Can Facebook Ads and Email Messages Increase Fiscal Capacity? Experimental Evidence from Venezuela

Tax compliance is an important challenge in weakly institutionalized countries, in which citizens do not trust the State and prefer to evade taxation. However, e-government strategies may improve fiscal capacity, as the transaction costs of compliance are reduced and more information from taxpayers is gathered and exploited. Can compliance be increased, and hence fiscal capacity strengthened, using online communication strategies that exploit these tools and sources of information? We perform a randomized field experiment in the capital of Venezuela, Caracas, to determine if online strategies, namely email reminders and targeted Facebook advertisements, can increase tax compliance. We vary the mechanism used to approach taxpayers to test if more direct and personalized methods, such as email messages, are more effective than general advertisement tools, such as Facebook ads. Moreover, our design allows us to test potential complementarities between these strategies thus boosting the capacity of the local government to increase compliance. We find that these strategies are cost-effective methods for increasing tax revenues, but that the effects vary across different types of taxpayers.