Nudging for prompt tax penalty payment: Evidence from a field experiment in Indonesia

Eko Arief Yogama, Daniel J. Gray and Matthew Rablen

Journal of Economic Behavior & Organization, 2024, vol. 224, issue C, 548-579

Abstract: We conduct a randomised controlled trial in Indonesia to evaluate the effect of three intervention letters on tax penalty compliance behaviour. Over 10,000 individual taxpayers are randomly assigned to receive either a deterrence, information, or simplification letter, or no letter. Our results indicate that simplification, which makes paying a penalty less burdensome administratively by providing billing codes to pay the penalties, yields the highest probability of timely settlement, increasing compliance by 32% compared to the control group. Deterrence also positively impacts penalty compliance, increasing timely settlement rates by 27%. The least effective intervention is the information letter. Although associated with a 10% increase in timely settlement, this effect is statistically insignificant at the 10% confidence level. Our results suggest that strategic messaging by tax authorities in developing countries can be a cost-effective tool for improving tax penalty payment compliance.

Keywords: Tax penalties; Tax compliance; RCT; Simplification; Deterrence; Information; Indonesia (search for similar items in EconPapers)
JEL-codes: C93 D91 H26 Z18 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Nudging for Prompt Tax Penalty Payment: Evidence from a Field Experiment in Indonesia (2023)
Working Paper: Nudging for Prompt Tax Penalty Payment: Evidence from a Field Experiment in Indonesia (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:224:y:2024:i:c:p:548-579

DOI: 10.1016/j.jebo.2024.06.003

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