Behavioral Interventions in Tax Compliance: Evidence from Guatemala

40 Pages Posted: 19 Jul 2016

See all articles by Stewart Kettle

Stewart Kettle

University of Bristol

Marco Hernandez

World Bank

Simon Ruda

Cabinet Office (UK) - Behavioural Insights Team

Michael A. Sanderson

University of Oxford - Keble College

Date Written: June 1, 2016

Abstract

This paper presents results from a large (43,387) nationwide randomized controlled trial in Guatemala that used reminders to promote tax compliance. The trial varied the letter received by taxpayers (individuals and firms) who had failed to pay their income tax for the 2013 tax year. Taxpayers were randomly allocated to receive either no letter, the letter originally used by the Guatemalan Tax Authority, or four letter variants adapted using behavioral design. The study finds that although all letters increased the rate of declaration, only two of the letters were successful at increasing the rate of payment and the average amount paid per letter received. The best performing treatments were a deterrent message framing non-declaration as an intentional and deliberate choice, rather than oversight (designed to overcome status quo bias), and a social norms message that referred to the 64.5 percent of taxpayers that had already paid this tax (join the status quo). These two interventions increased the rate of payment as well as the average amount paid conditional on paying, overall more than tripling tax receipts. The paper estimates that if sent to all taxpayers in the sample, in 11 weeks the social norms letter would have generated additional tax revenues of approximately US$760,000, which is 36 times the cost of sending the letters. The effects are persistent and remain at 12 month follow up, suggesting the letters are effective in increasing revenue for the tax authority rather than just bringing tax receipts forward.

Keywords: Macro-Fiscal Policy, Public Sector Administrative and Civil Service Reform, De Facto Governments, Public Sector Administrative & Civil Service Reform, Economic Adjustment and Lending, Democratic Government, Public Sector Economics, Public Finance Decentralization and Poverty Reduction, Economic Policy, Institutions and Governance

Suggested Citation

Kettle, Stewart and Hernandez, Marco and Ruda, Simon and Sanderson, Michael A., Behavioral Interventions in Tax Compliance: Evidence from Guatemala (June 1, 2016). World Bank Policy Research Working Paper No. 7690, Available at SSRN: https://ssrn.com/abstract=2811337

Stewart Kettle (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Marco Hernandez

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Simon Ruda

Cabinet Office (UK) - Behavioural Insights Team ( email )

London, SW1A 2AS
United Kingdom

Michael A. Sanderson

University of Oxford - Keble College ( email )

Mansfield Road
Oxford
United Kingdom

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