The role of enforcement action uncertainty on tax compliance: Evidence from three experiments

61 Pages Posted: 8 Mar 2022 Last revised: 9 Aug 2023

See all articles by Eric Floyd

Eric Floyd

University of California San Diego

Michael Hallsworth

Imperial College London

John A. List

University of Chicago - Department of Economics

Robert D. Metcalfe

Boston University

Kristian Rotaru

Department of Accounting, Monash Business School

Ivo Vlaev

University of Warwick - Warwick Business School

Date Written: February 2, 2022

Abstract

In this study, we first present a large field experiment to investigate the nature of costs resulting from tax collector oversight that are salient to taxpayers. Messages pertaining to specific time and cognitive incentives do not significantly increase payment rates, whereas stating non-specific costs of inaction does. Further analysis suggests the increase in compliance is likely due to rational taxpayers 'filling in the blank’ – an effect in which taxpayers likely assume the consequence is an average-sized fine when subject to uncertain enforcement actions. 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. Moreover, our results may be useful to regulators that cannot commit to punishments ex-ante as our study shows tax messages need not necessarily be detailed and specific.

Keywords: taxation, compliance, accounting, behavioral economics, natural field experiment

JEL Classification: C93, D03, H26

Suggested Citation

Floyd, Eric and Hallsworth, Michael and List, John A. and Metcalfe, Robert D. and Rotaru, Kristian and Vlaev, Ivo, The role of enforcement action uncertainty on tax compliance: Evidence from three experiments (February 2, 2022). Available at SSRN: https://ssrn.com/abstract=4023806 or http://dx.doi.org/10.2139/ssrn.4023806

Eric Floyd

University of California San Diego ( email )

CA
United States

Michael Hallsworth

Imperial College London ( email )

John A. List

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

Robert D. Metcalfe

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Kristian Rotaru (Contact Author)

Department of Accounting, Monash Business School ( email )

900 Dandenong Rd
Caulfield East, Victoria 3145
Australia
+613-990-34567 (Phone)

Ivo Vlaev

University of Warwick - Warwick Business School ( email )

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