Hitotsubashi Trade/Urban Economics Workshop – Marco Gonzalez-Navarro (UC Berkeley)

2025/04/04

April 4 (Fri) Marco Gonzalez-Navarro (UC Berkeley) 17:10–18:40, Place: IER Conference room

Title: Local Public Goods and Property Tax Compliance: Evidence from Residential Street Pavement

Abstract: Many developing countries face a challenge whereby low tax compliance limits public goods provision, while inadequate public goods further discourage compliance. This study examines whether improvements in local infrastructure can disrupt this negative feedback loop through a randomized experiment of first-time street pavement in Acayucan, Mexico. Among 56 eligible asphalt- ing projects in poor neighborhoods, 28 were randomly assigned for paving. A theoretical model guides our analysis, highlighting belief updating about government efficiency and reciprocity from direct benefits. We use administrative property tax records to assess compliance responses and survey data to measure satisfaction with local government. Consistent with the direct benefits mechanism, property owners living on newly paved streets increased compliance by 3.2 percentage points (ITT) and 4.8 percentage points (LATE), the latter corresponding to a 5.5% increase in baseline compliance rates. Consistent with belief updating about government efficiency, a one standard deviation increase in exposure to pavement en route to downtown also raises compliance — by 1.5 percentage points (ITT) and 2.6 percentage points (LATE), the latter corresponding to a 3% increase in compliance rates. Consistent with our theoretical model, survey data indicates that individuals with worse initial beliefs about government efficiency exhibit larger belief updating when exposed to pavement projects. A back-of-the-envelope calculation suggests belief updating generated four times more revenue than direct reciprocity.