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Fiscal Exchange and Tax Compliance: Strengthening the Social Contract Under Low State Capacity

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  • Laura Montenbruck

Abstract

This article provides evidence that increased salience of public service provision can strengthen the social contract and increase tax compliance in a low-capacity setting. I conduct a field experiment randomizing information about public service provision across 5,494 property owners and tenants in Freetown, Sierra Leone. Receiving information increases property tax payments by 20% on average. The effect is driven by increases in tax compliance on both the extensive and intensive margin. Residents of low-value properties are 7–16 percentage points more likely to pay taxes when informed about public services that are both geographically accessible and respond to the citizens’ most urgent needs, suggesting a benefit-based approach to taxation. Revenue effects are largely driven by residents of high-value properties, who depend less on the public provision of services, and for whom the treatment seems to act as a more general signal of government performance.

Suggested Citation

  • Laura Montenbruck, 2025. "Fiscal Exchange and Tax Compliance: Strengthening the Social Contract Under Low State Capacity," CRC TR 224 Discussion Paper Series crctr224_2025_620, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_620
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp620
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    More about this item

    Keywords

    Social contract; Property tax; Public services; Tax compliance;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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