Abstract
Simplifying complex situations seems to deliver more favorable outcomes in many domains, including Earned-income Tax Credit take-up rate (Bhargava and Manoli 2015), portfolio investments (Carvalho and Silverman 2022), and taxes (Abeler and Jäger 2015). Hoppe et al. (2019) show that tax systems are judged complex by professional tax-advisors in most of the 100 countries they studied, while Blesse et al.(2019) 90% of Germans believe that the tax system needs to be substantially simplified. Recent literature in nudging for tax-compliance context shows that simplification can be even more effective than the deterrence nudge (De Neve et al. 2021; Cahlíková et al. 2021; Dwenger et al. 2016).
Simplification of communication typically includes shortening the text, reducing the information content, creating a coherent structure, replacing complex words with simpler alternatives, and highlighting action-relevant information. This lowers information overload and allows to use of scarce attention resources more efficiently and might directly help to overcome transaction costs of dealing with the situation and increase the salience of the communicated message. It may even motivate recipients to tackle the problem sooner (Dušek, Pardo, and Traxler 2022). However, it is unclear which channels matter more than others, as current literature offers only partial answers. In a TV-fee evasion context, Cahlíková et al. (2021) find that reducing transaction costs of reaction procedure contributes only modestly to overall effects on compliance. Bholat et al.(2019) show that simplifying key messages of the central bank increases the comprehension of the general public, but also the trust and reputation of the central bank. This raises questions about the indirect effects a simplified message can bring.
In this study, we plan to contribute to the literature by being the first to disentangle direct and indirect effects which simplified communication from a tax-collecting authority to taxpayers may bring. The direct effects have been already studied and cover the reduced information frictions and transaction costs of dealing with the situation. The indirect effects cover (i) changes in the social norms associated with the tax payments (Bobek, Hageman, and Kelliher 2013), (ii) changes in the perceived competence of the tax-collecting authority and, therefore, the credibility of enforcement, and (iii) a change in a relationship with the tax-collecting authority in the spirit of procedural justice theory (Tyler 2003), and (iv) increased motivation of taxpayers to deal with the situation.