The Efficiency of Interactive Voice Response Systems and Tax Compliance: A Field Experiment by the California Franchise Tax Board

Abstract

ABSTRACT To shed light on the influence of interpersonal fairness on tax compliance, the California Franchise Tax Board conducted a field experiment to examine how efficiency of Interactive Voice Response (hereafter, IVR) systems affects tax collection. We find that taxpayers calling the temporary phone line with greater IVR system efficiency (treatment group) pay a significantly larger percentage of their tax deficiencies than the control group during the study period, and this difference is driven by IVR system efficiency. We also find that improving IVR system efficiency increases the likelihood of making payments within the treatment group. Our results support embracing interpersonal fairness principles to encourage tax payments. Our research extends the literature on the service paradigm of tax compliance by providing U.S.-based evidence and has implications for the tax authorities seeking to improve tax compliance efficiency, as tax collection generally becomes more difficult and costly with time. JEL Classifications: H21; H24.