Using Divide-and-Conquer to Improve Tax Collection

Samuel Kapon, Lucia Del Carpio, Sylvain Chassang

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Tax collection with limited enforcement capacity may be consistent with both highand low-delinquency regimes: high delinquency reduces the effectiveness of threats, thereby reinforcing high delinquency. We explore the practical challenges of unraveling the high-delinquency equilibrium using a mechanism design insight known as divide-and-conquer. Our preferred mechanism takes the form of prioritized iterative enforcement (PIE). Taxpayers are ranked using the ratio of expected collection to capacity use. Collection threats are issued in small batches to ensure high credibility and induce high compliance. Following repayments, liberated capacity is used to issue the next round of threats. In collaboration with a district of Lima, we experimentally assess PIE in a sample of 13,432 property taxpayers. The data validate and refine our theoretical framework. A semi-structural model suggests that keeping collection actions fixed, PIE would increase tax revenue by roughly 10%.

Original languageEnglish (US)
Pages (from-to)2475-2523
Number of pages49
JournalQuarterly Journal of Economics
Volume139
Issue number4
DOIs
StatePublished - Nov 1 2024

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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