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.

 

Outputs

  • Publication - Working Paper

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

    1 Oct 2014 | Adnan Khan, Asim Khwaja, Benjamin Olken


    Download

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  • External

    Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors (QJE, Oct 2015)

    This project output is hosted on an external website.


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  • External

    Detailed Project Description at CERP’s website

    This project output is hosted on an external website.


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  • External

    Interactive dashboard

    This project output is hosted on an external website.


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  • External

    The Nation

    This project output is hosted on an external website.


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  • External

    The Express Tribune

    This project output is hosted on an external website.


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  • External

    Daily Times

    This project output is hosted on an external website.


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  • External

    Business Recorder

    This project output is hosted on an external website.

  • Data Item

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

    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...

    1 Mar 2019

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