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.
Highlights
Contemporary theories of population-wide behavior change emphasize two major influence pathways or strategies (Barrett, Tugade, & Engle, 2004; Chaiken & Trope, 1999; Evans, 2008; Mukherjee, 2010; Kahneman, 2011; Frederick, 2005; Petty & Cacioppo, 1986)
This study focused on three types of nudges for the redesign of Pennsylvania Department of Revenue (DOR) communications to increase tax compliance among delinquent businesses (n = 3,130) using a randomized field experiment: (1) the use of generic reminder notices, (2) the use of enriched reminders that included simplifying and salience-increasing features, and (3) the addition of handwritten notes to the other nudge enrichments
In line with our hypotheses, we found that reminder letters of any type increased business response rates, though only the two redesigned reminder letters increased the percent of owed taxes paid
Summary
Contemporary theories of population-wide behavior change emphasize two major influence pathways or strategies (Barrett, Tugade, & Engle, 2004; Chaiken & Trope, 1999; Evans, 2008; Mukherjee, 2010; Kahneman, 2011; Frederick, 2005; Petty & Cacioppo, 1986). Reasons for budget shortfalls include slow gross domestic product growth, lower oil and gas prices that decreased profits and employment in the energy sector, and lower consumer spending that translates to fewer sales tax collections In this scenario, even small increases in business tax compliance rates could have substantial impacts on overall revenue capture. Handwritten notes (e.g., “You really need to read this”) substantially increase response rates to survey participation requests, medical treatment follow-up notices, invitations to participate in government conservation programs, as well as marketing solicitations, (e.g., Tullar, Katz, Wright, Fossel, Phillips, Maher, & Losina, 2004; Czap et al, 2019; Amos & Paswan, 2009; James & Li, 1993; Yu & Cooper, 1983; but see Gendall, 2005) This intervention has not yet been applied in the tax compliance domain, the large effect size observed in other domains suggested a manipulation worth testing. The crux of our nudge intervention was to insert a new, reminder delinquency notice at Day 90 and measure the notice impact after a 15-day window
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