Experimental Design
Subtreatments
Revenue: This incentives treatment group rewards tax circle staff (inspectors, constables, and clerks) on the basis of increases in revenue collection. Each circle is assigned one of three bonus rates i.e. either 40%, 30% or 20%. The differential bonus rate takes into account the differences in the size of circles i.e. to promote equity larger circles, where revenue increases are relatively larger, will be compensated at a lower rate than smaller circles where it is more difficult to raise revenue. The benchmark for each circle is generated using historical collection data for that specific circle and represents expected revenue collection. Each inspector continues to receive his or her current base salary, plus a bonus proportional to the tax revenue he or she collects above the benchmark.
Revenue Plus:
The Revenue Plus treatment is similar to the Revenue treament, but checks against over-aggressive tax collection by factoring in assessment accuracy and taxpayer satisfaction by utilizing an objective third party customer feedback assessment conducted on a randomly selected sample of 50-100 properties in each tax circle. The idea is that in additional to simple increased revenue collection, other components of the tax collection process are important.
In addition to the bonus pay based on increase in tax revenue collected, tax personnel may also be punished for poor performance in situations such as under- or overtaxing properties (the revenue based honorarium is particularly sensitive to this possibility) and rewarded in cases where they are doing an accurate job. There is ample evidence from the theoretical literature that imposing such penalties and rewards raises performance. Moreover, since an important source of inaccuracy in property assessment is due to misclassification of properties, such customer feedback mechanisms can provide reasonably reliable checks on tax inspector performance.
The customer satisfaction and accuracy adjustment is based on the results of a third party survey conducted in all circles in the scheme. Accuracy is measured as the correlation between true tax liability and official tax liability. Scores for customer satisfaction and tax assessment accuracy are calculated using survey-based questions such as satisfaction with customer service, the degree to which proper procedures were followed, and satisfaction with the outcome in dealing with the tax department. Then these scores are added together to give each circle a total score, which is used to rank circles in this scheme and divide them into three groups (top, middle, and bottom) of approximately equal size. Circle staff get paid as in revenue treatment, but the top group gets an additional bonus equal to 0.75 times their base salary, and the bottom group lose 0.75 times their base salary.
As in the revenue scheme, each inspector continues to receive his or her current base salary, but the proportional bonus is adjusted based on accuracy and customer satisfaction.
Flexible Bonus:
This treatment aims to mimic the way bonuses work the private sector for many complex jobs: managers distribute a fixed bonus pool to talented employees based on all factors they observe. Everyone gets a base salary supplement equal to 1.5 times their salary: each inspector is entitled to an honorarium of Rs. 30,000/month, and each constable and clerk is entitled to an honorarium of Rs. 23,000/month. Each quarter, 50% of this payment will be made unconditionally, so that in Q1-Q3, each inspector will receive Rs. 15,000/month and each constable/clerk will receive Rs. 11,500/month. At the end of the fiscal year, a "Performance Evaluation Committee" divides circles in this group into three equal size groups -- top, middle, and bottom -- based on a holistic assessment of performance, including recovery, increase in net demand, customer satisfaction, accuracy, and a subjective "director's rating". All circle staff get paid 1.5 times their base salary top-up, but the top group gets an additional bonus equal to 0.75 times their salary, while the bottom group loses 0.75 times their salary (though slightly less in year 2).