Property tax experiment in Punjab, Pakistan: Testing the role of wages, incentives, and audit on tax inspectors’ behaviour

• First large-scale field experiment examining impact of introducing performance pay for tax collectors.

• The results show that incentives, overall, work well to increase tax collection.

• The revenue scheme was the most successful and increased tax collections by 46%, compared to a 28% increase in the comparison group over the same period of time.

• While the schemes result in increased tax collections, they do not come at the expense of taxpayer satisfaction.

Efficient tax collection is essential to service delivery, growth and development, yet it remains a challenge for much of the developing world. In Punjab, Pakistan, only a small fraction of the true tax liabilities are collected. One of the ways to address this is by motivating tax collectors to improve individual performance. This study looks at the effect of performance incentives for tax collectors on revenue collections in Punjab.

Working with the Government of Punjab, Asim Ijaz Khwaja (Harvard), Benjamin A. Olken (MIT), and Adnan Khan (IGC) conduct a randomised, controlled field experiment among property tax collectors. Over 200 tax circles are randomly assigned to one of three incentive schemes:

1. Revenue scheme - rewards staff for increases in revenue collection over a historical average.
2. Revenue Plus scheme - in addition to revenue scheme, staff are also rewarded for taxpayer satisfaction and tax assessment accuracy.
3. Flexible bonus scheme - rewards staff with a fixed baseline honoraria and end-of-year performance bonus.