It Takes Tax Morale to Raise Local Revenues

The collection of taxes is contingent on efficient administration, trust in governmnet, and political stability. Without these prerequisites, it is difficult to develop and improve equitable, effective, and efficient tax systems. In developing nations like North Macedonia, tax noncompliance and tax evasion are more prevalent. USAID’s Strengthening Resource Mobilization Activity (SRMA is assisting the country's local governments to increase the collection of own-source revenue, ultimately contributing to improved service delivery and citizen satisfaction with public governance.  Typically, preventing tax evasion and noncompliance is not a hot topic. Traditional methods for combating these practices include detection and punishment, and it has been demonstrated that enforcement results in increased tax compliance. Nevertheless, there are more nuanced, unconventional methods that act on behavioral, social, and psychological factors and are deemed effective. These strategies appeal to a person's sense of 'embarrassment' in their community by appealing to social norms, a sense of personal responsibility for not performing one's civic duty, or the possibility of sanctions.

SRMA has been using a variety of Collaborating, Learning, and Adapting (CLA) approaches to increase the revenue in each municipality, contributing to strengthening the technical evidence base on "what works" to increase tax compliance (relevant to USAID Learning Agenda Question 4 "Anti-corruption"), collaborating in novel ways with partner municipalities to influence taxpayers' behavior, and adapting the Activity's technical offer based on the evidence gathered. In 2021 and 2022, in collaboration with the Center for Economic Analyses, our local research partner, and seven partner municipalities, SRMA conducted a tax behavior experiment utilizing behavioral economics methods to assist in changing the behavior of non-compliant taxpayers in relation to local property tax and to strengthen local revenue mobilization among North Macedonian municipalities.