New ideas often get a skeptical response, and participatory budgeting (PB) is no exception. One common doubt: while PB may be admirable, unfortunately governments just can’t afford it.

A new World Bank working paper by Michael Touchton, Brian Wampler, and Tiago Peixoto concludes just the opposite — PB and participatory institutions actually improve government balance sheets by boosting residents’ willingness to pay taxes. While most strategies for improving tax compliance rely on tougher enforcement or easier filing processes, these researchers provide evidence that people more readily pay their share of taxes when they feel they have a voice in the policy-making process and when they believe that governments are more transparent and deliver better services.

The study investigates a database of 5,570 Brazilian municipalities over a 13-year period, an ideal setting to see if participatory institutions have an impact on tax collection for several reasons. First, Brazilian cities have more legal autonomy and greater responsibility for delivering public services than municipal governments in the United States. One outcome of this autonomy was participatory budgeting itself–first developed in Porto Alegre in 1989 before spreading across the country. What’s less well known is that Brazil has also been a leader in developing public policy councils, which are co-governance institutions made up of officials and members of the public that formulate policy and oversee government performance.

Finally, Brazilian cities vary widely in the quality of their governance and their ability to collect tax revenue. Some municipalities have received considerable acclaim for their public administration. Curitiba, for example, has won awards for its sustainability and transportation planning. Others display a dynamic that is all-too-common in developing countries: poorly functioning governments lose public legitimacy, making individuals reluctant to pay their taxes and leading to a downward spiral as the government can’t obtain the revenue needed to improve performance.

Touchton, Wampler, and Peixoto find that both forms of participatory institutions — policy councils and participatory budgeting — have a positive and statistically-significant association with collecting more tax revenue. Municipalities with higher-than-average use of policy councils collect 27% more tax revenue than cities without the councils (averaged across different measures of tax collection). The relationship is even stronger with participatory budgeting: “On average, municipalities with PB have tax outcomes that are 34% greater than those without PB… [and] municipalities with PB for over 8 years have tax outcomes that are 39% greater than those without PB.”

Causation? Or Coincidence?

A skeptical reader would wonder exactly how the causation works here. It could be that some unobserved factor improves tax collection practices and simultaneously prompts governments to adopt PB and policy councils — rather than the participatory institutions being the cause of the improvement. To minimize this possibility, the researchers used a statistical technique called matching that pairs up cities that are similar in terms of their local economic and political conditions and in terms of proxy measures for their administrative capacity, but that differ with respect to whether or not they implemented participatory institutions.

In contrast to surveys or lab experiments, a strength of this research design is the ability to show that a link between public participation, good governance, and tax compliance can be observed in the real world. On the other hand, the study’s real-world setting could also mean that the findings only apply to the Brazilian context. To investigate the generalizability of these relationships, Tiago Peixoto teamed up with Fredrik M. Sjoberg, Jonathan Mellon, Johannes Hemker, and Lily L. Tsai for an additional study that performed an online survey experiment involving 65,000 respondents from 50 different countries. It found that across widely disparate contexts, individuals were more likely to report a stronger commitment to tax compliance when they are given an opportunity to voice their preferences about government spending (a simple simulation of taking part in PB).

Of all PB’s positive impacts that researchers have been documenting–including increased public investment in low-income communities, more active civil society, higher voter turnout, improved public health and well-beingimproved tax collection may have the most impact of all, by increasing the total revenue available to address public needs. It can also help buttress the argument that deep, equitable democratic participation is valuable in itself by showing it is also a practical solution to some key problems cities face. As Touchton, Wampler, and Peixoto put it, “Governments that adopt participatory institutions make investments in democratic accountability and legitimacy that pay dividends in tax revenue. In turn, more revenue can increase the capacity to deliver better services, which begets still more legitimacy.”