Nudging – How to encourage people to pay tax.
The Economist recently had an article focusing on how behavioural economics can boost tax compliance. Research from Imperial College London and University of Chicago documents some experiments with interesting results.
The experiment involved 100,000 tax payers with overdue bills. They were split into two groups:
One group was sent a standard request
The other group was split into 3 sub groups and sent a standard request with additional information.
Group 1 was told what share Britons pay their tax on time – approx 90%. This raised payments by approximately 1.3-2.1%
Group 2 was told the same as Group 1 but also informed that those who didn’t pay were in the minority. This raised payments by 5.1%
Group 3 was told that tax is vital for funding services like health, education and infrastructure. This raised payments by approximately 1.3-2.1%
Researchers also calculated that additional writing in the letter wold raise as much as £15.4m. Ultimately the research showed that the more taxpayers were informed about where the tax was being spent the more they were inclined to pay tax.