The taxman cometh: Pathways out of a low-capacity trap in the Democratic Republic of the Congo

Abstract

How might fragile states escape a low-capacity trap in which citizens pay little tax and the government has insufficient revenue to increase enforcement or provide public goods? We argue that governments can escape such traps by regularizing tax collection. When citizens observe taxes being collected in a systematic, non-arbitrary manner, they are likely to update positively about the procedural performance of the government, increasing their intrinsic motivation to comply. We test this idea in the first door-to-door property tax collection campaign in Kananga, Democratic Republic of the Congo, which raised compliance from near zero to 10.3%. Linking pre-campaign surveys with administrative tax data, we document a strong relationship between citizens' prior perceptions of government performance and property tax payment. Then, exploiting the campaign's random roll-out, we find that systematic tax collection caused citizens to update positively about the government's procedural performance. Together, these results are consistent with a virtuous cycle of perceived government performance and fiscal capacity.