Effectiveness of nudges on small business tax compliance behavior

Laura L. Leets, Amber Sprenger, Robert O. Hartman, Nicholas W. Kohn, Juli Simon Thomas, Chrissy T. Vu, Sandi Aguirre and Sanith Wijesinghe
Additional contact information
Laura L. Leets: The MITRE Corporation
Amber Sprenger: The MITRE Corporation
Robert O. Hartman: The MITRE Corporation
Nicholas W. Kohn: The MITRE Corporation
Juli Simon Thomas: The MITRE Corporation
Chrissy T. Vu: The MITRE Corporation
Sandi Aguirre: The MITRE Corporation
Sanith Wijesinghe: The MITRE Corporation

Journal of Behavioral Public Administration, 2020, vol. 3, issue 2

Abstract: There has been a surge of basic and applied interest in exploring how small changes in decision contexts might be used to improve heuristic decision-making, “nudging†decision-makers toward choices that increase individual and social utility. The present study tested the impact of three types of nudges on tax compliance among delinquent businesses (n=3,130) in the state of Pennsylvania: (1) sending reminder letters that almost identically matched original tax delinquency notices, (2) sending redesigned reminder letters that simplified text and layout, increased the salience of critical information, and included an “Act Now†urgency statement, and (3) sending redesigned reminder letters with handwritten notes on the envelope. Redesigned reminder letters significantly increased the number of business owners who responded and the amount of delinquency paid within 15 days of receiving the notices. The addition of a handwritten note on the outside of the envelope did not additionally increase response rates or payment amount. Although the effect sizes observed in this study were small, the potential impact is large given the number of delinquent businesses and the average amount of taxes owed in Pennsylvania.

Keywords: Nudges; Tax compliance; Behavioral insights (search for similar items in EconPapers)
JEL-codes: D90 D91 H26 Z00 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bpd:articl:v:3:y:2020:i:2:jbpa.32.141

DOI: 10.30636/jbpa.32.141

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