External publications

Which messages motivate tax compliance in low administrative capacity settings? Experimental evidence from two Mozambican municipalities

Schiller, Armin von
External Publications (2024)

in: Journal of Public Affairs, first published 19.11.2024

DOI: https://doi.org/10.1002/pa.2960
Open access

Over the past two decades, tax nudging has gained popularity as a method to boost tax compliance and help revenue authorities increase tax collection. However, most evidence on the effect of behaviourally informed tax letters comes from environments with high administrative capacity, which raises doubts about its generalizability. Against this background, this article tests the compliance effect of including messages that trigger deterrence or reciprocity beliefs in tax letters through a randomized controlled trial implemented in two mid-sized Mozambican municipalities, Vilankulo and Dondo. Conducted in 2018, the experiment focuses on property taxation, a tax overwhelmingly perceived to perform well below its potential in many low- and middle-income countries. The analysis relies on administrative data and exploits the complete universe of registered property tax taxpayers, including individuals and enterprises. The results indicate that (i) receiving a notification letter – not necessarily common practice in many contexts – has a significant positive impact on compliance; (ii) among enterprises, the message alluding to reciprocity backfires, while the most effective message to include generally is the one alluding to deterrence; and (iii) previously compliant taxpayers react negatively to the letter, regardless of the message included. These results carry relevant policy implications, indicating the large scope for behaviourally informed letters to help increase tax compliance, even in low administrative capacity settings.