The Limits of Government Outsourcing: Property Tax Re-Assessments in India

Many theories of outsourcing suggest private firms are more efficient at producing goods and services, but contracting frictions may prevent them from internalizing government objectives. This paper studies the efficiency of private versus public provision of property tax assessments in Chennai, India, through a randomized experiment. Inspections conducted by government tax inspectors produced nearly double the increase in tax revenue compared with those done by private firms and showed greater accuracy compared to third-party survey assessments. Difficulties in contracting discouraged competent firms from bidding, while government inspectors had both stronger authority to enter properties and deeper local knowledge. These findings imply that limits to government outsourcing extend beyond simple multitasking issues.