Eliciting Taxpayer Preferences Increases Tax Compliance
57 Pages Posted: 11 Dec 2013 Last revised: 24 Apr 2014
Date Written: April 24, 2014
Two experiments show that eliciting taxpayer preferences on government spending -- providing taxpayer agency -- increases tax compliance. We first create an income and taxation environment in a laboratory setting to test for compliance with a "lab tax.'' Allowing a treatment group to express non-binding preferences over tax spending priorities leads to a 16% increase in tax compliance. A follow-up online study tests this treatment with a simulation of paying US federal taxes. Allowing taxpayers to signal their preferences on the distribution of government spending results in a 15% reduction in the stated take-up rate of a questionable tax loophole. Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues. With tax noncompliance costing the US government $385 billion annually, providing taxpayer agency could have meaningful economic impact. At the same time, giving taxpayers a voice may act as a two-way "nudge," transforming tax payment from a passive experience to a channel of communication between taxpayers and government.
JEL Classification: D03, H26, H30, H50, I31
Suggested Citation: Suggested Citation