State Visibility and the Fiscal Contract: Experimental Evidence from Tanzania

<jats:p>We study how increasing the visibility of tax officials in a non-audit capacity impacts the compliance behaviour of small businesses and their perspectives of the state. Using a clustered randomised field experiment covering 1,210 small businesses across 119 wards in Tanzania, we find that increasing exposure to tax officials significantly alters attitudes and behaviour. We find no average effect on perceptions of enforcement or facilitation, but exposure to tax officials increases these perceptions among businesses located further from public services. Trust declines on average, with sharply heterogeneous effects: it falls in poorer regions and rises in wealthier regions. Administrative tax records show a similar pattern, with lower subsequent compliance in poorer regions and slightly higher compliance in wealthier regions. Collectively, these results demonstrate that even benign outreach strategies by tax authorities can backfire in settings with limited public service provision and low levels of development, underscoring the need to be sensitive to the strength of the fiscal contract between taxpayers and the state.</jats:p>