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Effectiveness of nudges on small business tax compliance behavior

Author

Listed:
  • 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)

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.

Suggested Citation

  • Laura L. Leets & Amber Sprenger & Robert O. Hartman & Nicholas W. Kohn & Juli Simon Thomas & Chrissy T. Vu & Sandi Aguirre & Sanith Wijesinghe, 2020. "Effectiveness of nudges on small business tax compliance behavior," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(2).
    • Handle: RePEc:bpd:articl:v:3:y:2020:i:2:jbpa.32.141
    DOI: 10.30636/jbpa.32.141
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    References listed on IDEAS

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    Cited by:

    1. Diane Pelly & Orla Doyle, 2022. "Nudging in the workplace: increasing participation in employee EDI wellness events," Working Papers 202208, Geary Institute, University College Dublin.

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    More about this item

    Keywords

    Nudges; Tax compliance; Behavioral insights;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • Z00 - Other Special Topics - - General - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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