Tax compliance and tax collection

Individuals pay taxes for financial, emotional, and social reasons

A paper reviewed research about why citizens pay taxes. One of its key findings is that citizens are motivated by individual financial considerations (e.g., audits and penalties), individual non-financial considerations (e.g., guilt, patriotism, fairness), and social considerations (e.g., social norms, public goods, reciprocity). There is also great heterogeneity across individuals – different citizens have different motivations for tax compliance. This research shows that citizens are not motivated purely by financial considerations and that policies to increase tax compliance should account for the multiple reasons citizens pay taxes in a specific context.

Information technology can help countries improve tax administration

Many states struggle to collect the tax revenue needed to support public services. A recent paper considered how information technologies could help African countries improve tax administration. Technologies like electronic billing machines and satellite imagery can help states (1) identify their tax base, (2) facilitate tax payments, and (3) monitor tax compliance. The paper also discusses challenges when adopting new technologies, such as equity concerns, taxpayer strategic responses, tax official training and incentives, and consequences for citizen privacy. This paper shows how technologies can improve interactions between taxpayers and the tax administration and gives practical recommendations for overcoming challenges to adoption of information technology.

Do you have a study we should share for a future Facty Friday? Send an email to drg.el@usaid.gov!