Social Compact: Urban Services and Taxes

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 how to break this cycle through a series of reforms that strengthen the link between the provision of local services and local property tax collection in urban Pakistan. We aim to increase the link between taxes paid and local services received by enhancing the linkages between a) local preferences and the types of local urban services provided, and b) the amount of local tax revenue and amount of local services provided. The goal is to reduce evasion of local property taxes, increase the quality of local services, make local urban services more responsive to local needs – and ultimately to help repair the social compact between citizenry and the state. Building on the Punjab Property Tax Project, the Social Compact project at CERP is partnering with the Government of Punjab to examine a series of reforms that strengthen the link between the provision of local services and local property tax collection in urban Pakistan.