Trying to make a good first impression: A natural field experiment to engage new entrants to the tax system

31 Pages Posted: 12 Apr 2021

See all articles by Sarah Xue Dong

Sarah Xue Dong

Australian National University (ANU)

Mathias Sinning

Australian National University (ANU) - Crawford School of Public Policy

Multiple version iconThere are 2 versions of this paper

Date Written: April 6, 2021

Abstract

Very little is known about the compliance behavior of first-time taxpayers although their tax paying habits may affect the long-run functioning of a tax system. This paper studies the compliance behavior of new entrants to the tax system using data from a large-scale natural field experiment that was implemented in collaboration with the Australian Taxation Office (ATO). We examine the effectiveness of a welcome letter from the tax authority that aims to nudge first-time taxpayers to lodge their first income tax return. We compare this letter to a standard letter that emphasizes the possibility of penalties and interest charges.We find that both letters have surprisingly similar effects on tax compliance, suggesting that the main channel through which the letters affect individual behavior is by providing information. By contrast, the type of messaging and the way in which information is presented to first-time taxpayers appear to be relatively unimportant. Our analysis of heterogeneous treatment effects indicates that both letters are most effective for young entrants to the tax system and, within this group, more effective for Australian citizens than for visa holders.

Keywords: tax compliance, natural field experiment, behavioral insights

JEL Classification: C93, H25, H26

Suggested Citation

Dong, Sarah Xue and Sinning, Mathias, Trying to make a good first impression: A natural field experiment to engage new entrants to the tax system (April 6, 2021). Tax and Transfer Policy Institute - working paper 6/2021, Available at SSRN: https://ssrn.com/abstract=3824471 or http://dx.doi.org/10.2139/ssrn.3824471

Sarah Xue Dong

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Mathias Sinning (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

HOME PAGE: http://www.mathiassinning.com

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