Digitalization of Local Tax Collection in Urban Cote d'Ivoire

The great majority of individuals in lower income countries are self-employed, which considerably limits the ability of governments to tax income. “Tax collectors” who walk from stalls to stalls on a daily basis to collect taxes in cash from vendors are ubiquitous in Cote d’Ivoire as in many other countries, but there is widespread evidence of collusion between tax collectors and tax payers. As many countries move towards greater autonomy of local governments, the ability of local governments to raise revenue is becoming increasingly crucial. This proposal aims to estimate the impact of moving from a cash to an electronic tax collection system in urban municipalities of Cote d’Ivoire. With the help of an Ivorian consulting firm called BMI, a number of municipalities are switching to a fully electronic payment system that will allow considerably greater monitoring of tax collectors performance. The digitalization is expected to increase not only compliance but also the tax base, leading to higher total revenue for local authorities. It could also increase accountability of local governments if compliant taxpayers are more likely to demand public goods than non-compliant ones. This offers a unique opportunity to: (1) understand the extent of collusion that was going on under the current (cash and paper-based) system; and (2) experiment with incentive schemes to limit new forms of collusion from emerging; and (3) study how local spending decisions are influenced by accountability to local taxpayers.