Two experiments on taxation-related behavior in Ethiopia

Public revenue generation has long been associated with economic development (Schumpeter 1918; Kaldor 1963; Bessley and Persson 2013). Yet, at center of obstacles to public revenue generation is information asymmetry (Pigou 1920; Ramsey 1927; Mirrlees 1971; Farhi and Gabaix 2020). In developing countries where there is lack of basic administrative capacity and necessary transaction information, estimation of taxable amount for small and medium enterprises (SMEs) remains a big problem despite accounting for more than half of total employment (World Bank 2019) and increasingly playing a key role in their economies (Joshi et al. 2014; Schneider et al. 2010). One recent example can be seen in Ethiopia where efforts by the government to collect taxes from SMEs resulted in wide-scale political protests and declaration of national emergency (Davison 2017). Such incidents highlight the importance of identifying effective interventions to overcome information asymmetries and improve public revenue generation (Mascagni et al. 2018; Abate 2019). In response, we propose a randomized controlled trial (RCT) to rigorously test and analyze the effectiveness of two different low-cost promising interventions proven in other related contexts: 1) religious oaths and 2) incentive compatible solicitation of peer information.