Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors

Adnan Q. Khan, Asim Khwaja and Benjamin Olken

No 20627, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Performance pay for tax collectors has the potential to raise revenues, but might come at a cost if taxpayers face undue pressure from collectors. We report the first large-scale field experiment on these issues, where we experimentally allocated 482 property tax units in Punjab, Pakistan into one of three performance-pay schemes or a control. After two years, incentivized units had 9.3 log points higher revenue than controls, which translates to a 46 percent higher growth rate. The scheme that rewarded purely on revenue did best, increasing revenue by 12.8 log points (62 percent higher growth rate), with little penalty for customer satisfaction and assessment accuracy compared to the two other schemes that explicitly also rewarded these dimensions. Further analysis reveals that these revenue gains accrue from a small number of properties becoming taxed at their true value, which is substantially more than they had been taxed at previously. The majority of properties in incentivized areas in fact pay no more taxes, but do report higher bribes. The results are consistent with a collusive setting in which performance pay increases collector's bargaining power over taxpayers, who either have to pay higher bribes to avoid being reassessed, or pay substantially higher taxes if collusion breaks down.

JEL-codes: D73 H26 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-exp, nep-pbe and nep-pub
Note: DEV LS PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published as Adnan Q. Khan & Asim I. Khwaja & Benjamin A. Olken, 2016. "Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors," The Quarterly Journal of Economics, vol 131(1), pages 219-271.

Downloads: (external link)
http://www.nber.org/papers/w20627.pdf (application/pdf)

Related works:
Journal Article: Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors (2016)
Working Paper: Tax farming redux: experimental evidence on performance pay for tax collectors (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:20627

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20627

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().