The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed Using a Natural Field Experiment

46 Pages Posted: 20 Aug 2020

See all articles by Justin Holz

Justin Holz

University of Chicago, Harris School of Public Policy, Students; University of Chicago

John A. List

University of Chicago - Department of Economics

Alejandro Zentner

The University of Texas at Dallas - Naveen Jindal School of Management

Marvin Cardoza

Independent

Joaquin Zentner

Inter-American Development Bank (IDB)

Multiple version iconThere are 2 versions of this paper

Date Written: August 19, 2020

Abstract

This paper uses a natural field experiment to examine the effectiveness of specific nudges on tax compliance amongst firms and the self-employed in the Dominican Republic. In collaboration with the Dominican Republic’s tax authority, we designed messages for more than 28,000 self-employed workers and over 56,000 firms. Leveraging administrative tax data, we find evidence that our nudges (increasing the salience of prison sentences or public disclosure of tax evaders) have large effects on increasing tax compliance, primarily working through the channel of decreasing claimed tax exemptions. Interestingly, we find that firms are more impacted than the self-employed, and that firm size is critically linked to nudge effectiveness: larger firms are considerably more influenced by nudges than smaller firms. We find this latter result noteworthy given the paucity of evidence showing significant behavioral impacts of nudges amongst the largest players in a market. Overall, our messages increased tax revenue by $193 million (roughly 0.23% of the Dominican Republic’s GDP in 2018), with over $100 million constituting income that the government would not have received without our field experimental nudges.

JEL Classification: C93,H2,H26

Suggested Citation

Holz, Justin and Holz, Justin and List, John A. and Zentner, Alejandro and Cardoza, Marvin and Zentner, Joaquin, The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed Using a Natural Field Experiment (August 19, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-113, Available at SSRN: https://ssrn.com/abstract=3677518 or http://dx.doi.org/10.2139/ssrn.3677518

Justin Holz

University of Chicago, Harris School of Public Policy, Students ( email )

Chicago, IL
United States

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

John A. List (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

Alejandro Zentner

The University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Marvin Cardoza

Independent ( email )

Joaquin Zentner

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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