Electronic Billing Machine
Category: Discovery & Impact, Research

Title: The hidden, inexpensive auditing scheme that could drive revenue in developing countries

Retail shop in Kigali, Rwanda
A retail shop in Kigali, Rwanda, similar to those studied by Dr. Eissa and her research team.

A low-cost audit scheme to mitigate tax evasion

Dr. Eissa and her team were concerned that shop owners might co-opt consumers by offering lower prices if they accepted a paper versus electronic receipt. Mystery shoppers, hired by the research team, made low-cost purchases and reported whether they received an electronic receipt. Researchers ensured that undercover shoppers and shop owners did not know each other and rotated them across different sites to avoid raising suspicions. The results showed retailers notified of RRA visits were 70% more likely to issue electronic receipts than their counterparts, although from a very low base of only 7%. 

The use of customers as auditors substantially lowered audit costs for the revenue authority, helping to improve tax compliance and mitigate a reliance on trained auditors. In the coming months, Dr. Eissa and her colleagues plan to share their findings with the RRA, and ultimately, help policymakers and leaders in other developing countries better understand alternative means for enforcing tax compliance, improving their ability to deliver services. 

“A primary role of government is to provide public services, for which it needs to raise revenue,” said Dr. Eissa. “But beyond funding public goods, taxes are central to the social contract between the government and citizens. As such, they play an important role in the development process.” 

“Our results show that technology is not a solution, but coupled with engaged consumers, it could play a powerful role in encouraging tax compliance,” she said. “Our hope is for revenues raised to be used in ways that benefit taxpayers.”

Dr. Nada Eissa is an associate professor in the McCourt School of Public Policy and a research associate at the National Bureau of Economic Research. Her research examines how tax and transfer policy affects work and family formation decisions, and in turn, what the resulting behavioral responses imply for how programs should be designed. Dr. Eissa’s work has been published in major economics journals and widely cited in the media.