USAID/Malawi's Local Government Accountability and Performance (LGAP) activity aims to improve local government performance and service delivery. As part of the USAID DRG Learning, Evaluation, and Research (DRG-LER) Activity, NORC is conducting an impact evaluation (IE) of two LGAP interventions aiming to improve tax compliance in markets: a "bottom-up" intervention aimed at increasing voluntary tax compliance by vendors, and a "top-down" intervention aimed at improving local government capacity to collect taxes and enforce compliance. The proposed methodology for this impact evaluation was developed during the Tanzania DRG Impact Evaluation Clinic held in March 2015.
Past research offers little consensus on the most effective way to increase tax compliance in a democratizing context. This IE will examine whether low tax compliance in Malawi reflects citizens' unwillingness to pay taxes due to a limited supply of publicly-funded goods and services, or the government's limited resource base to enforce tax codes. The main outcome indicators for the IE are the percentage of vendors who pay market fees, the actual revenues that district governments receive from each market, and the gap between the two, which serves as a measure of compliance. Robust monitoring systems and cross-checks are needed to account for bias in reporting.
This impact evaluation employs a 2x2 factorial design consisting of two treatments to be randomized at the market level, blocking on geographic, political, and demographic covariates, market characteristics, and baseline levels of tax compliance. A total of 128 markets across eight districts in Malawi were assigned to four treatment groups of 32 markets each: one group received the top-down intervention only; one received the bottom-up intervention only; another received both interventions; and a fourth acts as a control group and received no intervention.
The data from the baseline survey suggest relatively low levels of validated, behavioral tax compliance in markets across Malawi. This suggests LGAP has the potential to increase tax compliance by a substantial margin. The endline data collection occurred in late 2018. NORC will analyze the data and issue recommendations to USAID in 2019.