Technology and Tax Capacity: Evidence from Local Governments in Ghana

This paper studies the role of technology to improve tax capacity in the developing world. We focus on local property taxation in Ghana, a potentially significant but under-collected source of revenue. We randomize the use of a new technology designed to help revenue collectors locate property owners to deliver tax bills, which is a major challenge in many developing countries with incomplete property addressing. We find that the technology increases bill deliveries by 27 percent and, surprisingly, increases tax collections by 103 percent. To reconcile these experimental findings, we build and estimate a dynamic time-use model in which revenue collectors respond to the new technology by shifting their allocation of time toward learning about households’ propensity to pay, which is initially hard to observe, and subsequently collecting from those with highest payment propensity. The model’s predictions are consistent with additional experimental results on time allocations, knowledge and collector strategies. Our explanation highlights how a technology that is designed to relax one constraint ultimately relaxes multiple additional constraints once behavioral changes by users of the technology are taken into account.