Impact of Government Transparency and Responsiveness on Tax Compliance

Impact of Government Transparency and Responsiveness on Tax Compliance

In a groundbreaking study, researchers have found that the perception of government accountability and integrity significantly influences citizens' voluntary compliance with tax laws in China. This research, published in the October issue of World Development, was led by Lily L. Tsai, MIT's Ford Professor of Political Science, and her co-authors, including Minh Trinh '22.

The study, conducted as a lab experiment in Shanghai - one of the two cities in China that collect property taxes - involved participants playing a game on an iPad where they chose whether or not to pay property taxes. The participants were randomly split into different groups, and the amount of real money they received at the end of the game varied depending on how they and other participants played.

One group of participants learned that a corrupt official had stolen money from property tax revenue, while others were told the official got away with stealing. Some were also informed that the official had been caught and punished, and these participants showed a higher willingness to pay their taxes.

Interestingly, the participants preferred a policy that allowed for citizen input on the use of tax revenue over one that did not. Furthermore, they supported a tax exemption for first apartments and preferred a lighter penalty for not paying their taxes over a harsher one.

In one group, participants were given an opportunity to voice their preference for how their property tax revenue was used, which further increased their willingness to pay taxes. This suggests that when citizens feel their voices are heard, they are more likely to perceive tax requests as legitimate and willingly comply.

Tsai argues that when authorities are willing to punish their own officials, it may signal to people that leaders have moral integrity and share the values of ordinary people, making them appear more legitimate. This, in turn, fosters voluntary compliance rather than relying solely on enforcement mechanisms.

The study also highlights China's decentralized taxpayer management structure, where tax officers individually engage with taxpayers, supporting personalized governance rooted in the country's historical planned economy context. This approach may enhance accountability perceptions at the local level.

Moreover, broader efforts to fight corruption and increase transparency, such as government collaboration with the private sector on collective anti-corruption initiatives, further reinforce public trust, which underpins compliance motivation.

In conclusion, in the Chinese context, government accountability and integrity perceptions act as crucial mechanisms that enhance the legitimacy of tax authorities in the eyes of citizens and encourage voluntary tax compliance, complementing administrative enforcement. This dynamic demonstrates that fostering trust and accountability within government can lead to increased compliance, paving the way for more effective and equitable tax systems.

1. The study published in World Development reveals that the perception of government accountability and integrity strongly impacts citizens' voluntary compliance with tax laws in China.
2. Graduate Minh Trinh '22 collaborated with Lily L. Tsai, MIT's Ford Professor of Political Science, on this groundbreaking research.
3. In the experiment conducted in Shanghai, participants were offered an opportunity to voice their preferences for the use of property tax revenue, which increased their willingness to pay taxes.
4. The study found that citizens favor a policy that includes their input on the use of tax revenue over one that does not.
5. A higher level of voluntary tax compliance was observed among participants who were informed that a corrupt official had been caught and punished.
6. The research suggests that when citizens feel their voices are heard, they perceive tax requests as more legitimate, which leads to increased compliance.
7. Broader anti-corruption initiatives, such as government cooperation with private sector entities, can help bolster public trust, which in turn strengthens the motivation for compliance in tax matters, particularly in a country like China with a decentralized taxpayer management structure.

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