Increasing property tax compliance in Liberia: Evidence on the role of detection and enforcement capacity

Policy brief State Effectiveness and State

  • Many developing countries suffer from low tax collection rates. Broadening the tax base and effectively enforcing tax liabilities is crucial for economic and political development.
  • Property tax compliance in Liberia is limited: an estimated 5% to 10% of properties are registered on the tax roll. Year-on-year compliance for registered properties is also weak. 
  • This study examines the results of two randomised experiments. These experiments involve interventions by the tax authority to manipulate property owners’ perceptions of its capacity to detect and penalize non-compliance. 
  • Research finds that a tax notice that includes the name of the property owner and photograph of the property, as well as information on penalties, triples tax registration and payment relative to a plain notice. 
  • A tax notice that informs delinquent property owners of upcoming enforcement increases compliance compared to a standard reminder, but only in areas where the tax authority had previously carried out more enforcement.
  • Investments in both detection and enforcement capacity are important for increasing tax compliance.