Low-cost tax capacity: Evidence on tax compliance from Uganda


Published 10.11.21
Photo credit:
©Deanna Ramsay/EIF

Simple, easy-to-implement tax reminder messages are an effective way of raising revenues in low-compliance contexts

Read "Low-cost tax capacity: A randomized evaluation on tax compliance with the Uganda Revenue Authority" here.

To raise tax revenues in developing countries, policy often focuses on greater enforcement to increase compliance. While effective, this approach is usually difficult to carry out, might be unpopular, and is a high-cost intervention. Perhaps compliance is predicated on factors including but importantly, also beyond enforcement, and invites consideration as to what sort of interventions may be effective in the absence of direct enforcement. There are indeed low-hanging fruit policies which are more cost-effective, easier to implement, and more popular that governments can capitalise on to increase tax compliance. 

In this VoxDev Talk, Isabelle Cohen discusses an experiment she conducted in conjunction with the Uganda Revenue Authority to test a tax encouragement scheme in the form of reminder messages. The results suggest that not only is the intervention effective, but that it works best in the lowest capacity parts of the country, and particularly in areas where recent investments in public goods have been made. This evidence suggests that the fiscal exchange model of tax compliance, in which taxpayers view themselves as paying taxes in exchange for public goods, may play an important role in understanding tax payment behaviour.