A core challenge for governments is ensuring that citizens adhere to their laws and regulations. They are unable to surveil everyone and apprehend all lawbreakers. “It’s a logistical impossibility,” remarks Lily L. Tsai, MIT’s Ford Professor of Political Science and the director and founder of the MIT Governance Lab.
Instead, authorities must encourage citizens to voluntarily abide by the rules. “As a government, you must depend on them to comply willingly with the laws, policies, and regulations enacted,” Tsai explains.
One particularly crucial requirement for governments is that citizens fulfill their tax obligations. In a paper featured in the October edition of the journal World Development, Tsai and her collaborators, including Minh Trinh ’22, a Political Science graduate, examine various elements that could influence adherence to property tax laws in China. They discovered that participants in an in-person tax-paying experiment were more inclined to pay their taxes when government officials were overseeing and penalizing corruption.
“When individuals believe that government authorities are acting for the public good, possess moral character, and exhibit integrity, then the requests made by those authorities are perceived as more legitimate, which increases the likelihood of tax payments,” Tsai states.
In China, only two cities, Chongqing and Shanghai, impose property taxes. Officials have expressed concern that citizens may oppose property taxes since homeownership is the primary source of urban household wealth in the country. Private homeownership constitutes 64 percent of household wealth in China, compared to only 29 percent in the United States.
Tsai and her co-authors aimed to investigate how governments could enhance citizens’ willingness to pay their property taxes. Researchers have posited that citizens are more likely to comply with tax regulations when they perceive that they are receiving benefits in return from the government. For instance, the government could be attuned to citizens’ requests for public services, or it could penalize corrupt or underperforming officials.
In the initial phase of the study, a survey of Chinese citizens revealed their preferences for various hypothetical property tax policies. The findings indicated that participants preferred a government that was responsive to their needs and held officials accountable. Individuals favored a policy that permitted citizen input on the allocation of tax revenue over one that did not, and a policy that allowed for the censure of corrupt officials received more approval than one that did not.
Survey participants also favored a milder penalty for tax non-payment compared to a more severe one, and they supported a tax exemption for first-time homeowners. Interestingly, the researchers noted that policies encouraging government responsiveness and accountability garnered nearly the same level of support as those with economic advantages. “This indicates the importance of considering non-economic factors, as they can significantly impact tax compliance,” Tsai asserts.
For the second phase of the study, researchers enlisted participants for a laboratory experiment in Shanghai (one of the two cities collecting property taxes). Participants engaged in a game on an iPad, repeatedly deciding whether to pay property taxes. At the conclusion of the game, they received a sum of real money that varied based on their and other players’ actions.
Participants were then randomly divided into various groups. In one group, individuals had the chance to express their preferences regarding the utilization of property tax revenue. Some were informed that the government had taken their feedback into account, while others were told their opinions were ignored — in essence, participants learned whether the government was responsive to their needs. In another group, participants were made aware of a corrupt official who had embezzled funds from property tax revenue. Some were informed that the official had been apprehended and punished, while others learned that the official escaped consequence.
The researchers assessed whether the willingness of players to pay property taxes shifted after acquiring this new information. They found that while the willingness of players informed about government responsiveness did not change significantly, those who learned that corrupt officials faced punishment paid their property taxes more consistently.
“It was impressive to see how much people care about whether higher authorities ensure that tax funds are not misused due to corruption,” Tsai comments. In her 2021 book, “When People Want Punishment: Retributive Justice and the Puzzle of Authoritarian Popularity,” she posits that when authorities are prepared to penalize their own officials, it may indicate to the populace that leaders have moral integrity and share the values of ordinary citizens, thereby appearing more legitimate.
While the researchers anticipated that government responsiveness would similarly influence tax payments, Tsai notes it isn’t entirely surprising that for individuals in regions lacking direct channels for citizen input, the ability to engage in decision-making within a laboratory environment may not resonate as deeply.
The results do not imply that government responsiveness is unimportant. Instead, they indicate that even in the absence of opportunities for citizen expression, there are alternative means for governments to project legitimacy and encourage voluntary compliance with regulations.
As the robustness of democratic institutions wanes worldwide, scholars ponder whether perceptions of governmental legitimacy will concurrently diminish. “These findings suggest that perhaps that’s not necessarily the case,” Tsai observes.