Social Compact: Urban Services and Taxes

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Project Overview 

The social compact between citizen and state – whereby a citizen pays taxes and receives (public) goods and services – is a critical link in the development process. This link is especially salient in the context of local governments and a significant metric on which they are judged. However, if citizens perceive little benefit from their tax payments, or local services are disconnected from local decision-making, this link can be broken. This can create a vicious cycle where citizens do not receive high quality services because resources are limited by low levels of local tax revenue, and the low quality of services leads to a low willingness to pay taxes, as well as a broader lack of trust in the state. 

This study seeks to examine these issues by introducing a menu of reforms that strengthen the link between the provision of local urban services and local property tax collection in urban Pakistan. The three main interventions are: 

  1. Demand. In this intervention, tax staff inform citizens of the link between taxes and services by showing a short video on how local taxes.  Tax staff then solicit citizens’ preferences on which type of local goods should be prioritized in their neighborhood. The results of this preference elicitation are then shared with the local government in an effort to improve the allocation of services. 
  2. Delivery. In the status quo, revenue is collected from administrative tax units and transferred to local governments that allocate these to city-level services. To strengthen the link between taxes paid and services provided, this intervention requires local governments to allocate a portion of property tax collected from a neighborhood (tentatively 35%) to that same neighborhood.  As in the Demand intervention, tax staff inform citizens of the link between taxes and services and convey details about the intervention.

  3. Demand and Delivery. This intervention combines the previous two. By both eliciting citizen preferences (#1) and requiring local governments to allocate funds to the neighborhood (#2) in accordance with these preferences, it seeks to make the tax-services link even more salient and credible. As in the Demand intervention, tax staff solicit citizens’ preferences on which type of local goods should be prioritized in their neighborhood.  Citizens are then informed that 35% of their neighborhood’s property tax revenue will be earmarked for their preferred service. 

 

In addition to these main treatments, we will implement a variant of the Demand and Delivery intervention where local leaders will mobilize the community to help enhance the tax-service link. 

Finally, we will randomize the content of the information and preference elicitation at the property level to help understand how to make the information credible and how to best get citizen voice. In particular, we will vary who will deliver the information in the video (a high ranking politician or bureaucrat), whether taxpayers rate the quality of existing services in addition to providing preferences on new services, and whether taxpayers are given the opportunity to provide unstructured feedback to the government.

The sample consists of approximately 500 neighborhoods in two of the largest cities of Punjab, Lahore and Faisalabad.

Current Status 

In the last year, we introduced the interventions to all intervention neighborhoods in the sample. Tax staff have surveyed nearly all of approximately 60,000 total properties in the sample.  

In Demand and Demand and Delivery neighborhoods, we surveyed taxpayers for their preferences over a variety of local services including sanitation, street repair, and street lighting.  We have aggregated these preferences and transferred them to the relevant Local Government departments.  We are now working with the Local Government to begin service implementation using earmarked property tax funds and preparing for the second year of the study.  

Policy Relevance 

Re-engaging with urban areas is a key priority for Pakistan in general, and the Punjab government in particular. The country is in the midst of revitalizing local governments, and enabling citizens’ voice within this context could significantly impact the success of these local governments. The demand for this study came from a combination of the Punjab Local Government Department – which provides services – and the Punjab Excise and Taxation (E&T) Department – which collects the property taxes that fund these services. The project is strongly supported by both Departments and backed by the Chief Minister and is anticipated to be a key pillar in the reform agenda of the government. 

Links

http://southasiainstitute.harvard.edu/2016/06/faculty-voices-rebuilding-the-social-compact-in-pakistan/

http://harvardmagazine.com/2017/01/tax-collection-and-civil-society

 

 

Last modified on Wednesday, 02 August 2017 07:42