability to provide for its citizens. These forces create a vicious cycle of lower revenue, less accountability, and poor service provision. The proposed study has the potential to offer insights on a comprehensive set of tax department reforms that help on both the tax collection and tax payment side, improving public finance and governance, as well as the citizenry’s trust in the state.
- Does giving citizens voice by eliciting preferences over service provision and delivering those preferences to local government affect their trust in the state, the type and quality of local public goods provided and, in turn, increase citizen willingness to pay for those services through greater tax payment and tax morale?
- Is eliciting preferences sufficient, or is it necessary to mandate that local governments follow elicited preferences in order to improve trust in the state and increase tax performance?
- Does increasing the link between local taxes paid and local services delivered at the neighborhood level increase citizen willingness to pay for services?
- Does community mobilisation enhance citizens’ voice and further encourage individuals to pay their property tax, leading to greater impact on service provision and tax morale?
- Does the nature of the message provided in terms of who delivers the information (a high ranking politician or bureaucrat), and whether taxpayers are asked to assess the quality of existing services, affect the credibility of the interventions?
The study evaluates interventions to increase the link between taxes paid and local services received by enhancing the linkages between a) local preferences and the types of local urban services provided and b) the amount of local tax revenue and amount of local services provided. This includes:
- Information and preference elicitation: The implementation team will deploy staff who use videography as a medium to communicate how local taxes are utilised. Tax staff will then solicit citizens’ preferences on which type of local goods should be prioritised in their neighbourhood. The results of this preference elicitation will be shared with the local government in an effort to improve the allocation of services.
- Local allocation: This intervention will require local governments to allocate a portion of property tax collected from a neighbourhood (tentatively 35 per cent) to that same neighbourhood.
- Preference based-local allocation. This intervention combines the previous two interventions. By both eliciting citizen preferences and requiring local governments to allocate funds to the neighbourhood citizens will be informed of this earmarking via a different video, and the subsequent service expenditures will be carried out in their locality.
Theory of change
Improving tax morale can improve tax compliance. The proposed intervention is designed to test whether increasing citizen voice in the decision-making process affects the type and quality of local public goods provided and, in turn, increases citizen willingness to pay for these services through greater tax compliance and tax morale. Key assumptions are: a) citizens are indeed able and willing to express their preferences and b) that the local governments are constrained by lack of appropriate preference data when considering how to allocate funds locally.
The study uses a randomised controlled trial implemented in collaboration with the Government of Punjab. The identification strategy relies on random assignment of 500 neighbourhoods in the largest cities in Punjab across the three main components of the intervention. Two main types of quantitative data are collected: 1) administrative data on tax payments and voting behaviour and 2) survey data on usage of and quality of urban services, tax morale, and attitudes towards local government. Detailed qualitative data through structured interviews and focus group discussions with residents, shopkeepers, service providers and elected representatives will also be collected to inform the experimental design and provide support to causal claims in the theory of change.