Seminar Series: Asymmetry in Civic Information

Presenter: Paul Dower, assistant professor, Department of Agricultural & Applied Economics, UW–Madison

Asymmetry in Civic Information: An Experiment on Tax Participation among Small and Informal Firms in Togo

In low-income countries, tax collection practices can give rise to a substantial wedge between firms’ beliefs about what their tax obligations are and what they should actually pay, especially for small firms in the informal sector. We ran a randomized controlled trial on informal and small scale firms in Lomé, Togo, to investigate whether alleviating this informational asymmetry improves tax participation. Surprisingly, we find that treated firms, who we show are now better informed, participate less in the tax system. However, we also find that this decline is steeper for treated firms with lower revenues at baseline. Given many of these firms are owner-operated, positive sorting by firm revenue is likely to be welfare-enhancing and we provide suggestive evidence that this sorting also leads to an increase in total tax revenues.

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