New Research on Participatory Governance and Tax Compliance

At the World Bank, we have published two new studies on the effect of citizen engagement on tax morale and tax compliance.

In the first, published last month, we examine the Brazilian case, using data from all 5,570 municipalities in the country. We focus on two types of institutions that municipalities can voluntarily adopt to give citizens the opportunity to voice their preferences on policies and spending: public policy councils and participatory budgeting. Municipalities who adopt these practices collect significantly more local taxes. For instance, the adoption of participatory budgeting leads to the collection of up to 39% more tax revenues. Overall, the increase in municipal budgets is equivalent to roughly 40% of their capital investment spending.

But how context-dependent are these findings?

In the second study, published last week, we present results from the largest cross-country experiment ever conducted on tax morale. A unique online experiment, the study involved 65,000 individuals across 50 countries from all continents. Our results show that regardless of government systems, levels of development and culture, citizens are more committed to tax compliance when they: i) are able to voice their preferences about government spending, and ii) learn about government oversight of public resources.

I hope you will enjoy the reading.

Of Governance and Revenue: Participatory Institutions and Tax Compliance in Brazil

Michael Touchton, Brian Wampler and Tiago C. Peixoto

Abstract: Traditionally, governments seek to mobilize tax revenues by expanding their enforcement of existing tax regimes and facilitating tax payments. However, enforcement and facilitation can be costly and produce diminishing marginal returns if citizens are unwilling to pay their taxes. This paper addresses gaps in knowledge about tax compliance, by asking a basic question: what explains why citizens and businesses comply with tax rules? To answer this question, the paper shows how the voluntary adoption of two different types of participatory governance institutions influences municipal tax collection in Brazil. Municipalities that voluntarily adopt participatory institutions collect significantly higher levels of taxes than similar municipalities without these institutions. The paper provides evidence that moves scholarship on tax compliance beyond enforcement and facilitation paradigms, while offering a better assessment of the role of local democratic institutions for government performance and tax compliance.

Voice and Punishment : A Global Survey Experiment on Tax Morale

Fredrik M. Sjoberg, Jonathan Mellon, Tiago C. Peixoto, Johannes Hemker and Lily L. Tsai

Abstract: An online survey experiment spanning 50 countries finds sizable improvements in tax morale when (a) the salience of anti-corruption efforts is increased and (b) citizens are allowed to voice their expenditure preferences to the government. These results hold very broadly across a uniquely large and diverse sample of respondents from all continents. The findings are consistent with theories emphasizing the role of democratic accountability, as well as of perceptions of legitimacy and “retributive justice,” in generating voluntary tax compliance. Implications and avenues for further research are discussed.

The Progressive Case for the Welfare State: A Refresher

Many of my own fellow-travelers police progressivism in a way I sometimes find frustrating. It is de rigeur to chastise neoliberals and technocratic moderates for their lack of radicality. My work tends towards the technocratic/participatory divide around how policies should be made, and so I often don’t have strong policy preferences unless I’ve researched a question extensively. Thus I may be the wrong person to offer a common sense or standardized progressive defense of the welfare state, but I thought I’d give it a shot. Here goes:

Soft-core Case

  1. Taxes are the price of a good society. Many of the benefits that citizens enjoy are the positive externalities of our shared institutions, including safety net institutions. Thus, the wealth we earn in the marketplace is only partly due to our own effort, and largely due to social investments. Taxes are thus dividends owed for those social investments, and also the seed capital of future social investment.
  2. Private charity is laudable, but historically it has always come up short of real need. The welfare state responds to these failures of private efforts to ameliorate real suffering. Meanwhile, public provision of charity has been massively successful at reducing poverty and alleviating suffering. (The measures of poverty that claim otherwise assume away the goods and services supplied by safety net institutions.)
  3. The regulatory state responds to memorable injustices and documented depredations of private institutions and interests. Public regulation of industrial activity has helped to solve large-scale coordination problems, giving us cleaner air, safer drinking water, and lower mortality than countries who do not regulate those goods.
  4. It is no coincidence that the richest countries have more pervasive welfare states. Both serious poverty and large inequalities are inefficient for finding talented workers and ensuring that they are not excluded from sectors of the labor market that the rich might be tempted to monopolize.

Medium-Core Case

  1. There is a plausible case to be made for free markets: they tend to allocate resources more efficiently than alternative institutions when there’s a method for increasing the supply of that good. But free-market principles tend to fail where there are prospects of monopoly, including in situations of desperation where price-gouging becomes possible. Rent-seeking can happen both privately and publicly, but private rent-seekers tend to extract more value from those they exploit than public rent-seekers do.
  2. When users share a common-pool resource, they gain an incentive to maintain it, punish overuse and free-riding, and invest in future development. Economists have claimed otherwise for years, but eventually they gave Elinor Ostrom a Nobel Prize for her work showing that the so-called “tragedy of the commons” is avoidable.
  3. The safety net is properly understood as a common-pool resource, in specific, as a kind of infrastructure improvement. A functional public schooling system enhances human capital and makes workers more productive. A functional safety net for the very poor prevents the loss of human capacities to bad luck.
  4. Thus, there is good reason to choose mixed institutions (polyarchy) where markets and governments work together and in competition, with governments preventing the worst excesses of markets, and exercises of liberty (through exit, voice, collaboration, and innovation) preventing the worst excesses of governments.

Hard-Core Case

  1. We have stronger obligations to our fellow human beings than our moral psychology is equipped to recognize. The same part of our psyche that ignores the needs of strangers also hates other races and cultures. Group loyalties should be expanded as much as they can be.
  2. The nation-state partially corrects for flaws in our individual moral psychology. It generates the conditions under which we can recognize a limited set of our collective obligations that transcend our family and friends, making it possible to care for distant strangers, though not yet indiscriminately. We still feel stronger obligations to our co-nationals than to citizens of other countries; we have not yet discovered institutions that can produce recognition of cosmopolitan obligations. These obligations to co-nationals includes duties of care, reciprocity, and non-domination.
  3. Care and concern require us to seek both institutional arrangements and personal opportunities to engage with our vulnerable neighbors. Reciprocity requires that we ensure that capabilities and vulnerabilities are distributed in an egalitarian manner. Non-domination requires not just that we personally forgo interfering with each other, but that we reject institutional arrangements that allow other parties to arbitrarily and capriciously coerce our fellow human beings.
  4. Universal welfare programs, like universal infrastructure programs, are better at generating a shared sense of care, reciprocity, and solidarity.
  5. Universal programs are also more efficient than need-based programs. Universal programs don’t generate perverse incentives and poverty traps. Universal programs also don’t require resources be spent on civil servants to determine eligibility or investigate potential misuse.

Super Hard-Core Case

  1. Throughout much of our history, the state and private organizations have worked together to create conditions of exploitation. This includes colonialism, slavery, and the successors to slavery, and legalized discrimination against women, homosexuals, and indigenous peoples.
  2. Most large pools of intergenerational wealth are the product of those or other abuses, and most people earning above the median income are benefiting from that history of plunder as well. Other larger pools of wealth are primarily due to the financial sector which is propped up by the public regulatory state and through corporate capture of the state’s policies. Thus taxes and social spending are usually-inadequate efforts to repay those debts.
  3. Libertarians are right to note that redistributive efforts have usually failed to change the basic inequalities of distribution in our society, and that large regulatory states provide ample opportunities for regulatory capture and rent-seeking. But the answer is not to give up on reclaiming what has been expropriated, allowing the bandits to keep what they have stolen so long as they promise to raid no more! The answer is to redistribute more effectively, regulate more intelligently, and continue to target the ways that governments and regulators become captured by the interests of the wealthy.

I’ll note that I think the “soft-core” case is somewhat at odds with the “super hard-core” case, which is what often generates divisions between liberalism and progressivism. Yet I think this basically outlines my reasons for a commitment to the welfare state.

My friends who worry about moderate and technocratic ideological inconsistency are wrong, though. I think progressives should worry about governments, a lot. Governments do a lot of bad things, including a lot of things libertarians are good at recognizing and pointing out.

And really, this post was inspired by a libertarian. Over at EconLog, Bryan Caplan offers a “refresher” designed for libertarians who find Scandinavian welfare alternatives appealing. It’s a kind of intervention for prodigals. It works primarily as a reminder to those who are supposed to have known those things, but it works well. In a few short paragraphs, Caplan combines empirical claims about the efficacy of libertarian policies with principled objections (to borders and to the coercion of taxation.) It’s not exactly an argument: more a statement of premises, with an argument perhaps taking the form of a longer book like Michael Huemer’s The Problem of Political Authority.

Yet it’s still enough to provoke debate with other libertarians. And in my view, arguments with one’s fellow-travelers can be helpful for your collective projects. As is not-often-enough-the-case, we are currently contesting the nature of the progressive/liberal divide during the primary contest between Hillary Clinton and Bernie Sanders. It’s worth remembering our basic commitments to public and participatory institutions, as well as to just and competent government.

(Post updated March 8th)

New Evidence that Citizen Engagement Increases Tax Revenues

pic by Tax Credits on flickr

Quite a while ago, drawing mainly from the literature on tax morale, I posted about the evidence on the relationship between citizen engagement and tax revenues, in which participatory processes lead to increased tax compliance (as a side note, I’m still surprised how those working with citizen engagement are unaware of this evidence).

Until very recently this evidence was based on observational studies, both qualitative and quantitative. Now we have – to my knowledge – the first experimental evidence that links citizen participation and tax compliance. A new working paper published by Diether Beuermann and Maria Amelina present the results of a randomized experiment in Russia, described in the abstract below:

This paper provides the first experimental evaluation of the participatory budgeting model showing that it increased public participation in the process of public decision making, increased local tax revenues collection, channeled larger fractions of public budgets to services stated as top priorities by citizens, and increased satisfaction levels with public services. These effects, however, were found only when the model was implemented in already-mature administratively and politically decentralized local governments. The findings highlight the importance of initial conditions with respect to the decentralization context for the success of participatory governance.

In my opinion, this paper is important for a number of reasons, some of which are worth highlighting here. First, it adds substantive support to the evidence on the positive relationship between citizen engagement and tax revenues. Second, in contrast to studies suggesting that participatory innovations are most likely to work when they are “organic”, or “bottom-up”, this paper shows how external actors can induce the implementation of successful participatory experiences. Third, I could not help but notice that two commonplace explanations for the success of citizen engagement initiatives, “strong civil society” and “political will”, do not feature in the study as prominent success factors.  Last, but not least, the paper draws attention to how institutional settings matter (i.e. decentralization). Here, the jack-of-all-trades (yet not very useful) “context matters”, could easily be replaced by “institutions matter”.

You can read the full paper here [PDF].


When we finally start talking about gun control, what should we say?

bullets

I love policy discussions, but the demands for policy discussion on gun control after the shootings in Newtown today are terribly wrong-headed.

The problem is that demanding a policy discussion is not the same thing as having a policy discussion. At this point, we’re just talking about talking about gun control. It’s all “mention” and no “use.” It’d be nice if folks would actually start proposing laws. Like: limits on magazine size. Ammo taxes. Closing the gun show loophole. Or even…

Prohibition.

I’d love to talk about gun prohibition. (Notice, this isn’t even the same policy debate as “gun control.”) Unfortunately, if we start talking about gun prohibition, then we will be forced to confront how badly prohibition is working in other markets. There are three hundred and ten million guns in the US. (Yes! 310,000,000!) What does prohibition look like under those circumstances?

Reflecting on that question, ask yourself this: how many people will be killed in no-knock police raids trying to root out the black market in guns? Will they be mostly white or mostly black? (Notice that gun control laws have tended to be stricter in majority black areas rather than majority white areas. Both DC and Chicago, the battleground states for the 2nd Amendment claims, are disproportionately black.) How many of those killed by police will be kids? How many kids’ deaths will be prevented?

On reflection, I suspect that many gun control regimes and all possible paths to gun prohibtion are more likely to increase the number of people hurt and killed by guns.  So when we do finally start talking about gun control and gun prohibition, let’s be very, very careful.

  • Something must be done.
  • Prohibition is something. 
  • ∴ ????

Also, let’s remember that the violent crime rate, including gun crimes, is the lowest it’s been in 20 years. That doesn’t make what happened today any easier to handle, but perhaps it will allow us to focus on what happened, and the people it happened to, instead of replaying Jon Stewart’s Monday night monologue. Something terrible has happened. It didn’t happen to you or I, so we have the ability to ask whether it could have been prevented. We should ask whether it could have been prevented. But we should also ask: at what cost? Then we should follow that calculation of lives lost and lives saved wherever it leads.

Craig Whitney’s July New York Times Op-Ed on the Aurora shooting is still apropos here:

Liberals should accept that the only realistic way to control gun violence is not by keeping guns out of the hands of as many Americans as possible, but by keeping guns out of the hands of people we all agree should not have them.

Read the whole thing.