What Motivates People to Pay Their Taxes? Evidence from Four Experiments on Tax Compliance
71 Pages Posted: 8 Mar 2022
Date Written: February 2, 2022
In this study, we first present a large natural field experiment that tested messages aimed at increasing tax compliance. We find that the main drivers of changes in compliance are messages describing the monitoring and enforcement behavior of the tax collector. A second natural field experiment built on the results of the first experiment to further investigate what kinds of costs resulting from tax collector oversight are salient to taxpayers. Specific time and cognitive incentives did not significantly increase payment rates, whereas stating non-specific costs of inaction did. Additional analyses suggest the increase in compliance is likely due to a 'fill in the blank’ effect in which taxpayers assume the consequence is a fine. Interestingly, specifically stating maximum fine or jailtime consequences have the largest effect in a laboratory setting but only if the consequences are interpreted as realistic. Overall, our study reinforces that tax authorities can use short messages to increase tax compliance; the estimated accelerated revenue from the two field studies amounts to £9.9m.
Keywords: taxation, compliance, behavioral economics, natural field experiment, accounting
JEL Classification: C93, D03, H26
Suggested Citation: Suggested Citation