Nudges and Threats: Soft vs Hard Incentives for Tax Compliance

Henrik Andersson (), Per Engström, Katarina Nordblom () and Susanna Wanander ()
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Henrik Andersson: Uppsala University
Katarina Nordblom: Department of Economics, School of Business, Economics and Law, Göteborg University, https://economics.gu.se/
Susanna Wanander: The Swedish Tax Agency

No 799, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: We study what induces delinquent taxpayers to pay their taxes due. We use high quality administrative data from the Swedish Tax Agency. We find a strong effect of the standard enforcement regime: a threat of having the debt handed over to the Enforcement Agency increases payments by roughly 10 percentage points. When including actual enforcement, payment increases by around 20 percentage points compared to those who do not risk enforcement. In a field experiment, we compare these effects of standard enforcement to those of much milder nudges, consisting of letters reminding tax delinquents to pay their taxes due. We find that a “pure nudge”, i.e., the inclusion of an extra piece of paper with no valuable information, has an effect of 7-8 percentage points for those who do not risk enforcement upon non-payment. However, the same nudge has no detectable effect for the group at risk of enforcement. Social-norm messages in turn increase payments both for those who risk enforcement and for those who do not, but to a much smaller degree. We also find that a pure nudge works much better for those who receive a physical letter than for those who receive information electronically, while the reaction to the social-norm nudge is significant for those who get the electronic information.

Keywords: tax compliance; RCT; nudge; quasi-experiment; regression discontinuity (search for similar items in EconPapers)
JEL-codes: C21 D03 D91 H24 H26 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2021-02
New Economics Papers: this item is included in nep-cbe, nep-cwa, nep-eur, nep-exp, nep-iue, nep-pbe, nep-pub and nep-soc
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